Country Report 2Nd Quarter 1996 © the Economist Intelligence Unit Limited 1996 2 Iraq

COUNTRY REPORT

Iraq

2nd quarter 1996

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Summary

Iraq 2nd quarter 1996

May 3, 1996

Political and economic structures Pages 2-3

Outlook: Unidentified enemies within Saddam Hussein’s own circle will pose more of a threat to him than the exiled opposition, which, despite additional backing from Jordan, will remain badly split. Oil-for-food arrangements will create dilemmas both for Iraq and the USA. Food shortages could bring an outburst of unrest. UNSCOM’s lack of progress means that sanctions will remain in place and the EIU expects no economic recovery before 1997. Pages 4-6

The political scene: National Assembly elections in March had a predictable outcome. The killing of the defector, Hussein Kamel, and his relatives after his homecoming from Jordan has been followed by other reports of “score- settling” by Saddam’s son, Udai, and the isolation of key members of the regime has increased. An opposition group has opened an office in Amman and US fighter planes have been stationed in Jordan. Syria has hosted an opposition congress. Russia is keen to re-establish itself in Iraq. Pages 6-10

Iraqi Kurdistan: Turkey has extended the mandate for Operation Provide Comfort to protect the Kurdish enclave but only until June. The PUK has called for dialogue with the KDP, which has met with the PKK, raising further ques- tions about the PUK-KDP ceasefire agreed in Dublin last year. The USA has tried again to bring Kurdish factions together and distance them from Iran. The enclave is to receive some EU aid. Pages 10-12

Iraq-UN relations: Iraq and the UN started talks about an oil-for-food deal under Resolution 986 in February and were still talking three months later. Arrangements for supplying food to the Kurds has proved a serious sticking- point, with the USA and the UK determined to cede no role at all to Baghdad. Plans for using the oil pipeline through Turkey have been agreed between Baghdad and Ankara. The work of UNSCOM inspectors has been obstructed and long-term curbs on dual-use technology have been approved. Iraq is sus- pected of having used biological weapons against Iran. Pages 12-16

Economic policy and the economy: The dollar has staged a sharp recovery and the authorities have managed to accumulate fresh funds. Further revenue- raising measures have been introduced while some food prices have been cut. Food stocks have fallen precariously low and steps have been taken to boost local production. Iraq has shown its displeasure at the reduction of exports from Jordan. France has discussed future trade, and aid has been provided by the EU and China. Pages 16-19

Statistical appendices Pages 20-21

Editor: Naomi Sakr All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 2 Iraq

Political structure

Official name: Republic of Iraq

Form of state: Arab socialist republic based on provisional constitution of 1968

Legislature: National Assembly of 250 members, elected from 56 constituencies; last elections were held on March 24, 1996

Head of state: president, currently Saddam Hussein, elected by the Revolutionary Command Council (RCC), the highest national authority

Executive: cabinet chosen by the president, who regularly replaces individual ministers

Main political parties: Arab Baath Socialist Party; Democratic Party of Kurdistan; Kurdistan Revolutionary Party. Opposition parties (illegal): Supreme Council for the Islamic Revolution in Iraq (SCIRI), comprising six Shia parties; Iraqi Kurdistan Front (IKF), comprising seven Kurdish parties including the Kurdistan Democratic Party (KDP) and the Patriotic Union of Kurdistan (PUK); Iraqi Communist Party; Democratic Gathering; Iraqi Socialist Party; Independent Nationals

Prime minister & interior minister Saddam Hussein Deputy prime ministers Tariq Aziz Taha Yassin Ramadan Mohammed Hamza al-Zubaidi

Ministers & ministers of state agriculture Abdullah Hamid Mohammed Salih awqaf & religious affairs Abdel-Muneim Ahmad Salih culture & information Abdel-Ghani Abdel-Ghafur defence General Sultan Hashim Ahmed education Abdel-Jabbar Tawfiq Mohammed finance Hikmat Mezban Ibrahim foreign affairs Mohammed Said Kazem al-Sahhaf health Umid Midhat Mubarak higher education & scientific research Himam Abdel-Khaliq Abdel-Ghafur housing & reconstruction Maan Abdullah Sarsam industry & minerals Adnan Abdel-Majid Jasim interior Mohammed Zimam Abdel-Razzaq irrigation Mahamoud Diyab al-Ahmed justice Shabib Lazem al-Malki labour & social affairs Latif Nusayyif Jasim military affairs General Abdel-Jabbar Khalil Shanshal oil Amr Rashid trade Mohammed Mahdi Saleh transport & communications Ahmed Murtada Ahmed Khalil

Central Bank governor Isam Rashid Huwaish Speaker of the National Assembly Saadoun Hammadi

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Economic structure

Latest available figures

Economic indicators 1986 1987 1988 1989a 1990ab GDP at current market prices $ bn 49.42 59.86 57.36 66.19 35.00 Nominal GDP growth % –1.1 20.5 –3.7 15.4 5.0 Consumer price inflationa % 35.0 45.0 40.0 45.0 45.0 Populationa m 16.1 16.3 17.3 18.3 18.3 Exports fobc $ bn 6.97 11.52 11.05 14.60 9.50 Imports cifc $ bn 6.36 5.06 7.15 7.68 5.10 Current accountc $ bn –3.04 2.30 –0.14 2.85 –0.90 Net position with BIS banks $ bn –5.98 –5.81 –6.42 –4.96d –4.32e Total external debtf $ bn 17.00 20.41 20.11 22.78 22.71 Oil productionc m b/d 1.88 2.36 2.74 2.79 3.00 Exchange rate (av) ID:$ 0.311 0.311 0.311 0.311d 0.311d

May 1, 1996 ID720:$1

Origins of gross domestic product 1989 % of total Agriculture 5.1 Oil 61.3 Industry 11.6 Services 22.0 Total 100.0

Principal exports 1989a $ bn Principal imports 1989a $ bn Crude oil 14.5 Civilian 5.0 Total incl others 14.6 Military 2.7 Total 7.7

Main destinations of exports 1990g % of total Main origins of imports 1990g % of total USA 28.5 Germanyh 13.3 Brazil 9.9 USA 10.7 Turkey 9.8 Turkey 9.2 Japan 7.8 France 8.7 Netherlands 7.4 UK 8.4 Spain 4.6 Japan 4.5 France 3.5 Italy 4.5 Italy 3.0 Brazil 3.1 a EIU estimates. b January-June. c OPEC figures. d Actual. e End-1990 actual. f OECD figures. g Period prior to August invasion of Kuwait. h Includes former East Germany from July.

