America and Iraq: The Economic Background of the Conflict, by Guest Commentator Karl Reiner

When he
launched his brutal invasion of Kuwait on August 2, 1990, Saddam
Hussein shocked the world.  As his forces callously swept over the
small neighboring state, he also deliberately smashed a budding
rapprochement with the United States.  Although Saddam’s
government had been peddling regional stability as an objective, it
viciously repudiated that policy when it went to war. American
intelligence officers were stunned and mortified.  Their analyses of
Hussein’s intentions regarding Kuwait had been wrong.  No one
had seen the invasion coming – not even the Kuwaiti leaders fleeing
in terror toward the Saudi border.            

During the
early 1980s, Iraq’s emissaries to Washington began pushing to
improve relations with the United States.  They said Iraq wanted to
end the war with Iran.  In their newly found desire to promote
regional stability, the Iraqis expressed a willingness to support
whatever agreement the Israelis and Palestinians worked out.  Had the
bitter war with Iran forced Saddam Hussein to alter his policies?  An
emphasis on economic development, the calls for regional peace and
closer cooperation with the United States were taken as signs that
the government of a war-weary Iraq was bending to reality.

More of Karl’s unique first-hand perspective of the history of the Iraq conflict after the click…

 

To
emphasize its policy shift, Iraq restored full diplomatic relations
with the United States.  In November 1984, ambassadors were
exchanged, ending a break of 17 years.  In his conversations with
diplomats and civilian visitors, Hussein Ali, then Iraq’s
Minister of Trade, expressed a strong appreciation of American
technology.  He wanted to encourage greater commercial, technical and
economic cooperation between the two countries.  Ali also expressed a
desire to see a cooperation agreement implemented between the United
States and Iraq.  It would be the hallmark of the new age of improved
relations.

In
Washington, Saddam Hussein’s secular dictatorship was
cautiously viewed as a counterweight to revolutionary Iran in the oil
rich Persian Gulf region.  Although Saddam Hussein had invaded Iran,
Iraq appeared to be the less dangerous of the two.  Iraq was making
an attempt to improve relations.  The United States was providing a
degree of assistance to prevent Iraq from being defeated.

After
haggling over the terms, the bilateral commercial, economic and
technical cooperation agreement was ready to be signed.  Due to the
scheduling arrangements of top U.S. officials, this duty fell upon
Clarence Brown, who was Acting Secretary of Commerce when the Iraqi
delegation visited Washington.  Iraq was represented by its new
Minister of Trade, Dr. Mohammed Mehdi Al-Salih.

Al-Salih
was considered an advocate of economic liberalization and was thought
to be pushing for changes to Iraq’s socialist economic
structure.  The agreement signing took place on August 25, 1987 in a
ceremony held at the U.S. Department of Commerce.  Although it was a
purely symbolic gesture at the time, the agreement was seen as a
possible catalyst for the future expansion of relations.  If Iraq
promoted regional stability and internal economic liberalization, the
agreement could have an impact on the fields of energy, agriculture,
finance, transportation, health and construction engineering. 

A cease
fire in 1988 brought the Iraq-Iran war to a close.  It had been the
longest and bloodiest war in modern Middle East history, lasting
eight years with approximately one million casualties.  The monetary
cost was in excess of $200 billion.  With an end to the fighting,
Iraq was expected to shift its resources to rebuilding neglected
infrastructure and expanding its oil industry.

Things
appeared to be starting well.  The Iraqi government began to relax
controls on the private sector, price controls were removed on some
goods imported or produced by private companies.  State-owned
agricultural lands, poultry and dairy farms began to be leased to
private interests.  The government announced plans to sell its light
industries, construction companies and hotels to private investors.
A ten year tax holiday went into effect for privately held industrial
enterprises. Analysts began to see a slow drift away from the Soviet
type structure which had long been the basis of Iraq’s economy.
 

The
American business community was also taking note of the changes.  In
1985, the United States-Iraq Business Forum was established to
promote the development of commercial relations. Iraq’s
potential was so great that the organization soon had over 50 members
including: Bankers Trust, Caterpillar, General Motors, Mobil Oil,
Pepsi-Cola and Westinghouse.  In the forward to the forum’s
1988 directory, Dr. Al-Anbari, Iraq’s ambassador to Washington,
wrote:  “Now that the Iran-Iraq war is behind us, Iraq is
determined to mobilize and allocate all its resources and wealth to
reconstruct and expand its economy and lay the foundations for the
prosperity and happiness of all our people.”

