Washington's two-way street to Baghdad

RESUMPTION of diplomatic relations last month between Iraq and the United States, after a 17-year hiatus, is a direct result of the Persian Gulf war and reflects the dramatic economic and political changes that Iraq has undergone in the last four years.

In 1980, Iraq was considered the up-and-coming power, not only in the Persian Gulf but also in the Arab world. It was at the forefront of efforts to organize the Arab world against the Camp David peace process, and it was setting guidelines for the conduct of Arab politics in the Persian Gulf. At the time, Iraq was producing a million barrels of oil a day and had foreign-exchange reserves estimated at between $20 billion and $25 billion. Then Iraq was in no mood to compromise. Indeed, its invasion of Iran in September 1980 was supposed to result in a quick victory and consecrate Iraq as the dominant power in the Arab world.

But matters did not turn out quite as Iraq had expected. A blitzkreig became a trench war; it has now turned into a costly stalemate.

After dissipating its considerable financial assets, Iraq became dependent on the largess of the Persian Gulf Arabs and, in the last two years, on generous credits from Western countries. In addition, although Iraq's military forces remain essentially Soviet trained and equipped, arms and advisers from Western sources (especially France) and Arab sources (Egypt and Jordan) have also greatly increased.

These financial and military changes have led to significant changes in Iraq's foreign policy within the Arab world and internationally. Iraq has moved closer to Saudi Arabia and other conservative Gulf governments; it has dissociated itself from the so-called rejectionist front against Israel; it has abandoned its opposition to the Camp David process; it has established friendly though informal relations with Egypt; and it has abandoned its support for radical extremist groups, such as that of the notorious Abu Nidal.

These policy changes have been in line with US interests in the region, and over the last two years they have drawn the two countries closer together. But shifts in US attitudes toward the Persian Gulf war have also been important. Thus, as it became less likely that Iran would either collapse or be dominated by the Soviet Union, and as the US came to see Iran as a major threat to its interests in the Middle East, Washington's position distinctly shifted toward Iraq. Since then, the US has actively tried to prevent the flow of arms and other strategic materiel to Iran, has offered Iraq large credits to purchase agricultural and other goods, and has eliminated most restrictions on exports to Iraq.

Thus the resumption of US-Iraqi relations has formalized a pattern of rapprochement and discreet cooperation that has been developing over several years. Yet where do the two countries go from here? What do they expect from each other? And what are the chances that their expectations will be realized?

Iraq certainly hopes to derive economic benefits from its relationship with the US in the form of export credits and other financial facilities. It will be interested in gaining access to US technology. At some point, Iraq might also seek US help in training and arming its military forces - given that the Persian Gulf and Lebanese wars have demonstrated the superiority of US military training and hardware over those of the USSR.

In the long run, the US could also expect to gain economically from relations with Baghdad. Iraq sits atop at least 65 billion barrels of oil, and its oil exports are expected to pick up when two new pipelines, through Saudi Arabia and Turkey, are completed next year. Once the Iran-Iraq war is over, Iraq will have to embark on massive reconstruction, potentially benefiting American companies. In view of the sluggish market elsewhere in the Gulf, Iraq could become quite important, especially since US companies are unlikely to pick up business in Iran, the other postwar boom market in the Gulf.

Politically, the United States hopes that Iraq will reestablish diplomatic relations with Egypt, thus further easing Cairo's reintegration into the Arab fold. Washington hopes that this step would strengthen the Arab moderates and put pressure on Syria. This might make Syria less intransigent and possibly contribute to the peace movement in the region.

The problem with these last points is that Iraq cannot contribute much to the peace process, because of its preoccupation with Iran. In addition, there must still be some psychological resistance within the Ba'ath party to Iraq's being too forthcoming, and President Saddam Hussein may find it difficult to move too far in this direction. In fact, during his visit this month to Washington, Iraq's deputy prime minister and foreign minister, Tariq Aziz, seems to have cautioned the US against expecting too much.

In sum, in the immediate future Iraq will draw economic benefits from its relations with the US, and the US political position in the Middle East will gain some benefits. Later there will be considerable potential for further mutual gains. But there are some barriers to a close relationship, such as possible opposition from Israel and its American supporters. The US will have to weigh the impact of its relations with Iraq on Iran's position, especially Tehran's attitude regarding its links with the USSR. Iraq will have to be conscious of Soviet sensitivities. And some of the more optimistic US expectations regarding business gains may not materialize, since Iraq will want to spread these gains among its other supporters, especially France.

Despite these limitations, the resumption of diplomatic relations between Iraq and the US is a positive development, beneficial to the interests of both countries.

Shireen T. Hunter is deputy director of the Middle East Program at the Georgetown University Center for Strategic and International Studies.