Oil-for-Food Deal Frames Iraqi Crisis

As always in the Middle East, oil is never far from the surface of any crisis.

Clearly, Saddam Hussein's military feint into a United Nations safe area for Kurds was the trigger for this week's showdown between the Iraqi leader and the United States.

But underlying the tumult is a UN-brokered oil-for-food deal that Saddam may have seen as a threat to his own power - and prompted him to act.

Indeed, some Western diplomats say they believe the incursion into the Kurdish enclave in northern Iraq was intended to derail the deal. The UN plan is also partly to blame for the rift among members of the Gulf war alliance, which US Secretary of State Warren Christopher was in Paris yesterday trying to repair.

How the dispute is resolved may shape the future cohesiveness of the coalition, how much the Iraqi people will suffer as a result of Saddam's latest maneuverings, and perhaps influence gas prices around the world.

"The Iraqis never really wanted the deal unless it was on their terms and that's why they chose this moment to seize control of Arbil," says one diplomat at the UN.

World oil prices, which had initially jumped at the outset of the crisis, have begun settling down as the firm US response calms market jitters. But the UN oil deal - designed to provide some relief to millions of Iraqis from economic sanctions imposed after Saddam's 1990 invasion of Kuwait - is unraveling.

Iraq was to have been allowed to export, under tight UN supervision, $2 billion of oil over six months and use the revenues to buy food and medicines. It was days away from being implemented when Saddam sent his army into the town of Arbil in Kurd-dominated northern Iraq.

The addition of 700,000 barrels per day of Iraqi crude into the world market was expected to lower the average price of a barrel by $2, reducing the retail cost of gasoline in the US by about 4 cents per gallon. The postponed deal hurts American consumers. But "the Iraqi people are the main losers," asserts a Western diplomat.

He and other diplomats at the UN say that Saddam timed the incursion into Iraqi Kurdistan to kill the deal, which he had rejected for years and only accepted in May after months of torturous negotiations. The reason, they say, is that Saddam and his minions stood to lose a major source of their power: their control over the distribution of rations to Iraq's 20 million people.

"We were within a week of reporting to the Security Council to set the clock ticking on the arrangement," says another diplomat. "All the ducks were in a row. The question is: Why did Saddam pick this time [for his assault]?"

Answering the question, the diplomat continues: "Sanctions have made Saddam all-powerful. So the hard-liners never really wanted this deal. It was the Iraqi moderates who were pushing it."

IRAQ sits atop the world's second largest oil reserves. But it has been barred from exporting its main revenue earner under the sanctions until it meets a number of conditions, including compensating Kuwait for its 1990 invasion and stopping its nuclear- and chemical-weapons programs. By all accounts, Iraq is now gripped by a humanitarian disaster.

The UN International Children's Education Fund estimates that 4,500 children are dying each month from problems related to malnutrition and shortages of medical supplies. Unemployment is endemic and wages minimal. UN officials say 4 million people require daily handouts, but they can only help half that number.

"We went to donors in March last year and asked for $100 million for our humanitarian program in Iraq. We got 50 percent of that," says Mohamed El Kouhen, a New York-based official of the World Food Program.

The UN had offered a food-for-oil trade for years, but was repeatedly spurned by Iraq. It saw as an infringement of its sovereignty demands by the US and Britain for strict measures to prevent oil revenues from being siphoned into the regime's pockets or used to buy arms.

The deal mandated UN supervision of banking arrangements and oversight of aid distribution, extensive powers for UN monitors, and UN control over the delivery of supplies to Iraqi Kurdistan.

Diplomats say Saddam realized that those guidelines would have impeded his ability to exercise power through the distribution of rations. The assault on Arbil was timed to kill the deal.

"There are 18 million people in south and central Iraq and 2,200 government distribution centers. That's one for every 800 people," says a Western diplomat. "Rations account for one-third to half of a family's basic needs. Without ... subsidized rations, your family is in big trouble."

UN Secretary General Boutros Boutros-Ghali put the deal on hold last weekend. President Clinton then said the US would block it "until we are sure that these humanitarian supplies can get to the people who need them." The dim prospects for the deal's timely resumption, experts say, is one reason for the cracks in the US-led coalition that fought the Gulf war.

France and Turkey, key coalition members, and Russia saw the deal as a major step toward the lifting of sanctions, which would allow Iraq to resume foreign trade. Without such trade, Iraq cannot repay massive debts owed to France and Russia.

Turkey, meanwhile, was Iraq's third-largest trading partner and claims to have lost $26 billion since the sanctions were imposed. It stood to make the bulk of the purchases that Iraq would have made under the food-for-oil deal.