It was all
believable at the time because Iraq’s oil production was
heading toward three million barrels
per day and petroleum revenues were expected to earn the country
$12-15 billion per year.  Despite Saddam Hussein’s malevolent
dictatorship, Iraq was a nation with acknowledged potential.  The
country possessed the land, water and educated population necessary
to support economic expansion.  With crude oil reserves of 115
billion barrels (third in size after Saudi Arabia and Iran) and ample
supplies of natural gas, Iraq also appeared to have the financial
resources to fund its agricultural and industrial development. These
factors, along with the dangled promise of economic liberalization,
made the future of the country look promising.

Unfortunately,
the potential was never realized.  As a consequence of the war with
Iran, Iraq owed approximately $28 billion to non-Arab creditor
nations and faced a severe short-term debt service problem.  $18
billion in principal and interest payments were coming due over the
next five years. Much to the dismay of the banking community, Iraq
became uncooperative in its financial dealings.  It played one
creditor nation against another, withheld much of its economic data
and refused offers to reschedule its debt over a more manageable time
period.  Iraq’s obstinate behavior in the financial arena soon
cast a pall over the attempts to improve relations.    

It became
apparent that Saddam Hussein had decided to shelve the short-lived
cooperative approach.  Diplomatic discussions on regional issues
dissolved into stalemates that did nothing to resolve problems in the
volatile Middle East.  Intelligence reports on Iraq’s armament,
missile development, chemical and biological weapons programs cast
doubt on Iraq’s intentions.  Saddam Hussein’s government
was not emphasizing the development of peaceful industries.  It was
focusing on rebuilding and improving its military might.

In an
outraged Washington that August, the cooperation agreement went into
the trash can as a government caught unawares furiously reacted.  If
Saddam Hussein’s troops moved into the Saudi Arabian oil
fields, a large part of the oil supplies needed by the industrial
world would be in jeopardy.  The Middle East contains over 57 percent
of the world’s oil reserves.  The risk of having Saddam Hussein
in a position to tamper with a large part of the oil flow could not
be tolerated.  A bitter President Bush (the senior) stated that
Saddam Hussein had double-crossed the United States. 

As a
result of the invasion, a massive U.S. led international military
buildup was soon underway, troops and equipment pouring into the
Saudi desert. The coalition forces being organized to kick the Iraqi
army out of Kuwait included over 400,000 from the United States.
Another 200,000 came from such diverse countries as Saudi Arabia, the
United Kingdom, France, Kuwait, Egypt and Syria.

Operating
under a United Nations mandate authorizing the use all necessary
means to remove Iraqi forces from Kuwait, a massive air campaign was
launched on January 17, 1991. On February 24, the ground forces moved
forward.  By February 28, it was all over. The Iraqis were out of
Kuwait, and a cease-fire was declared. With the victorious coalition
forces rolling forward with little opposition, it would have been
easy to press on to Baghdad and remove Saddam Hussein from power.
The political decision not to do so, in light of later events, can be
said to have been a costly
mistake.

With much
of his military still functioning, Saddam Hussein was able to crush
the Kurdish revolt that broke out in the north and Shia uprising in
the south.  U.S. and U.N. sanctions were imposed on Iraq and no-fly
zones were delineated in the north and south of the country.  The
U.S. took on the role of enforcer.  In that capacity, it would be
spend about $1 billion a year to police the no-fly zones and enforce
sanctions.

Saddam
Hussein refused to agree to terms that would lift the sanctions.
Instead, he and his henchmen devised ways to circumvent the
sanctions’ bite on the ruling class.  In a crafty counter move,
they cynically invited observers from foreign charities into the
country to report on the terrible impact the sanctions were having on
the common people. As his refusal to comply with U.S. and U.N.
demands continued, the country’s infrastructure began to
implode, industries shut down and hospitals ran short of supplies.
As the country slowly decayed, Saddam Hussein maintained his grip on
power, deftly defying attempts to change the situation.

The U.N.
oil-for-food program aimed at easing the suffering of the Iraqi
population was skillfully subverted.  The supposedly closely
monitored program allowed the Iraqi government to sell oil and use
the bulk of the proceeds to buy food, medicine and the other
humanitarian products needed to offset the sanctions’ impact on
the general population.  Saddam’s regime worked the system,
colluding with numerous companies and countries.  It was able to
swindle the program out of nearly $2 billion.

The
stalemate with Saddam Hussein might have continued for a longer
period if had not been for the terrorist attacks on September 11,
2001.  Afterward, the White House began to portray Saddam Hussein as
a sponsor of Osama bin Laden’s Al-Qaida terrorist organization.
  Iraq was also said to be continuing its program of building weapons
of mass destruction.  Although weapons inspectors were unable to find
them, the administration insisted they were there.  Because of the
immediate danger posed by his growing arsenal of nuclear, chemical
and biological weapons, the administration said Saddam Hussein had to
go. 