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Outlook

Saddam’s position will Despite recent clashes between his sons and other members of his extended become ever more family, the president, Saddam Hussein, remains capable of holding on to precarious— power in the short term. The murder in February of the president’s two sons-in- law, together with their father, children and others, was portrayed in the official Iraqi media as tribal vengeance, driven by the desire to cleanse the family honour from the stain of the defection to Jordan of the two sons-in-law, Hussein Kamel and Saddam Kamel, in August 1995. Saddam did nothing to prevent the killings and immediately afterwards placed most of the rest of his family under tight security. His preoccupation in coming months will be to safeguard himself and those in his immediate circle, especially his sons, Udai and Qusai, from any threat arising from the February massacre. Inevitably this will mean ever tighter security and a further concentration of executive power, with Udai and Qusai playing an increasingly important part.

—more because of grudges Thus the main potential threat to Saddam will remain the possibility of an within his circle— assassination attempt from someone within his entourage, rather than of a coup by political opposition groups. The main source of internal resistance to the regime will continue to come from the Shia tribes in the southern marshes. Saddam will still rely on Baath party networks in the predominantly Sunni centre of Iraq, while also seeking to legitimise his rule by attempting to fuse personal loyalty to himself with Islamic observance.

—than because of the As always, opposition activity will only be vocal outside the country and, since external opposition— the shift in Jordan’s policy regarding the future of Iraq, such activity will be rather more heavily centred on the Jordanian capital, Amman, in addition to other bases in Syria and the Kurdish enclave in northern Iraq. Yet the prolifer- ation of groups and their conflicting interests will ensure that the opposition remains fragmented, as was demonstrated by the outcome of the recent opposition congress in Damascus which brought important people together but failed to establish any real common ground (see The political scene).

—which is divided by Indeed, the more Iraq’s neighbours—Jordan, Turkey, Iran and Syria—become dependence on outside involved in sponsoring certain elements of the opposition, the more these powers elements seem to become entrenched in their differing views. This is especially the case with the Kurdish groups which, in addition to struggling against the regime of Saddam Hussein, are playing the part of proxies in wider regional struggles, the outcome of which is also of interest to the USA. Meanwhile, King Hussein of Jordan, who has given permission to the secular Iraqi National Accord movement to operate from Amman, will want to see the political framework for a post-Saddam Iraq worked out ahead of Saddam’s demise to avoid the chaos and disintegration which he fears might otherwise ensue and which could have serious repercussions for Jordan as the likely first port of call for Iraqi refugees.

Talks with the UN have Even under Saddam, however, the possibility exists of an outbreak of civil raised expectations— unrest. Expectations were deliberately raised among the population that the oil-for-food talks in New York, which began between Iraq and the UN in

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February and were still not complete by early May, would result in the rebuild- ing of food stocks and alleviate the daily hardship of ordinary Iraqis. It may be that the exchange rate fluctuations early in the year and the replenishing of the Iraqi authorities’ hard-currency reserves will have stiffened the government’s resolve to hold out against the big concessions required for implementation of the oil-for-food deal offered under UN Security Council Resolution 986, especially with this year’s grain harvest just beginning. However, existing food stocks are dangerously low and many Iraqis are thought to have cashed in their hard-currency savings on the understanding that better times were imminent.

—and a breakdown in Such a situation is sufficiently precarious for one incident of unrest to spark a public order remains more major disturbance. Such unrest would not have a clear political target but possible a spontaneous outburst and breakdown in public order, although it would be met in the first instance by brutal repression, could nevertheless carry the seeds of Saddam’s overthrow by someone inside the regime.

Baghdad and Ankara will The signing of the oil pipeline deal between Iraq and Turkey may signal a greater pursue shared interests degree of bilateral cooperation on other fronts in future. Trade between Iraq and Turkey is increasing while that between Iraq and Jordan is decreasing and members of the Turkish parliament are expressing increasing concern about the way the Kurdish Workers’ Party is using northern Iraq as a refuge from which to launch raids into Turkish territory. A coincidence of interests between Ankara and Baghdad could lead to some form of joint action on the Kurdish issue, even though Turkey will come under heavy pressure from its NATO and European Union (EU) allies not to assist Saddam Hussein openly in any way.

The sanctions regime will Whatever the outcome of the oil-for-food talks at the UN in New York—and remain in place— the EIU expects these to be inconclusive for some months yet—comprehensive UN sanctions against Iraq will remain in force for at least another 18 months and probably longer, as the work of the UN Special Commission charged with eradicating Iraq’s weapons of mass destruction is very far from complete. In these circumstances, implementation of Resolution 986 could mark not the “beginning of the end of the sanctions” but what has been described as the “beginning of the eternity of sanctions”, in the sense that the controls put in place under the terms of the resolution would not easily be overturned. The regime in Baghdad is acutely aware of this and consequently reluctant to acquiesce to such controls.

—as the USA will block At the same time, however, it is not clear quite how many concessions the anything that helps regime is required to make. The US president, Bill Clinton, faces the possibility Saddam— of further setbacks to the fragile Middle East peace negotiations and, with the US presidential election approaching, he will not want to be seen easing the plight of Saddam Hussein. The problem with the oil-for-food talks is that their success- ful conclusion, even with all the conditions attached to the distribution of supplies, could help to prop up Saddam’s regime. For this reason, the USA is insisting on reinforcing UN control over every aspect of any arrangement, in such a way that makes Iraqi acquiescence extremely unlikely. Thus the level of oil output associated with acceptance of Resolution 986, 600,000-700,000 barrels/day (b/d), which would raise Iraq’s total production to an annual average of

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1.14m b/d, is not likely to be achieved on a sustained basis until 1997. Even then there is little likelihood of Iraq gaining access to any oil export outlet other than the one through Turkey, which will effectively limit its output to volume permitted to use that route plus current production of around 550,000 b/d.

—but oil sales are essential Without re-entry to the oil market, economic recovery is impossible. In the for economic growth meantime, the government is taking further steps to cut spending by halting “unnecessary” projects and boost revenue by offering excess assets for sale at below market prices. Oil sales, which we expect to resume during 1997, will result in rapid GDP growth. However, this growth will be from a very low base and it will take Iraq a long time to rehabilitate the economy as the sanctions regime is not expected to be lifted for some time after limited oil sales resume. In the medium term, Iraq’s economic development will be hampered by its mas- sive accumulated external debt, which is expected to exceed $100bn next year.

Review

The political scene

National Assembly On March 24, 689 candidates, 160 of them from the ruling Arab Baath Socialist elections produce a Party and the remainder described as “independents”, competed for 220 seats predictable result in the 250-member National Assembly. Thirty seats were not contested because the three Kurdish governorates of Suleimaniya, Irbil and Dohuk were excluded from the process. By law, all candidates in the elections have to adopt the principles of the ruling Baath party and were screened before the elections for proof of their loyalty to the government. Every one of the 160 Baathists won a seat, leaving 60 to be held by the “loyal” opposition. In fact, the composition of the assembly will make little difference, since its only function is to rubber- stamp the decisions of the ruling Revolutionary Command Council (RCC). State-run television put the turn-out of voters at 93.5%, while opposition groups denounced the so-called move towards democracy as a farce.

