Japan, Australia Count Cost of Sanctions Against Iraq

JAPAN'S anguished decision to punish Iraq with a trade and oil embargo has sent an instant tremor through the Japanese economy and overturned its tame posture in Mideast politics. By joining other nations in a boycott, Japan will likely suffer a jump in interest rates and inflation as well as damage its carefully managed relations with the Arab world, say many Tokyo analysts.

In addition, an estimated 761 Japanese citizens are stuck in Iraq and occupied Kuwait, threatened by possible Iraqi retaliation.

Japan's decision, made late Sunday, reverses a earlier vow not to join the United States-led boycott until after the United Nations had agreed to take action.

A Foreign Ministry spokesman said only a Security Council resolution would ``give us the legal basis we need to proceed [with sanctions against Iraq].''

But a phone call from President Bush on Aug. 4 to Prime Minister Toshiki Kaifu ``had some relevance'' to Japan's move to join the boycott sooner rather than later, say Japanese officials. A letter from all 100 members of the US Senate, sent on Friday, had also urged Japan to join the boycott.

``We are now in a completely new situation,'' said Makota Watanabe, the Foreign Ministry's director-general for the Mideast and Africa.

Japan was criticized after the 1973 and 1979 oil crises for not fully supporting its Western partners, seeking instead a long-term stable oil supply from Arab nations. Officials said their three-day delay in making a decision in favor of a boycott was caused in part by the need to study its economic effects. Almost totally dependent on imports for oil, Japan will lose about one-eighth of its supply by blocking oil from Iraq and Iraqi-controlled Kuwait.

In addition, Japan stands to lose about $4.6 billion owed by Iraq to both the government and private banks. Japan also plans to stop non-oil exports to both Iraq and Kuwait. Such trade amounted to over $1.1 billon last year.

Japanese oil merchants were scrambling to make up for the loss even before the decision was made. Officials expect that a trip by Mr. Kaifu to the Mideast next week will help bring additional supplies from Saudi Arabia and Oman. The embargo, said Kaifu, ``will not immediately cause serious damage to Japan if we import more from other countries.''

Japanese officials met with the nation's oil company executives on Monday to coordinate oil purchases and to prevent a sudden surge in prices. ``We will come up with necessary measures to cope with the problem, but Japan, after the past oil crises, has 142 days of reserves,'' Kaifu said.

Since the two oil shocks in the 1970s, Japan has made its economy much stronger and more flexible to withstand external pressure. Still, the Tokyo stock exchange dropped over 3 percent on the Nikkei Stock Average. The value of the yen also fell as investors sought financial refugee in the US dollar.

Australia has also moved closer to full economic sanctions against Iraq.

On Monday, Michael Duffy, acting minister of foreign affairs and trade, announced the country would no longer import Iraqi or Kuwaiti oil products. Kuwaiti oil makes up 8.2 percent of Australia's imports. Australia will also join other nations in freezing the assets of both Iraq and Kuwait. Mr. Duffy also said that Australia will revoke the sale of about $600,000 worth of engine parts sold to the Iraqi Air Force.

Neither Australia nor New Zealand have decided on a full set of sanctions, waiting for the United Nations to act. If they join the economic blockade, the decision will cause belt tightening in Baghdad since Australia supplies about 40 percent of Iraq's wheat imports.

An embargo could cost the Australia's wheat farmers about $270 million in annual trade. However, the actual cost will be higher. A government official says Iraq received credits to purchase part of last year's wheat crop. Alec Nicol, a spokesman for the Australian Wheat Board, refused to give details of the loans or the amount still owed to the wheat growers. However, he says it can take up to two years for growers to be fully paid.