The Central Intelligence Agency is preparing to cut its presence in Iraq to less than half of wartime levels, according to U.S. officials familiar with the planning, a move that is largely a result of challenges the CIA faces operating in a country that no longer welcomes a major U.S. presence.

Under the plans being considered, the CIA’s presence in Iraq would be reduced to 40% of wartime levels, when Baghdad was the largest CIA station in the world with more than 700 agency personnel, officials said.

The CIA had already begun to pull back in Iraq since the height of the war, officials said. But the drawdown, coming six months after the departure of American military forces, would be significant. The officials declined to provide exact numbers, give a breakdown of levels of analysts versus covert operators or say where agency workers would be redeployed, all of which are classified.

Proponents of the change say the CIA can make better use of its personnel in other areas. Those could include emerging terrorist hot spots such as Yemen, home to the al Qaeda affiliate the U.S. considers to pose the greatest threat to the homeland, and Mali, where an unstable government has fanned concerns.

The move comes amid worries over possible gaps in U.S. intelligence about the threat posed by al Qaeda in Iraq. Administration officials, diplomats and intelligence analysts have in recent weeks debated whether the militant organization is a growing threat after an internal government report pointed to a rise in the number of attacks this year, officials said.

The plan would also reduce the U.S. intelligence presence in the region as neighboring Syria appears to be verging on civil war. Al Qaeda in Iraq is also sending fighters to Syria to battle the Assad regime, Pentagon officials say.

The spy drawdown is part of a broader shift in U.S.-Iraq relations, with Washington moving to scale back diplomatic and training missions in the country. But it illustrates the limits of the Obama administration’s national-security strategy, as it steers away from ground wars and toward smaller operations that combine intelligence and special-operations capabilities.

Such a strategy relies heavily on cooperation from host governments, and as the CIA’s Iraq experience shows, cooperation can wane even where the U.S. has invested billions of dollars and lost thousands of lives.

The Iraqi government, including Iraq’s intelligence service, has scaled back its counterterrorism cooperation with the U.S. as it asserts its sovereignty, U.S. officials say.

“If you don’t have that cooperation, you are probably wasting the resources you are allocating there and not accomplishing much,” said Paul Pillar, a former top CIA Near East analyst.

Backers of the drawdown say al Qaeda in Iraq doesn’t pose a direct threat to the U.S. “This is what success is supposed to be like,” said a senior U.S. official who has worked closely with the Iraqis. “Of course we don’t want to have the same number of people after all U.S. troops go home that we had at the height of the war.”

A senior Obama administration official said the U.S. is in the process of “right-sizing” its presence in Iraq. Both President Barack Obama and Iraqi Prime Minister Nouri al-Maliki have “made very clear that we’re going to continue to have a close and strong security partnership,” this official said.

The planned reductions at the CIA represent a major shift from the approach under consideration just six months ago. Late last year, the CIA and Pentagon were considering several options for CIA and special-operations commandos to team up in Iraq, according to current and former officials. One option was to have special-operations forces operate under covert CIA authority, similar to the arrangement used in the raid that killed Osama bin Laden in Pakistan.

“There was a general consensus,” said a former intelligence official, “that there was a need for this in Iraq.”

But as it became clear that the U.S. would withdraw all troops and that the Iraqi government was less inclined to accept an expansive CIA-special operations role, those plans were tabled. “It’s not going to happen,” said a U.S. official.

Iraq requires CIA officers to make appointments to meet with officials who were previously easily accessible, one of several obstacles that add to a mood of growing distance between the sides. The result is a degraded U.S. awareness about the activities of al Qaeda in Iraq, particularly at a tactical level, officials said.

“Half of our situational awareness is gone,” said one U.S. official.

Iraqi officials said they continue to cooperate with the U.S. on counterterrorism. Hassan Kokaz, deputy head of the Iraqi Ministry of Interior’s intelligence service, said the U.S. may be adjusting to the new “state-to-state” relationship between the countries since the military withdrawal in December.

“We have asked them to wear civilian clothes and not military uniforms and to be searched when they visit Iraqi institutions,” he said. “Perhaps they are not used to this.”

In the northern oil city of Kirkuk, police are pursuing al Qaeda-linked militants without needing U.S. special-operations forces or the CIA, said Gen. Sarhad Qadir, a local police commander.

Another senior Iraqi security official, however, said Iraqis don’t have the necessary surveillance and other technical capabilities. Iraqi forces also are plagued by clashing sectarian and political loyalties, the official added. “We need the Americans because they were able to work with all the [Iraqi] forces without exception,” he said.

The CIA drawdown would recalibrate the agency’s responsibility in the country away from counterterrorism operations and back toward traditional intelligence collection, with a sharpened focus on neighboring Iran, officials say. Baghdad will remain one of the agency’s largest stations, they say; Kabul is currently the largest.

The plan comes with risks, however, because al Qaeda in Iraq still presents a threat to the region.

“A further diplomatic or intelligence drawdown in Iraq could jeopardize U.S. national security down the road if al Qaeda in Iraq is able to sustain—or increase—its activity,” said Seth Jones, a Rand Corp. counterterrorism specialist who has written extensively about al Qaeda. “The concern is that al Qaeda is able to use its Iraq branch to destabilize other countries in the region, and they are able to facilitate the movement of foreign fighters.”

Al Qaeda in Iraq’s activities against the regime of Syrian President Bashar al-Assad also complicates the U.S. government’s ability to support the opposition, Pentagon officials say.

A recent assessment by the National Counterterrorism Center, the U.S. intelligence community’s central clearinghouse for counterterrorism analysis, pointed to an uptick in attacks by al Qaeda’s Iraq affiliate since the U.S. troop withdrawal in December, according to officials briefed on the document’s contents.

During high-level Obama administration discussions last month, some senior counterterrorism officials seized on the NCTC assessment as evidence of a growing threat from al Qaeda in Iraq, touching off a debate about the dangers posed by the group, officials said. A spokesman refused to comment on questions about the report.

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Find this story at 5 june 2012

By SIOBHAN GORMAN And ADAM ENTOUS

—Ali A. Nabhan
contributed to this article.

Write to Siobhan Gorman at siobhan.gorman@wsj.com and Adam Entous at adam.entous@wsj.com

A version of this article appeared June 5, 2012, on page A1 in the U.S. edition of The Wall Street Journal, with the headline: CIA Prepares Iraq Pullback.

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