The defectors return from The two sons-in-law of the president, Saddam Hussein, Hussein Kamel and Jordan— Saddam Kamel, who defected with their wives to Jordan in August 1995, returned to Baghdad on February 20 after six months in political asylum. For- merly a minister of industry and head of Iraq’s military procurement programme, Hussein Kamel was extensively debriefed by US and other intelligence agencies while in Jordan, but, despite calling for the overthrow of Saddam Hussein, he was shunned by the Iraqi opposition for his active involvement in atrocities committed by the Baghdad regime after the 1991 Gulf war.

—to face a welcoming After Hussein Kamel’s defection, the regime in Baghdad condemned him as a committee— traitor and accused him of stealing millions of dollars from state coffers. This did not, apparently, deter him from writing to Saddam requesting permission to return. He said he was prepared to be held accountable for his actions and wanted to return to defend the country against a US-led conspiracy. His request

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granted, Hussein Kamel and his brother crossed the border back into Iraq at the end of the month of Ramadan to an official welcome, whereupon the Iraqi media announced that the president had pardoned his two sons-in-law. The return served as a huge propaganda boost to Saddam Hussein, who after the defections was perceived to be losing his grip on power, and the end of an embarrassing personal situation for the president.

—whereupon they are However, almost immediately after their return the two brothers were sepa- summarily divorced from rated from their wives, who were put under the protection of Udai, the pres- their wives— ident’s eldest son. It was announced that the two men were being divorced by their wives because they had “soiled the name and honour of the family”.

—and slaughtered as On February 23 a group headed by Udai Hussein, and made up of other mem- traitors to the regime bers of the Al-Majid clan, stormed the house in which the returnees were staying. They killed Hussein Kamel, his two brothers, their father, Kamel Hassan al-Majid, and the children of the Iraqi president’s sons-in-law. Udai is reported as having said that he no longer recognised them as the president’s small grandchildren, so he killed them for fear of their revenge when they subsequently learned the story of their family’s annihilation.

Al-Majid property is It appears from information passed to Iraqi opposition organisations outside confiscated— the country that the campaign against the Majid clan has since continued. All property belonging to the murdered Kamel Hassan al-Majid and his sons and daughters has been confiscated, as has the property of tens of people connected with the family. Hundreds of officers and military men who were linked to Hussein Kamel have been forced to resign.

The campaign against the clan demonstrated once again that, in attempting to silence all potential sources of opposition, the regime is simply building up new ones. It is reported, for example, that Udai has ordered the arrest of Ziad Aziz, the son of the deputy prime minister Tariq Aziz, to whom Udai has been hostile in the past. It appears that Udai had Ziad imprisoned after circulating reports that he was exploiting his father’s political influence for the benefit of personal business ventures. Members of Tariq Aziz’s protection force have also been imprisoned on the pretext that they exploited their status to smuggle food and goods across the border.

—and more fighting takes The killing of Hussein Kamel and his family has been followed by more armed place among clans struggles in Baghdad and in the Ajwa region of Tikrit, the birthplace of both the president and his murdered sons-in-law. The fighting, between members of their respective clans, has left many people both sides killed or wounded and resulted in the road from Baghdad to Tikrit being closed to traffic. News has also emerged of armed clashes in the Radwaniyah district near the presidential palace in Baghdad, and in Kirkuk, while heavy military equipment has been observed en route for the holy cities of Kerbala and Najaf and the air bases of Al-Hurriya and Kirkuk have been emptied of all helicopters and their pilots detained. The helicopters have been moved to Al-Siddiq airport in Tikrit. The regime, concerned that a high-profile military presence will reveal the extent to which the internal security situation is deteriorating, is said to have instructed armed forces personnel not to appear in the streets in military uniform.

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Rifts in Saddam’s Saddam Hussein has attempted personally to control developments within his extended family have extended family in the wake of the elimination of Hussein and Saddam Kamel worsened— and their immediate relatives in order to stifle rumours and stabilise the wider family structure. A family meeting planned for Tikrit in late February was cancelled because of a boycott by certain influential members of the Maslat, Nada and Bu Amr families. All three families are related to the Majid clan, but not directly to Saddam Hussein. Saddam’s half-brother, the former interior minister, Wathban Ibrahim al-Hassan, refused to attend any meeting alongside the president’s son, Udai, who had shot him in the foot in August 1995 (4th quarter 1995, page 9). Saadawi Ibrahim al-Hassan, the president’s other half-brother, also boycotted the meeting in protest at his removal from the post of director of public security last September. The boycott is believed to reflect fear among family members that they will be dragged into a bloody conflict in which they too will become victims.

—leaving him more For the outside world, and especially some Arab countries which had reserved isolated judgment on the Baghdad regime, the brutal killing of Saddam’s sons-in-law, uncle, cousins and grandchildren after the family had been promised a safe return makes voicing support for the regime virtually impossible. The power vacuum created by the Iraqi president’s alienation of so many people in his immediate entourage and further field could allow opposition factions an op- portunity to develop into a more formidable force.

Another general defects— The regime is still proving vulnerable to high-level defections. The defection to Jordan of Staff-Lieutenant General Nizar Khazraji, formerly chief-of-staff of the Iraqi army, was reported on March 20. He was commander of the Seventh Division of the Iraqi army, based in Suleimayah, during the Iran-Iraq war. By 1990, when Iraq invaded Kuwait, he had become chief-of-staff and remained in that office until the end of the Gulf war in 1991. The defection has also been reported of Brigadier-General Najib Mustafa Mahdi al-Salihi, chief of the First Mechanised Division, who arrived in Iraqi Kurdistan in late November and has remained there ever since.

—and two officials are Saddam has made further changes to government personnel. Brigadier-General dismissed Ibrahim al-Nasei, head of the department for counter-espionage and external operations in the intelligence organisation, has been promoted to head the intelligence service. The minister of culture and information, Hamid Youssef Hammadi, has also been dismissed; he had reportedly had a disagreement with Udai Hussein.

Opposition groups look to Since Jordanian policy towards Iraq shifted in the wake of the August 1995 Amman as a base— defections, Iraqi opposition groups have gained an ally in their struggle to bring down the Baghdad regime. Iyad Alawi’s Iraqi National Accord (INA) movement has been given permission by the Jordanian government to operate from Am- man and it opened an office there at the end of March. The INA, which obtains funds from Arab Gulf states and sources in Europe, will keep its key presence in the Kurdish autonomous region of northern Iraq and also has offices in the UK, Syria and Yemen. It is linked to the London-based Iraqi National Congress (INC), the umbrella organisation of 30 parties, and is associated with military

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defectors who have recently settled in Jordan, such as Lieutenant-General Nizar Khazraji and Major-General Wafiq al-Samarrai.

