Prelude to War: US Policy Toward Iraq 1988-1990


In mid-1989, President George Bush attended a meeting of the National Security Council to discuss the situation in the Persian Gulf. On the agenda was the final draft of National Security Directive 26 (NSD-26) which called for "economic and political incentives for Iraq to moderate its behavior and to increase [American] influence." NSD-26 also emphasized that Iraqi use of chemical or biological weapons and violations of the Nuclear Non-Proliferation Treaty would lead to American reprisals. Though Bush approved of NSD-26, he wanted to hear the views of his advisors.

Sitting at the table was Richard Kerr, deputy director of the Central Intelligence Agency (CIA). For the meeting, Kerr had prepared a draft report on Iraqi leader Saddam Hussein. The report described Hussein as a brutal dictator who had murdered thousands of his own people, including large numbers of Kurds in the north. Given that NSD-26 hinged on the possibility that limited incentives might lead Hussein to moderate his behavior, Bush had a simple question: Could Hussein really change? Kerr had a simple answer: No.

Nonetheless, no one at the meeting dissented from the policy proposed in NSD-26. As one senior Defense Department official present at the meeting commented, "The consensus was—what did we have to lose?" Robert Gates, the deputy national security advisor, echoed this sentiment:

The general attitude was that this was an approach you had to try, to try to get him to mend his ways. But no one was particularly optimistic that it would succeed or that Hussein would change his spots.

NSD-26 codified a policy of constructive engagement toward Iraq, a policy developed after the end of the Iran-Iraq war in 1988. US policymakers hoped that by offering Hussein the carrot of agricultural credits and generous loan terms, he might be persuaded to moderate his human rights abuses and halt his development of nuclear, chemical and biological weapons. That policy would be severely tested throughout the spring and summer of 1990 as the US foreign policy community sought to take the measure of Hussein—an unpredictable and difficult partner.

A Brief History

When George Bush became President in January 1989, he had already served as Ronald Reagan’s vice-president for eight years. He inherited an approach to Iraq which had been carefully crafted over the previous decade; US policy toward Iraq was a product of its policy toward Iraq’s neighbor, Iran. As an ally under the shah, Iran had been invaluable asset for the United States; as an enemy under the revolutionary leaders who seized power in 1979, Iran was considered a severe threat to regional stability. Coming into office in 1981, Reagan intended to contain Iran.

Iran-Iraq war. Iraq and Iran had a history of confrontation and Iraq’s leader, Saddam Hussein, viewed the Iranian revolution as a golden opportunity. Hoping to take advantage of Iran’s instability, Hussein invaded Iran on September 22, 1980. Later CIA assessments concluded that Hussein had made the decision to invade on an impulse the night before and with very little planning. The United States reacted passively to the invasion; conservative Arab monarchies like Saudi Arabia actively endorsed Saddam Hussein’s move. Hussein’s aims were limited: he wished to gain full control of the Shatt al-Arab waterway, formed by the confluence of the Tigris and Euphrates rivers and Iraq’s only outlet to the sea. The gamble failed, as Iranian resistance proved stiffer than expected. Iran eventually forced the Iraqis to retreat from southwestern Iran. By mid-1982, the Iranians had recovered their territory and invaded southern Iraq.

US policy. As the threat to Iraq grew, the US began to establish closer ties to Baghdad. The two countries resumed full diplomatic relations in 1984. Soon Americans and Iraqis were sharing limited intelligence on Iran. Secretary of State George Shultz hoped that Saddam would perceive that his best interests lay in alignment with the US. US support for Hussein varied in intensity, however, depending on the ebb and flow of the battlefield. When it looked as if Iraq might be losing the war, as in late 1982 and 1986-87, the Administration tilted more heavily toward Hussein; when Iraq seemed to be winning, American ardor cooled. Few in Washington would have regretted an end to the Iran-Iraq war which left both countries seriously weakened. No one considered Iraq a reliable ally.

American policy was further complicated by the secret sale of arms to Iran in a bid to win the release of American citizens held captive by terrorist groups in Lebanon. These secret dealings, managed by Reagan’s NSC staff, became public in 1986 as part of the scandal which became known as "Iran-Contra." Though confused, Reagan’s Gulf policy was neatly summed up by Robert Gates as "a plague on both their houses."

