Saddam Wins A Round Against Bush Jr. But Tougher Times Are Ahead.

*** Palestinian Moderate Faisal Husseini Dies While On A Visit To Kuwait; For Arafat, This Could Have Some Negative Implications At A Time When His Own Health Is Far From Perfect; The Backstage Power Struggle For Leadership In The Post-Arafat Era Will Intensify

*** Husseini Did Not Get A Warm Welcome In Kuwait, Where MPs Pointed Out That The Palestinian Authority Still Has Not Condemned The Iraqi Occupation

NICOSIA - Reflecting difficulties that the Republican administration of President George W. Bush faces in further isolating Iraq, the US has been forced to back down on plans to impose "smart sanctions" targeting the Baathist leadership in Baghdad. Washington says it is merely postponing the smart sanctions option for a short while, but behind-the-scenes power games by the five permanent Security Council members suggest the idea may not materialise as a UN resolution as planned. For President Saddam Hussein, it is another victory which can be used to maximum effect in an Middle East arena where Arab leaderships look unable to withstand American pressure.

Iraq had indicated earlier on that it would reject the idea of smart sanctions. In Saddam's first clear statement on the issue, on May 21, the Iraqi News Agency (INA) quoted him as telling a cabinet meeting that he would "reject the so-called 'smart sanctions' which are more stupid than the (current) sanctions". He said the sanctions "have failed, but what is the alternative? The alternative... is for the sanctions to be lifted... Although (the sanctions) have hurt Iraq, at the same time it cost America dearly in terms of its international reputation... and it lost its good relations with the Arab people".

APS sources say Iraq's victory at the UN, though most likely a temporary one, will be seen on the Arab street as another example in which defiance got better results than co-operation. The first such example is that of Hizbollah, whose relentless attacks on the Israeli armed forces and their proxies in south Lebanon succeeded in forcing Israel's leaders to order a troop withdrawal in May last year. They add that, in view of the current atmosphere in the Middle East, such examples will seem increasingly attractive.

Postponement of the smart sanctions - planned to come into effect on June 4 after the June 3 expiry of the current 9th phase of the oil-for-aid deal, with the 9th phase extended on May 31 for a month without change - amounts to a personal setback for US Secretary of State Colin Powell. He had made revising the sanctions a high priority when he took office in January. But the measure faced considerable scepticism at the UN, more importantly within the Security Council's permanent membership - especially from Russia, China and to a lesser extent France. Russia and China have rejected the US plan, with Baghdad threatening to halt oil exports and cause oil prices to rise to higher levels (see Oil Market Trends of this week's APS Review).

Russia and China say the issue of smart sanctions cannot not be settled before the next 180-day phase of the oil-for-food programme, starting in the first week July. And in his May 26-27 meetings with Powell, Russian Foreign Minister Igor Ivanov asked for more time for their experts to go through the details of prohibited items proposed under the new embargo regime. For the time being, however, the US is taking the position that the smart sanctions controversy would be resolved soon. Powell has said there is "general agreement" that the crippling sanctions imposed after Iraq invaded Kuwait in 1990 had "lost some of their effectiveness".

The sources say that, while Powell's interpretation is right, the implication is not that the other Security Council members support a revised set of sanctions. Rather Russia, China and France have indicated that they would prefer to see the sanctions suspended. They also point out that the lack of effectiveness is partly due to Washington's own geo-political compulsions, i.e. it cannot afford to alienate its allies in the region - namely Turkey and Jordan - which benefit from discounted Iraqi oil supplies, as well as from a lucrative smuggling trade.

This complicates the situation as Washington cannot credibly pressure Syria on the same issue. Damascus is receiving about 150,000-200,000 b/d of Iraqi crude oil at a heavily discounted price, with Syria said to be making a $9 profit from each barrel, and the payments go straight to Saddam's treasury. Under the oil-for-food programme, money from the oil sold via the UN goes to an UN-controlled escrow account (see News Service No. 10).

The new sanctions regime envisaged by the US, backed by Britain, would keep the escrow account in place and use some of the income to pay Iraq's UN dues. It would also be used to bolster anti-smuggling controls, although these controls are to target Syria as well as Turkey and Jordan. In any case, on May 16, Baghdad had warned its neighbours that it would cut off oil supplies if they supported the smart sanctions plan (see News Service No. 21). They are not likely to do so.

The US Power Struggle: Yet the sources say that the setback faced by Powell will only amount to a temporary victory for Saddam. They note that hardliners in the Bush administration who are engaged in a power struggle with Powell would see this as an opportunity to pursue a more aggressive posture towards Iraq, without having to go through the UN. Defence Secretary Donald Rumsfeld and National Security Advisor Condoleezza Rice would prefer a tougher approach, including a stepped up air offensive against the Takriti elite and more effective military support for the Iraqi opposition.

This may not get the approval of Washington's allies, except for Britain, and will be criticised through much of the Arab World. But it is not likely to deter the Bush administration, especially if the smart sanctions ideas of Powell are unable to make any headway in the UN. Assistance to the Iraqi opposition groups is already being stepped up. According to the sources, the US policy against Saddam could get much tougher simply because there is no option other than force available to Washington in dealing with Iraq at the moment.

Among America's Arab allies, there is a high degree of concern that events may follow such a course. They are well aware that, in such a situation, domestic instability will increase. They are also aware that Saddam is a survivor.

After a decade of the tightest sanctions in history, Saddam remains in control of Baghdad and the Baathist elite is strongly entrenched. More than three years have passed since any attempted coup d'etat against Saddam was exposed. Serious Shiite or Kurdish protests and guerrilla operations against his forces in the south and north, as well as strikes in Baghdad, are on the decline.

On the economic level, the stagnation and slow deterioration of Iraq's economy continues, but there are no serious shortages or signs of famine. The country's infrastructure is slowly being rebuilt. Iraqis in general have begun to learn to live with the sanctions. The Arab allies of the US know that sooner or later they may have to deal with Saddam once again.