The leader of the INC, Ahmed Chalabi, has also asked for permission to set up a representative office in the Jordanian capital. Overall, however, the Iraqi opposition remains fragmented, with different groups reflecting the conflicting priorities of competing countries and foreign intelligence agencies, and is not yet in a position to achieve its ultimate goal of removing Saddam Hussein.

—and US fighter planes The Jordanian government has responded to comments on its recent tough are stationed in Jordan— statements on Iraq by saying that it was not involved in any plot to topple the president. Over a period of several months, King Hussein has called for political change in Iraq, during which time Jordanian relations with Kuwait and Saudi Arabia, severely strained during the 1991 Gulf war, have improved. But the government in Amman has stressed that Jordan will not allow its territory to be used to launch attacks against Iraq. This statement came as US fighter planes were stationed in Jordan in order to cover the Gulf after the US aircraft carrier, the USS Nimitz, was hurriedly moved to the scene of the China-Taiwan conflict. The 34 jets stationed at the Martyr Muwafaq Salti air force base in Azraq, 100 km (60 miles) north-east of Amman, will use the air base for flights over southern Iraq to enforce the southern “no-fly” zone. Iraq has been keeping silent on King Hussein’s campaign but has good reason for caution as the border with Jordan remains the only secure route in and out of a country that has bad relations with most of its neighbours.

—while Syria hosts an A congress of opposition groups—Islamic, Kurdish and nationalist—took place opposition congress in Damascus in early April, after Wafiq al-Samarrai, together with Mishaan al-Jubouri, the leader of the Hizb al-Watan (Homeland Party), had met the Syrian vice-president, Abdel-Halim Khaddam, for the first time since Major- General Samarrai had left Iraq at the end of 1994. The Hizb al-Watan was formed through the merger of three small groups of army officers and Baathists (1st quarter 1996, page 11). The congress may have created as many problems among the fragmented Iraqi opposition groups as it solved, as it exposed important differences regarding UN sanctions on Iraq and over the desire of some groups to reorganise a post-Saddam Iraq on confederal lines. However, the presence at the event of the chairman of the Supreme Council for the Islamic Revolution in Iraq (SCIRI), Mohammed Baqer al-Hakim, and the leader of the Patriotic Union of Kurdistan (PUK), Jalal Talabani, gave it some significance, as did the agreement to reconvene at an unspecified date.

Iraq calls on Iran to be Iraq has again called on Iran to stop hesitating and manoeuvring and adopt an more objective— “objective and serious approach” to developing good neighbourly relations based on mutual respect for sovereignty, non-interference in internal affairs and observance of the legitimate rights of the two parties. The government in Baghdad is particularly incensed at growing Iranian support for certain Kurdish political groups (see Iraqi Kurdistan) and also claims that Iran is still holding more than 20,000 Iraqi prisoners-of-war (POWs) from the 1980-88 Iran-Iraq war, whereas it released all Iranian POWs in 1990. In response, the Iranian regime has claimed that Iraq has failed to account for thousands of Iranians missing in action during the war.

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—and discusses water An Iraqi delegation met Syrian officials in February to discuss what measures issues with Syria they would take if Turkey continues to implement its projects on the Euphrates river such as the Birecik and Carchemish dams. One measure proposed is to ensure that no Iraqi or Syrian contracts are awarded to the French, British, Italian, Austrian and Belgian companies involved in the construction of these dams. Iraq has also spoken of litigation against companies carrying out projects without obtaining permission from the other countries which rely on the Euphrates.

Cooperation agreements Iraq and Russia have discussed cooperation in industry, science, technology are signed with Russia and trade and have signed an agreement whereby Russia will carry out several and other states major oilfield development and power generation projects. The two sides will exchange personnel who can provide training in oil and gas technology, including conservation of the environment in oil areas.

A separate agreement has been signed with India, with a view to enlisting Indian help in the upgrading of the Baghdad-Basra and Baghdad-Samawa railway lines in southern Iraq and supplying spare parts. It is not clear when the work might start or how it would be paid for. An economic, scientific and technical accord was reached with Indonesia and signed in Jakarta on January 25 and another, providing for cooperation in culture and the media, was signed with Sudan on March 11.

The WHO reports on The World Health Organisation (WHO), in a survey of the effects of sanctions malnutrition on Iraqi health, has reported that diseases such as malaria, typhoid and cholera which were under control in Iraq before the 1991 Gulf war have returned to near-epidemic levels. According to WHO calculations, Iraqi food imports of around $2bn per year before the war meant that calorie availability was 120% of actual daily requirements. Now food is strictly rationed, with the “food basket” providing only 34% of pre-war calorie levels. The report goes on to say that the monthly ration of 1.8 kg of “baby-milk food” provides about half of food energy and protein needs and is the basis of an alarming rate of protein- energy malnutrition in infants and young children in Iraq.

Iraqi Kurdistan

Operation Provide Turkey and NATO forces agreed in mid-February to continue Operation Pro- Comfort is extended vide Comfort, under which US, UK and French aircraft stationed in Turkey again— protect Iraqi Kurds in northern Iraq by enforcing a “no-fly” zone north of the 36th parallel. However, Turkey has proposed changes to the operation to the USA, which runs it. The Turkish parliament renews the Provide Comfort forces’ mandate every six months, but there has been growing agitation by MPs who say the protection afforded to Kurdish guerrillas based in northern Iraq allows them to carry out attacks on Turkey. The rebel Kurdistan Workers’ Party (PKK), seeking secession in south-east Turkey, has often launched attacks on Turkish targets from bases in northern Iraq.

—but may not last beyond Operation Provide Comfort—increasingly controversial inside Turkey, increas- June ingly forgotten outside—was grudgingly extended by Turkish MPs until June

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after the Turkish prime minister, Mesut Yilmaz, promised it would not continue past that date in its present form. One alternative would be for the international forces to operate from Cyprus, which has agreed to consider the use of the RAF Akrotiri base in Nicosia for this purpose. But the Ankara representative of the Kurdish Democratic Party (KDP), Safeen Dizayee, predicts that the demise of Operation Provide Comfort will result in a repeat of the exodus of 2 million Kurds out of Iraq which led to the operation’s inception five years ago.

The PUK calls for dialogue The secretary-general of the Patriotic Union of Kurdistan (PUK), Jalal Talabani, with the KDP— has repeated that the PUK is ready to hold a direct dialogue with the KDP with the aim of establishing a lasting peace in Kurdistan. However, speaking in Irbil in February, he complained that the KDP controlled around 70% of revenue in the region and was not spending the money equitably. He called on the KDP to accept any of the previously submitted peace initiatives and stated that the PUK is prepared to hold new parliamentary elections after the end of the current session of the Kurdish assembly in May. The PUK released a statement in February setting out its willingness to engage in direct or indirect dialogue with the KDP and giving the KDP leader, Masoud Barzani, a choice between the positions of speaker of the new Kurdish assembly or prime minister of the government in the Kurdish enclave. The statement stressed that the struggle against dictatorship was one of the PUK’s primary objectives and that it saw the regulation of customs revenue as a means of promoting the Kurdish economy.

