BLITZER: The war in Iraq has reached a milestone. Right now there are less than 100,000 American troops in Iraq. That's the first time the U.S. troop presence has been that low in Iraq since the U.S.- led invasion back in 2003. But could fewer troops spell trouble if violence flares when Iraq votes in a critical upcoming election?

Joining us now is the U.S. ambassador in Iraq, Chris Hill. Mr. Ambassador, welcome back to Washington.

CHRISTOPHER HILL, U.S. AMBASSADOR TO IRAQ: Thank you very much.

BLITZER: You're just here for a few days. Then you're going to back to Baghdad?

HILL: Just for a few days and back to Baghdad.

BLITZER: All right, under 100,000 U.S. troops in Iraq right now. All of the combat troops are supposed to be out by the end of August and then all the other troops -- almost all the other troops with a few trainers and security guards for the U.S. Embassy are supposed to be out by the summer of next year, 2011. Is that schedule working out?

HILL: Well first of all, we reached an agreement with the Iraqi government in December '08, and indeed we reached a schedule that we would be down to 50,000 by the end of August and we'd be down by zero -- to zero by the end of 2012.

BLITZER: So it's working.

HILL: So we are on schedule for that --

BLITZER: And General Odierno, the U.S. military commander, he's on board; he says that the U.S. can do this?

HILL: Absolutely. I mean we work on this every day. There is a lot of transition involved and a lot of things going from military to civilians, military to Iraqis, but we are on schedule.

BLITZER: The Iraqis are supposed to have their elections in the next few weeks in early March. Does the election outcome impact the U.S. troop withdrawal?

HILL: Well certainly we are there now for the elections. We will assist the Iraqis in maintaining a safe and secure environment, and so we work very hard on that day-to-day to make sure these elections come off. It's very important for Iraq's future.

BLITZER: So no matter what happens after the election, if there's violence, the U.S. is getting out?

HILL: Well I don't want to say we're getting out. You know we're looking for a long-term relationship with Iraq. I mean we have the world's biggest embassy there. We're going to be very involved in Iraq for generations to come, so I wouldn't say we're getting out. What we're doing is trying to get combat missions out of there -- you know and combat missions -- and get on with the task of having a normal relationship with a normal country.

BLITZER: The U.S. will have a diplomatic presence, an economic presence, a lot of civilians, but I'm talking about the military will be out of there for all practical purposes?

HILL: Yes, exactly. The military has worked very hard to make sure the Iraqi military can handle things, they are handling things, and yes, we -- it looks like things are on schedule.

BLITZER: Are you confident this election will be free and fair?

HILL: You know they have prepared very hard for this. We've worked very hard with them. We went through the election law, which is tough going. And you know you have to kind of fasten your seat belts in the next few weeks, but we are convinced that it will be a good election. BLITZER: Because you've seen all these reports that the government -- Prime Minister Nouri al-Maliki, they are using the Iraqi military for political purposes to try to score political gains. Is that accurate? Are they doing that?

HILL: You know I wouldn't go that far on this. I mean, obviously, the institutions in the country are not what they should be; they need to be worked on. That's going to take years, but I think overall this system is going in the right direction, and I think they're going to have a positive election.

BLITZER: The government is Shiite-led. Will the Sunnis get a fair shake in these elections?

HILL: Well the Sunnis will certainly be a part of any future government. In fact they're part of the government now, so one of the big questions is which Sunnis are going to be part of it. Is it going to be a more secular-led Sunni? Is it going to be more sectarian-led? So we'll see how that works out. That's going to be up to the Iraqi voters to decide.

BLITZER: I spoke back in October with Tom Ricks. You know Tom Ricks. He's a journalist.

HILL: Sure.

BLITZER: An author -- the author of "The Gamble", "Fiasco". He knows this subject quite well and he was very skeptical about what's happening in Iraq right now. He told me -- he says it's coming apart slowly at the seams and the only thing in Iraq that's changing is American influence is declining. So all of the basic problems that were there before the surge are still there. All of them have led to violence."

CHRISTOPHER HILL, U.S. AMBASSADOR TO IRAQ: There are a lot of problems in this country, these are problems that have taken 1,000 years to build. We're not going to get rid of them in a couple years, but the fact is this country that's increasingly Democratic. If you look how they did the election law a couple weeks ago, they worked through that, made pen and ink changes on the sides of the bills. You can Sunni and Shia politicians working. There's a lot to take hope from. Is it going to be easy? It is not going to be easy. We're at it every single day.

BLITZER: But you're convinced that the end result somewhere down the road in the years to come there will be a stable Democratic Iraq when all the dust settles?

HILL: As Iraqis would say -- [ speaking foreign language ] we certainly hope.

BLITZER: But do you think it will?

HILL: I think there's reason to be hopeful. They have done a lot of oil contracts in recent months. In ten years Iraq could be rivaling Saudi Arabia, so they'll have the means to deal with these things, they'll have to figure out how to use some of these resources, but they have the ability to be as you describe. BLITZER: Are you upset they didn't invite American oil companies to participate in making some money giving the blood and treasure the U.S. put into Iraq?

HILL: First of all, they did invite American companies to participate.

BLITZER: But they didn't give them any contracts.

HILL: Yes, they did. Exxon Mobil got a contract.

BLITZER: But all the big ones went to the Europeans.

HILL: Not true. Exxon Mobil is probably number two behind British petroleum. They have contracts from all over the world.

BLITZER: Should they have given the U.S. companies preferential treatment?

HILL: I would prefer a transparent process to determine who gives the best offer. They did have a transparent process, and a couple big American companies won in that process.

BLITZER: Tom Ricks' argument is also depressing when he sees who the big winner is. I said, if U.S. Influence is declining, if that's the case, is Iranian influence increasing? He said, "I don't know if it can increase any more than it is already. I think the Iranians are the biggest single winners in this war."

HILL: I hate to think of Iranians as winners. Frankly the Iranians made a lot of mistakes and have become one of the most isolated countries in the world, but the question is what countries will be interested in Iraq if there's a perception we're not interested. Certainly the United States should remain interested, because we don't want a situation where the Iranians are able to exert more influence.

BLITZER: Could you see an alliance emerging between the Iraqi Shiites and Iranian Shiites?

HILL: You have to remember during the time of Saddam Hussein he fought an eight-year war that was Shia, so I wouldn't go too far on the notion that --

BLITZER: How much influence does Iran have in Iraq right now?

HILL: Iran is there, they are there economically, but they are also there in rather malevolent terms, helping some of the Shia militia groups, so we have to be very vigilant on this. I can assure you General Odierno and I are.

BLITZER: And the Kurds where do they fit into this whole picture?

HILL: They've had a rough history, too. They will be a part of Iraq, they're very interested in remaining in Iraq, but it has to be a Democratic Iraq, so they're looking very carefully to see if it's an Iraq that will live up to this Democratic constitution.

BLITZER: Chris Hill, the U.S. ambassador in Iraq.