The
muddled thinking regarding Iraq’s weapons potential also led to
the creation of an invasion plan with too few troops to do the job.
The White House and the office of the Secretary of Defense believed
the Kurds, Sunnis and Shias would joyfully welcome the U.S. forces as
liberators.  Once Saddam Hussein was gone, the various tribal and
religious factions would join together to make Iraq a model of Middle
East democracy. The fact that Iraq’s economy had fallen apart
was not important.  There was no need to plan for the country’s
reconstruction.  Once Saddam Hussein was ousted, American forces
would turn matters over to the grateful Iraqis and   quickly depart
the country.  The administration seemed to believe that the newly
freed Iraqi citizenry would be content to sit without jobs,
electricity or water, relishing the benefits of being free from the
control of the secret police.   

The
planners should have known better, especially Vice President Cheney.
He had been secretary of defense at the time when 600,000 troops were
dispatched to liberate Kuwait from Iraqi occupation.  Kuwait was an
occupied country slightly smaller than New Jersey with a welcoming
population of two million.  As vice president, Cheney blithely
encouraged the plans to send 300,000 troops on a mission to seize and
occupy Iraq.  Iraq was twice the size of Idaho with a population of
27 million, much of it hostile. 

After the
March 2003 invasion’s initial success, most of the
administration’s assumptions went up in smoke.  The Iraqi
factions detested each other; they were virtually incapable of
establishing a working government. With no reconstruction plan, the
economy remained in the doldrums.  Popular resentment rapidly grew as
the powerful United States failed to deliver the expected improvement
in living conditions. The administration’s main reason for the
invasion, the weapons of mass destruction, were not there.  They had
been destroyed after the liberation of Kuwait, quietly canceled. 

Trade
minister Al-Salih proved to be a consummate insider, an intimate of
Saddam Hussein.  He was equally at home preaching Iraq’s
peaceful intentions to American audiences or devising ways to protect
the income sources of the leaders of the regime.  Always willing to
encourage countries to circumvent the detested sanctions, he held his
job until the end.  He was included on the list of Iraq’s most
wanted officials as the invasion neared. Al-Salih is shown as the six
of hearts on the deck of identification cards provided to U.S. troops
during the invasion.  He was captured in April 2003, ending his
devious career.         

Several
officials in the current administration had previously vociferously
criticized President Clinton for overextending U.S. forces around the
world.  Despite their worries about an overstretched military during
the Clinton years, they have duplicated the feat on a bigger and more
expensive scale.  Back in 2002, a White House economic adviser was
denounced for suggesting the Iraq war could cost as much as $200
billion.  To date, the actual cost is closer to $1 trillion and
climbing.

Five years
after what was planned as a short operation, the 172,000 U.S. troops
in Iraq gamely struggle to control insurgents while imposing a degree
of order.  On a positive note, the Iraqi undertaking has provided
jobs for the 120,000 military contractors brought in to fill the void
caused by the failure to commit enough troops.

Although
almost never willing to admit it, a nation tends to get the type of
government its people deserve.  It would be a shame if the result of
our exercise in Iraq turned out to be the emergence of another
dictator a few years hence.  In the meantime, the global war on
terrorism grinds on, not having been helped much by the way we have
done things in Iraq.  If a Democrat wins the presidency in 2008, the
second cycle of passing the Iraq problem from a Republican president
to a Democratic one will be completed.

In 1898,
the battleship Maine exploded and sank while at anchor in the harbor
at Havana, Cuba. An angry United States accused the Spanish of
planting a mine and declared war on Spain.  Even though it is now
believed that the Maine was sunk as a result of a fire in a coal
bunker that ignited an ammunition magazine, the consequences of the
war cannot be undone.

As with
the aftermath of the Spanish-American War, we will be dealing with
the fallout of the Iraq invasion for a long time.  The problem
plagued country that was once part of the Babylonian Empire is not
going to go away.  Since the oil pumped in the Middle East lubricates
the economies of Asia, the United States and Europe, the next
administration is not going to be able to disengage from the region.
Hopefully, it will be able to avoid duplicating the many mistakes as
it deals with the multiple problems it will inherit.

 

 

Karl Reiner is a friend of this site and an active voice for a
fact-based approach to the issue of immigration from Mexico and international trade. This blog
has published a number of previous articles by Karl. Karl managed international trade and economic policy analysis at
the U.S. Department of Commerce in Washington, DC. He served as an
acting deputy assistant secretary of Commerce during the first Bush and Clinton
administrations. A Vietnam veteran, he is a graduate of the Ohio State
University and holds a MS degree from the Garvin School of
International Management. After retiring from government service in
1994, he did consulting and authored a novel, "Sgt. Bellnapp’s Secret", published in 2001, and a collection of historical essays, "Remembering Fairfax County, Virginia," last year.