—while KDP and PKK Hitherto, the KDP’s income from customs duties on traffic entering the Kurdish leaders meet— enclave from Turkey has helped to align it with Turkey against the PKK, with which it has had fierce clashes. This, and the KDP’s refusal to share the customs revenue with the PUK, has had the effect of pushing the PKK and PUK closer to Syria and Iran. But recent weeks have seen some signs of a possible rapproche- ment between the KDP and PKK, which Kurdish television has described as the launch of an “historic process in terms of Kurdish national unity”. The PKK leader, Abdullah Ocalan, received a KDP delegation in February and reportedly agreed with its members to settle all future PKK-KDP disagreements by negoti- ation and to hold further meetings soon. This development has angered the Turkish government, since it is not conducive to Turkey’s military action against PKK bases over the border in Iraqi Kurdistan.

—causing the PUK to The PKK has long been concerned that agreement between the KDP and PUK question the Dublin could force it to close its bases in northern Iraq, while the issue of PKK activities protocol— in Turkey has for some time been an obstacle in the way of a KDP-PUK rap- prochement. The inability of the KDP and PUK to agree on a joint approach to the PKK was apparent after the two sides met in Dublin in September 1995 and agreed to a ceasefire (4th quarter 1995, page 13). News of better relations between the KDP and PKK prompted a member of the central committee of the PUK, Mele Bahtiyar, to warn that his group would counter a Turkish attack in Iraqi Kurdistan. Commenting on the Dublin protocol, Mr Bahtiyar remarked that its provisions on protecting the borders of the Turkish state and adopting a stand against the PKK remained highly problematic.

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 12 Iraq

—which the USA still The US State Department has meanwhile embarked on another round of efforts wants implemented to bring the warring Kurdish factions together, using shuttle diplomacy spear- headed by the State Department’s head of northern Gulf affairs, Robert Deutsch. Mr Deutsch’s first priority is to get the Dublin agreement implemented, starting with the demilitarisation of Irbil, which is currently held by PUK forces. The other urgent issue is reallocation of the crucial customs duties on trade (mostly of oil products) out of Iraq into Turkey. However, Turkish government backing is essential for any Kurdish peace plan to work, which is why the US team was expected to stop in Ankara as well as northern Iraq.

US involvement in bringing the KDP and PUK closer together is prompted in part by a desire to counter growing Iranian influence over the PUK. Kurdish contacts with Iran have continued over the quarter under review, with an invitation extended to Kurdish groups to visit Tehran in February to take part in celebrations marking the anniversary of the Islamic revolution in Iran.

The Iraqi army attacks The Baghdad regime has continued its attacks on the Kurdish population, Kurdish villages using heavy artillery against the villages of Jafan, Guran and Jabali in the vicinity of Kirkuk, damaging homes and killing livestock. The Iraqi army’s Seventh Division, supported by tanks and armoured vehicles, reportedly also attacked the villages of Sheikh Shirwan and Ulaymat, south-west of Irbil.

The Kurds are to receive The European Union (EU) is to provide Ecu3m ($3.4m) towards infrastructural European aid and rehabilitation projects in the Kurdish enclave, which will be co-financed with non-governmental organisations working in the area. Hopes of other sums reaching the area were also raised between February and April by three rounds of talks that took place between representatives of Iraq and the UN over implementation of UN Security Council Resolution 986 (see Iraq-UN relations). Under the resolution, the Baghdad government would be obliged to spend some $130m-150m of oil revenue in the three northern Kurdish governorates. However, the Kurdish prime minister, Kosrat Rasoul Ali, prime minister of Iraqi Kurdistan, wrote to the UN secretary-general warning him that the regime in Baghdad could not be trusted to distribute food bought with oil revenue in Kurdistan. While Resolution 986 has not been implemented, the Iraqi authorities have reportedly been preventing fuel and food from reaching the Kurdish enclave.

Iraq-UN relations

Baghdad has second After months of intensive diplomatic contacts between the UN secretary-general, thoughts on Resolution Boutros Boutros-Ghali, and Iraqi officials, the UN Security Council agreed on 986— January 18 that Mr Boutros-Ghali should call on Iraq to start a new round of talks on humanitarian oil sales. Iraq agreed to discuss the implementation of Security Council Resolution 986, which allows limited oil exports on certain conditions, but continued to object to the resolution, which has been on offer since April 1995. Iraq’s position at the start of 1996 was that the terms of an oil-for-food agreement could be discussed without explicit reference to Resolution 986 which, in Iraq’s view, undermines Iraqi sovereignty by making certain stipulations with regard to the distribution of humanitarian supplies to the Kurds and the amount of oil to be exported northwards by pipeline through Turkey.

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 Iraq 13

—which would allow To Iraq’s benefit, the resolution allows it to export $1bn worth of oil every three re-entry to the oil months, at normal market prices; in Iraq’s case, this would be equal to about market— 600,000-700,000 barrels/day (b/d). After 90 days, the secretary-general can seek to increase the financial ceiling, depending on his assessment of the humanitarian situation in the country and whether or not the supplies have been distributed equitably among the population. After 180 days, the arrangement can be renewed. The resolution allows Iraq to import equipment to repair its section of the pipeline to Turkey, with financing through letters of credit on future oil sales. The UN Sanctions Committee would need to approve the oil contracts signed with Iraq to make sure that the prices are at “fair market value”, with the funds paid into a UN escrow account under the supervision of the secretary- general so that war compensation payments and UN expenses can be deducted.

—but the obstacles are By late April there had been three rounds of talks between Iraq and the UN multiplying— which, according to some of those closely involved, could have produced a final agreement had it not been for last-minute changes insisted upon by the USA and the UK. The third round broke up on April 22, with agreement to reconvene on May 6 on the UN secretary-general’s return from South Africa. But on April 24 it emerged that nearly half the paragraphs of technical details in the draft Memorandum of Understanding worked out between UN and Iraqi negotiators had been changed by the only UN Security Council members to whom it had been shown—the USA and the UK. These changes would clearly test Iraqi flexi- bility to the limit. Iraq’s chief negotiator, Abdel-Amir al-Anbari had already said when the third round of talks started on April 8 that he was having to deal with numerous changes made to the draft since the end of round two but that he was determined to stay in New York until an agreement was reached.

