Prime Minister John Howard has moved to hose down Defence Minister Brendan Nelson's earlier revelation that Australian troops are remaining in Iraq partially because of concerns over global oil supplies.

Speaking this morning, Dr Nelson said oil was among the reasons to keep troops in Iraq.

"Energy security is extremely important to all nations throughout the world, and of course, in protecting and securing Australia's interests," he said.

"The Middle East itself, not only Iraq, but the entire region is an important supplier of energy oil, in particular, to the rest of the world."

But Mr Howard and Treasurer Peter Costello disagree.

Prime Minister John Howard told radio 2GB Iraq is not about oil.

"We are not there because of oil," he said. "We didn't go there because of oil and we don't remain there because of oil."

"We're fighting for something much more important here than oil, this is about democracy," Mr Costello said.

The Greens say it is a damning admission that the war was about oil, not weapons of mass destruction, and the Australian Democrats say after years of denials the Government's conceded that the war was about oil.

Labor has asked why the Government cites oil now, when it has previously denied any link.

Opposition Leader Kevin Rudd earlier accused Mr Howard of "making it up as he goes along" on Iraq.

He says the statement is a clear backflip on what the Howard Government said when the Iraq war started.

"Mr Howard was asked back in 2003 whether this war had anything to do with oil. Mr Howard said in no way did this have anything to do with oil. This government simply makes it up as it goes along," he said.

Global threats

Meanwhile, the new defence update warns that ignoring trouble spots like the Middle East risks bringing threats closer to Australia.

It says terrorism will probably remain a global threat for more than a generation.

It also highlights fragile island states in the South Pacific as a key concern.

Mr Howard launched the report and warned security threats have to be tackled before they reach Australia.

"Our security can be deeply affected by distant events as a result of globalisation," he said.

"However, the range and number of events affecting Australia's strategic circumstances and potentially requiring military responses will continue to grow."