As we see in Afghanistan, Lebanon, Somalia, etcetera, development is not something you can do effectively in wartime.
To avoid confusion, the policy I suggest is not containment of a regime, but of a civil war. Stop it from spreading and foster stability from the outside. This is a policy we should implement right now. The continuing American presence in Iraq is all the more reason.
When Iraq is stable and regains sovereignty over its natural resources, it will be able to finance its own development with mainly technical assistance from the EU.