—with supplies to the The changes made at that stage included denial of any role for Iraqi ministries Kurds a key sticking-point and the Iraqi Red Crescent in the delivery of supplies to the three Kurdish governorates in the north. The UN team had believed that, by ensuring that the Iraqi authorities’ involvement stopped short at the borders of the Kurdish enclave, they had met the necessary requirements. But the US and the British envoys insisted on deleting any reference to a role for Baghdad in supplying the Kurds. Their insistence was repeated at the end of the third round, with the stipulation that the UN Inter-Agency Humanitarian Program take sole charge of procuring, distributing and monitoring supplies for the Kurdish governorates, transporting them across Iraq by its own means. Other changes introduced in late April related to the escrow account which will hold oil revenue and the provisions for communication between suppliers of, and customers for, Iraqi oil. These changes served to confirm that the talks had now reached an all-or-nothing stage, with Iraq obliged to give in on all points or abandon the negotiations altogether. Mr Anbari had himself previously warned that the talks would be prolonged by the fact that there could be no accord at all until agreement had been reached on everything. Iraq’s deputy prime minister, Tariq Aziz, had been expected to travel to New York to finalise an agreement and this absence from the talks reinforced the message that they were still mired in technical detail. Moreover, Mr Aziz hinted to French journalists in April that a fourth round of talks might be necessary and the start of the fourth round was subsequently scheduled for May 6.

EIU Country Report 2nd quarter 1996 © The Economist Intelligence Unit Limited 1996 14 Iraq

Preparations are made for While its talks with the UN were in progress, Iraq prepared the way for a sending oil through resumption of oil exports by reaching agreement with Turkey on the twin oil Turkey— pipelines that run from Kirkuk in northern Iraq to Ceyhan and Yurmurtalik in Turkey. A protocol on use of the pipelines was signed in Ankara on March 8 by Turkey’s energy minister, Husnu Dogan, and the Iraqi oil minister, Amir Rashid. Mr Dogan said at the signing ceremony that his country had incurred annual losses of $350m because of the pipeline’s closure. The 40-inch line linking the Kirkuk oilfields to Ceyhan on the Mediterranean will go on stream within days of an agreement being reached with the UN. The second, 46-inch line to the Mediterranean port of Yurmurtalik will be operational about two months later. Iraqi technicians have reportedly already carried out some repair and mainten- ance work on the pipelines, 16 km of which runs through Kurdish territory. The Kirkuk-Ceyhan pipeline which runs for 920 km, of which 720 km (450 miles) passes through Turkish territory, had a capacity of 1.1m b/d in 1989 after pumping stations were added. The second line, laid parallel to the first, extends for 1,049 km (655 miles) to terminals at the Turkish Mediterranean port of Yurmurtalik. The two sides have agreed on a transport tariff rate equivalent to $0.73/barrel, the rate in effect before Iraq invaded Kuwait in August 1990.

—but UN sanctions may Despite the agreement with Turkey, and despite confident assertions by Iraqi have affected oil officials that Iraq can easily boost its oil production by 750,000 b/d with imme- installations diate effect, doubts have been expressed on this score by oil traders aware of Iraq’s lack of oil production equipment after five and a half years of UN sanctions. Water injection, for example, which may be needed to enhance recovery rates if production is suddenly stepped up from the current 550,000 b/d to the country’s stated capacity of 2.6m b/d, may be impeded by a lack of chemicals required to treat the water. While those who have witnessed Iraqi ingenuity in repairing oil installations are impressed, the fact remains that wells, pumps, gathering centres, gas-oil separators and pipelines are suffering from disuse and a lack of imported spare parts.

The oil-for-food talks The question of whether it is the Iraqi government or the Western powers reflect a battle of wills— which is ultimately responsible for delay in reaching agreement on Resolution 986 was emphasised yet again after the first round of talks. A French proposal was made to the Security Council to send a UN mission to Iraq to investigate the impact of more than five years of sanctions and report back to the Security Council before the sanctions review in March. The timing of the mission was apparently intended to increase the pressure on Iraq to accept the UN’s offer on humanitarian oil sales, on the grounds that failure to do so would lend cre- dence to US claims that it is the Iraqi government and not the UN which bears responsibility for the suffering of the Iraqi people.

—which is also evident in When the second round of talks on Resolution 986 opened in March they were confrontations with somewhat overshadowed by developments affecting the separate, but indi- UNSCOM— rectly related, work of the UN Special Commission (UNSCOM), which is charged with overseeing the eradication of Iraq’s weapons of mass destruction. Satisfactory completion of this work and installation of necessary monitoring systems would lead to a lifting of the oil embargo against Iraq and remove the need for haggling over Resolution 986. However, satisfactory completion

looked increasingly remote after a number of incidents involving UNSCOM personnel. In the first, UNSCOM inspectors saw smoke rising from an inciner- ator while they were kept waiting for 18 hours in order to be allowed to enter Iraq’s irrigation ministry in pursuit of their inspection task. They could only speculate as to whether the materials being burned were incriminating or not. On other occasions, 40 inspectors were temporarily barred from searching sites including a sprawling site in Sarabady, south-east of Baghdad, used as a training centre for the Presidential Guard. Each time inspectors were eventually allowed in, but only after delays which the Security Council deemed to be unacceptably long. A letter to this effect was addressed to the UNSCOM chairman, Rolf Ekeus, and beyond this no action has yet been taken.

Iraq has countered the claims of obstruction by pointing out that the inspectors had chosen unsuitable times to seek entry to government buildings, having requested access to the irrigation ministry on a Friday evening, when Friday is well known to be the Middle Eastern day of rest. In March alone, UNSCOM inspectors had five stand-offs with Iraqi officials as they tried to enter sites in search of documents or missile components.

—which looks no nearer On March 7 the Security Council duly renewed sanctions against Iraq for a to completing its work further 60 days, with the USA questioning whether the political will existed in Baghdad to achieve even limited oil sales and condemning the Iraqi president, Saddam Hussein, for duplicity in murdering members of his own family who had returned from Jordan after receiving his personal pledge of safety. Report- ing to the Security Council, Mr Ekeus said that Iraq had yet to provide suffi- cient evidence that it has rid itself of proscribed weapons or materials related to them. Referring to chemical and biological arms as well as ballistic missiles with a range greater than 150 km, he explained that relatively small but highly significant quantities remain unaccounted for and that UNSCOM remained concerned that Iraq might still be engaged in the development of proscribed weapons systems.

The UNSCOM chairman told the Senate Armed Services Subcommittee in Washington on March 20 of fears that Iraq has hidden up to 16 surface-to- surface missiles (SSMs) armed with biological warheads. These are carried on trucks that are constantly moved around the country to evade UN inspections.

Provisions are made for In view of Mr Ekeus’s concern, the Security Council has tightened long-term long-term curbs— curbs on the acquisition by Baghdad of dual-use technology. On March 27 the 15-member council unanimously approved Resolution 1051, establishing a mechanism to monitor the export of material and equipment to Iraq that could be used in the manufacture of weapons of mass destruction. The monitoring system would come into force as soon as UN trade sanctions imposed in 1990 are lifted. Gyroscopes for SSMs and other prohibited materials have been inter- cepted in Jordan in recent months. According to Mr Ekeus, once UNSCOM establishes its elaborate monitoring and surveillance system in Iraq, it is likely to keep it in place for up to 20 years.

