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JAMES FLANIGAN

Despite Solid Potential, Hussein Steers Iraq on Path of Economic Ruin

October 12, 1994|JAMES FLANIGAN

Saddam Hussein is shooting the Iraqi economy in the foot again. But the United States will feel the pain. And so, ultimately, this confrontation could force a shift in U.S. policy.

By threatening Kuwait with troops, even though he appears to have backed off in the face of a swift U.S. response, the Baghdad dictator has made another disastrous move that will keep Iraq's oil exports bottled up and its economy hobbled by United Nations sanctions for another year or more.

The continued absence from world markets of Iraq's production will keep oil prices roughly $3 a barrel higher than they would otherwise be, which could be good news for Saudi Arabia, Kuwait, Mexico, Venezuela and other oil producers that are close U.S. allies.

But it's not good news for the United States, which will incur greater risk and expense because of a poor and desperate Iraq--in terms of troops stationed in Kuwait and other measures in an unstable Middle East--than if the country were able to realize its vast potential.

Some experts say Saddam is using threat and disruption to get Washington's attention and negotiations, as North Korea, Cuba and Haiti have done. Indeed, this latest confrontation may force a U.S. reassessment of policies toward Iraq.

That's because the problem may not be short-term. Iraq was a bellicose nation long before Saddam Hussein took power in 1971, and it could continue to threaten its neighbors after he's gone if it remains poor and resentful.

Restoring Iraq to a world of growing economies and peaceful pursuits is in the U.S. interest--but it will be no easy matter.

Iraq, with 18 million people, as much as 150 billion barrels of oil--the world's second-largest reserves--and historically abundant agriculture and an educated population, blames U.N. sanctions for its plight today. Its economic output per person, a measure of living standards, has declined to roughly $1,600 annually--comparable to Iran next door--from the lofty levels (for the Middle East) of $3,650 per person in 1990, before the Gulf War.

Yes, sanctions have hurt. Before the war, Iraq exported $18 billion a year in oil and other products. It now exports $1 billion a year, including $400 million of oil shipments through Jordan and Turkey that the United States winks at. Loss of export revenues has curtailed the economy and lack of imports has set off inflationary demands for simple consumer items.

But Iraq has also spurned offers from the United Nations to allow $1.6 billion in oil exports to pay for food and medicines and spurned U.S. offers to unfreeze some Iraqi bank deposits. An angry nationalism got in the way of good sense, as it has for decades, says Patrick Clawson, an economist with the U.S. government's National Defense University.

Saddam Hussein's record is particularly sorry. He turned Iraq, a food exporter for 3,000 years and site of the biblical Garden of Eden, into a food importer, notes Clawson.

He depleted Iraq's treasury with an eight-year war against Iran, then tried to grab Kuwait in 1990 and got flattened.

Even so, the Iraqi economy improved in 1991 and '92 as rebuilding in Baghdad and other cities boosted productivity. Seeing the economy's underlying strength, French and Russian business people have been arranging ventures in Iraq pending the lifting of sanctions and resumption of oil exports.

"Iraq could come back very fast if sanctions were lifted--1 million barrels a day immediately, rising quickly to nearly 3 million," says Albert Anton, a partner in Carl H. Pforzheimer & Co., a U.S. investment firm specializing in petroleum issues. That would mean a quick $15 billion in additional revenues to the country, with more to come as it became a major oil power.

But the military threat to Kuwait has undermined growing sentiment for easing sanctions. Why did Saddam Hussein do it? Yet another miscalculation, say many experts. But Zalmay Khalilzad, a former Defense Department official who is now director of Middle East Studies at Rand Corp., says that "maybe he saw that confrontation gets results, that troublemakers like North Korea and Haiti get negotiations with Washington."

For sure Washington will have to do something different. Hoping for an Iraqi uprising against Saddam Hussein is unrealistic, say most experts. "He has a praetorian guard around him in Baghdad," says one.

Iraq's economy is hurting, but reports of starvation may be propaganda. "Agriculture is actually doing better," says Clawson.

So, after U.S. troops are in place in Kuwait and the cost of keeping them there is mounting, the United States and other countries may turn to devising a new deal for Iraq. Joseph Tovey of Tovey & Co., a U.S. oil investment firm with interests in the Middle East, theorizes that a confederation of states could be set up for the many ethnic and religious populations in Iraq. The country is already divided, with U.S. and U.N. troops protecting a Kurdish state in the north and now contemplating creation of a buffer state in the south.

Still, with vast oil reserves and the Garden of Eden at stake, working out Iraq's future will be a long process. But the payoff for the Middle East of a progressive, peaceful Iraq would be tremendous.

It will be a vast opportunity for U.S. and world business, of course. But also, like the Babylon it was in ancient history, Iraq should be a source of reflection. Here is a land with the potential to be one of the wealthiest and most progressive on Earth. Yet decades of misrule have made it a place of misery and desperation--and a threat to its neighbors and the U.S. military. Indeed, like Haiti and North Korea, Iraq is a wake-up call: It says peace is a full-time job and we have work to do in the world.

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