—amid fears that One reason for UNSCOM doubts about Iraq in the longer term lies in the biological weapons were information that has come to light since many tons of paperwork were handed used over to inspectors at the time of the Kamel brothers’ defections in August 1995. Apparently, revelations about Iraq’s biological weapons capability have shocked even the experienced UNSCOM staff. Iraq has admitted to an advanced and large-scale biological weapons programme initiated to offset Iran’s manpower superiority. In addition to anthrax and botulinum toxin, the programme included aflatoxins, a long-term carcinogenic. A great deal of effort was put into an agricultural warfare option, based on the destruction of wheat crops. Al- though Iraq denies having actually used these weapons, biological weapons experts may have to reconsider reports of large-scale crop failures in north- western Iran in the late 1980s to determine whether Iraqi weapons may have played a role. UNSCOM remains extremely concerned at Baghdad’s continuing failure to provide full accounts of the quantities of biological agents produced and destroyed. Until this information is provided, the commission cannot con- clude that “Iraq does not retain biological weapons, agents and munitions”.

Iraq again denies holding The Iraqi foreign ministry has reacted angrily to allegations made by Salim Kuwaiti POWs al-Sabah, a Kuwaiti government official in charge of the file on missing Kuwaitis, that Iraqi is still holding Kuwaiti prisoners-of-war (POWs). The ministry insists that all 11,000 Kuwaiti POWs, detainees and others have been released in accordance with UN Resolution 686 of 1991. Kuwait says it is still looking for 602 people. The return of all missing Kuwaitis is one of the conditions set for lifting UN sanctions.

Economic policy and the economy

The dinar recovers After falling to an all-time low of ID3,000:$1 in mid-January, the Iraqi dinar dramatically in February— staged an astonishing recovery, reaching ID400:$1 by early February. The rise was triggered in part by news of forthcoming talks on UN Security Council Resolution 986 which would allow Iraq to export a limited amount of oil and use the proceeds to buy essential supplies. But the previous precipitous decline in the dinar’s value, and news that state foreign exchange offices would be permitted to exchange money at black-market rates (1st quarter 1996, page 17) also encouraged Iraqis to release hoarded dollars onto the market, especially since they had been warned by the Iraqi government that old $100 notes were being phased out. (In fact, the process of replacement is far more gradual than Iraqis were led to believe.) State banks not only extended their opening hours to handle lines of customers but at one point reversed their normal policy and offered better exchange rates than private dealers. Extra branches were author- ised to take dollars and, when they ran short of cash, issued dinar cheques.

—and state coffers are In return, it appears that the authorities took in hundreds of millions of dollars. replenished— They also soaked up dinars at the same time, allowing an accelerated fall in dinar-denominated prices in tandem with the rising value of the dinar, by announcing mass sales of government equipment and opening up warehouses to flood markets with food. The government’s plan was apparently two- pronged, to regain control of liquidity and to attract dollars at the same time. The Iraqi government’s fresh accumulation of hard-currency reserves has

reinforced doubts about its commitment to reaching agreement on Resolution 986, which may now be less urgent as far as the privileged members of Saddam Hussein’s immediate entourage are concerned.

—as the exchange rate Since its initial dramatic recovery in February, the dollar:dinar exchange rate tracks the oil-for-food has become something of a barometer of local expectations regarding the talks oil-for-food talks. Any news item suggesting an agreement is near has strength- ened the dinar while news of delays has sent it down. In the initial excitement, the dinar was changing hands at about ID350:$1, nearly ten times its previous value. When the first round ended inconclusively, it slid back to around ID1,000:$1. In early March the rate was ID650:$1 on the black market and ID450:$1 in official banks. By early May banks were offering the same rate, while the black-market rate was down to ID720:$1.

The government adopts The Iraqi trade minister, Mohammed Mahdi Saleh, announcing new economic further revenue-raising measures in January, denied that there was any truth in rumours that Iraq was measures— about to change its currency but acknowledged that the government was looking for ways to finance the budget other than printing banknotes. He confirmed the government’s programme to sell state property to Iraqi citizens at 10% below local market prices (1st quarter 1996, page 17) and stated that privatisation of certain state institutions and properties would be achieved by opening them up to private financing and management. The minister also spoke of collecting more tax from those on high incomes and indicated that the current ration-card system will remain in use even after the embargo on Iraq is revoked.

As part of this new economic programme, the government has ordered various ministries and other state establishments to adopt austerity measures. Car fleets are to be reduced by 25% and the resulting surplus put up for sale to the public. More details of cuts in public expenditure have been released, with news that road construction will be reduced to a minimum. In contrast, the residents of the Shia city of Najaf, 120 km south of Baghdad, have been told that ID150m is to be spent to complete the Najaf-Kufah water project, to supply them with 40m gallons of drinking water per day. Meanwhile, prices charged for utilities are being recalculated to take account of subsidy cuts; charges for telephone calls, postal services, telex and transport have already gone up. Fees for building licences have doubled.

—and fuel prices rise The retail price of fuels, notably petrol, liquefied petroleum gas (LPG) and steeply— kerosene, has been raised—in some cases tenfold—in a move apparently de- signed to curb consumption in preparation for a possible resumption of limited oil exports. The increases may also be needed to cover production costs, which are rising as the effect of prolonged sanctions takes its toll on oil installations. The price of petrol has gone up from ID0.2/litre to ID1.5/litre, and the price of kerosene from ID0.05/litre to ID0.5/litre. The price of a container of domestic LPG (cooking gas) has risen from ID5 toID50.

—while prices of selected In contrast, the price of dairy products has gone down. On February 20 the foods are cut— State Enterprise for Dairy Products announced price cuts in the region of 50%.

Dairy food prices (ID) Product Previous price Present price Milka 2,500 1,000 Processed cheese (500 g) 650 350 Abtal cheese (300 g) 650 225 Butter (250 g) 650 250

a Quantity not specified.

Source: Local press reports.

Foodstuffs in general and other essential items started appearing in greater abundance at lower prices during the Muslim fasting month of Ramadan, which began in late January. In early February oranges were being sold for ID75/kg, down from ID500/kg the previous month, tomatoes were down from ID500/kg to ID25/kg and rice was being sold for ID150/kg, compared with ID1,350/kg a month earlier. The improvement in prices and in the value of the dinar during this period was seen as explaining an accompanying fall in the crime rate.

—although food stocks are The euphoria was shortlived, however. The UN’s World Food Programme (WFP) sinking— reported at the beginning of April that food stocks in Iraq were seriously low and that nutrition levels were deteriorating. The agency said supplies would hardly meet needs for the coming two months and that it had received no confirmed pledges of new shipments. About 1 million Iraqis are dependent on UN food rations. UN statistics show that, to meet its basic needs, Iraq has to import 2.2m tons of wheat, 770,000 tons of rice, 734,000 tons of sugar, 327,000 tons of barley, 70,000 tons of pulses and 198,000 tons of vegetable oil. The figures also show that Iraq currently meets only 10% of its needs for poultry meat, 8% for eggs, 42% for red meat and 7% for dairy products.

—and steps are taken to The shortages have prompted fresh efforts by the Iraqi authorities to ensure increase local production that suppliers of food, whether farmers or merchants, keep markets as well stocked as possible in the face of sanctions. The president has ordered that sums owed to food merchants who signed contracts with the trade ministry be paid in cash and in dollars in order to encourage their continued cooperation. The order is probably more significant for making those failing to sign such contracts feel penalised than in rewarding those who did, who are supposed to collect their dues from the Rafidain and Rashid banks. It has also been announced that agricultural rents will be reduced by 25% to give a boost to peasants and farmers and help them increase agricultural output.

Iraq agrees to a reduction The Iraqi government has ratified this year’s trade protocol with Jordan which, in trade with Jordan— because of decisions taken by Jordan (1st quarter 1996, page 19), will not exceed a value of $220m. Iraq is reportedly aiming to import vegetable oils, medicine, soap, detergents and chlorine. Iraqi oil exports to Jordan continue at full tilt, with the two sides having agreed to increase the volume by 5% on 1995. Exports to Jordan, which are permitted by the UN, currently average 73,000-75,000 b/d in crude and derivatives and are charged for at half the market price.

—making clear its The president’s son, Udai Hussein, has reportedly moved his business interests displeasure from Amman to Turkey as a mark of displeasure over the change in Jordanian policy towards Iraq. There have been warnings that Iraq is considering cutting off relations with Jordan and the diplomatic presence has been reduced on both sides, through the expulsion of Iraqi diplomats from Jordan on charges of working for Iraqi intelligence and a decision by the Jordanian government to reduce its embassy staff in Baghdad. Although Iraq depends on transit of goods through Jordan, its borders with Syria and Turkey are open and products from the latter two countries are widely available in Iraq.

France keeps trade A former French chief-of-staff, Jeannou Lacaze, has announced the opening in relations open Baghdad of a permanent office of the French-Iraqi Trade and Industrial Council. The office is intended to facilitate the exchange of information and cooperation. Iraq and France have, for example, recently initialled an agricultural cooperation agreement under which French interests will help to develop some agricultural products in Iraq.

Aid is promised by the EU In addition to the Ecu3m ($3.74m) which the European Union (EU) is allo- and China cating for co-financing of Kurdish infrastructure projects with various non- governmental organisations (see Iraqi Kurdistan), the European Commission is making a grant of Ecu520,000 ($660,000) through the European Community Humanitarian Office (Echo) towards the cost of protecting the cereal harvest from parasites. An area of 245,000 ha, feeding 60,000 families, will be sprayed with phyto-sanitary products.

China has sent medicine worth $500,000 as a gift from the Chinese government to the Iraqi people. China, a permanent member of the UN Security Council, supports the easing of sanctions as soon as UN requirements regarding Iraq’s weapons of mass destruction are fully met.

The IEA forecasts A report just released by the International Energy Agency (IEA), entitled Middle production capacity of East Oil and Gas, estimates that Iraq will have a production capacity of 5m b/d 5m b/d by 2000 by 2000. According to the Iraqi oil minister, Amr Rashid, current capacity is 2.5m b/d. Mr Rashid estimates that Iraq could restore its production capacity to the pre-sanctions level of 3.5m b/d at a cost of $1.4bn-1.5bn. He says the Mina al-Bakr terminal in the Gulf is ready to handle exports.

Oil production capacity forecasts for the Gulf (m b/d) 1994 2000 % change Iran 4.2 4.5 7 Iraq 2.5 5.0 100 Kuwait 2.7 3.3 22 Saudi Arabia 10.3 11.1 9 UAE 2.8 3.8 36 Source: IEA.

Appendix 1

Quarterly indicators of economic activity in Iraq

1993 1994 1995 1996 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Production: industry Prodn/day Crude petroleuma m barrels 0.54 0.51 0.51 0.53 0.55 0.55 0.55 0.55 0.55 0.55 Foreign trade & paymentsb Annual totals Exports fob $ m 472 ( 2 ) ( n/a ) n/a Imports cif “ 520 ( 231 ) ( n/a ) n/a Exchange rate End-Qtr Market rate ID:$ 3.217 3.217 3.217 3.217 3.217 3.217 3.217 3.217 3.217 3.217c

Note. Annual figures of most of the series shown above will be found in the Country Profile. a Estimate. b DOTS estimates. c End-February.

Appendix 2

Trade of Iraq with major partnersab ($ ’000; monthly averages) Exports to Iraq fob Germany France Japan UK USA incl goods shipped to Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Jun foreign oil companies 1989 1990 1989 1990 1989 1990 1990 1991 1990 1991 Cereals & products 1 383 1,238 54 0 0 7 0 16,416 0 Textile fibres & waste 314 17 36 0 648 299 10 0 1,513 0 Chemicals 6,027 4,011 3,520 3,405 1,494 610 7,377 129 1,470 0 Rubber manufactures 691 285 383 161 8,715 735 288 0 15 0 Textile yarn, cloth & manufactures 1,119 393 370 148 1,389 513 376 0 87 0 Iron & steel 17,530 5,768 8,347 2,696 5,047 4,061 2,304 5 1,663 0 Metal manufactures 7,826 3,309 1,404 581 987 876 1,727 22 535 0 Machinery incl electric 41,027 29,113 14,047 26,738 14,963 7,892 19,933 134 11,255 0 Transport equipment 8,748 7,825 1,331 1,096 3,997 3,919 550 23 10,107 0 Clothing 170 53 234 54 1 4 100 0 3 0 Scientific instruments etc 2,124 1,879 973 2,332 1,718 902 4,000 4 1,028 0 Total incl others 97,499 61,426 39,912 45,106 40,880 20,947 43,635 649 59,338 30 % share in Iraq’s imports 1989 & 1990c 13135955881311

USA France Italy Germany Japan Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Imports from Iraq cif 1989 1990 1989 1990 1989 1990 1989 1990 1990 1991 Fruit, vegetables & products 190 30 100 78 14 26 61 19 n/a n/a Hides & skins, raw 0 0 85 71 771 484 0 0 n/a n/a Total excl petroleum, incl others 2,234 1,656 1,204 342 2,147 2,019 1,304 1,736 88 17 Petroleum & products 210,846 268,955 69,859 34,024 54,038 27,032 10,945 2,932 78,513 0 % share in Iraq’s exports 1989 & 1990cd 192964531098

Note. Commodity totals are the sum of items shown in the trade accounts and may be incomplete. a UN trade sanctions have been in place since August 1990. b Figures from partners’ trade accounts. c Calculated from Iraq’s estimated trade statistics. d Including petroleum.