A centerpiece of the Reagan/Shultz strategy during the Iran-Iraq war was Operation Staunch. In place since early 1983, Staunch was an attempt to contain the flow of advanced arms to the Gulf. Despite US support of Iraq’s war effort, Operation Staunch included restrictions on arms sales to Iraq. Though undercut by the Iran-Contra revelations, the operation remained in effect until the end of Reagan’s presidency. The Reagan Administration turned a blind eye, however, to loopholes in the arms interdiction program. US policymakers knew that Iraq obtained arms easily from the Soviets, the French and many other suppliers, yet they made little effort to dissuade these nations from selling conventional arms to Iraq. The Administration was also aware that the Saudis, the Gulf states, and the Kuwaitis—as well as US and European banks—loaned Iraqi dictator Hussein the capital to buy weapons.

Congress opposed US arms sales to Iraq because of Hussein’s atrocious record of support for terrorism, grave violations of human rights, and hostility toward Israel. US export and agricultural credit programs were, however, less objectionable. They were popular with business and some members of Congress.

Saddam Hussein

Saddam Hussein was practically unknown to the Western public until the 1980s. As the US became more deeply involved in Gulf politics during that decade, more Americans learned about one of the world’s most brutal dictatorships. Saddam Hussein began his political career in 1957 at the age of 20 when he participated in several violent demonstrations in Baghdad; two years later, as a member of the Baath (Renaissance) Party, he was part of a team which tried to assassinate the Iraqi dictator, General Abdul Karim Qasim. During subsequent years in exile, Hussein rose high in the ranks of the Baathist Party and, when they came to power in 1968, he was made chief of internal security.

Over the next decade, he gradually eliminated his rivals, culminating with a meeting of party officials on July 22, 1979. Six days earlier, Saddam’s old friend turned rival, Hasan al-Bakr, had resigned as president of Iraq. Hussein was "elected" to replace him. Televising the party meeting, Hussein staged an astonishing scene. After the applause had died down, the names of select individuals were read out; they were told to stand and leave the room. They would all be executed in the following weeks. So began a reign of terror, intimidation, and violence. Though it was offset by welfare programs, public works, and public education, Iraq became a "republic of fear."

In the spring of 1988, in the latest of a series of campaigns to suppress Kurdish separatists in northern Iraq, the regime used poison gas to massacre the inhabitants of several Kurdish villages. It was already common knowledge that both Iran and Iraq used chemical weapons during the course of their war. But the pictures of gassed Kurdish villagers at Halabja appalled and angered the American public. Congress responded to public outrage, and Senator Claiborne Pell (D-Rhode Island) introduced a sanctions bill to penalize Iraq for human rights abuses. The Rhode Island senator, long known for his support of human rights, denounced Saddam’s policies as "a campaign that can only be described as genocide."

The Reagan Administration joined the outcry against these flagrant human rights abuses and violations of international law—George Shultz publicly termed Hussein’s actions "unjustifiable and abhorrent"— but it opposed the concept of sanctions. State Department spokesman Charles Redman termed unilateral sanctions "premature," and argued that the United States should act only once it had assembled an international coalition on behalf of such a policy. Though the Administration considered a variety of options, including the recall of the American ambassador, it finally decided that any punitive measures would hurt more than they would help. Even after the cease-fire between Iran and Iraq, the Administration continued to resist sanctions. In response to the outcry over Halabja, Iraq assured the US that such atrocities would not be repeated. Assistant Secretary of State for Near Eastern Affairs Richard Murphy summed up Administration thinking, noting that criticisms of Iraq had "shaken the fragile US-Iraqi relationship and been heavily criticized in the Arab world." The US, he said, needed "to move quickly to ensure that our action is seen as anti-CW [chemical warfare], not anti-Iraq or pro-Iran." In any event, "we believe that economic sanctions will be useless or counterproductive in terms of our ability to influence the Iraqis."

Postwar Hopes

The Iran-Iraq war ended abruptly in August 1988. By then, the morale of the Iranian army was low, and neither side showed any sign of winning. Exhausted, Iran surprised the world and agreed to a United Nations-sponsored cease-fire. Just months earlier, Iraq’s future had looked bleak as the Iranian offensive mounted in intensity. With the unexpected cease-fire, Iraq was left well-armed, but heavily in debt to both the West and to Arab nations. The prospect of repaying loans and rebuilding was daunting; the city of Basra had been almost completely destroyed, and the country’s infrastructure was in bad need of repair. Hussein could not have relished the task ahead of him. However, he emerged from the war with support in Washington, support he hoped would mean American financial assistance.

The US government was aware of Iraqi programs to develop nuclear, biological and chemical weapons. But it hoped, through engagement, to dissuade Hussein from pursuing those initiatives. The State Department, for one, looked optimistically to the future. State believed that Hussein had significantly moderated his behavior over the past years, especially on the Middle East topic of greatest interest to Washington—the Arab-Israeli dispute. Hussein had softened his opposition to more moderate factions within the Palestinian movement, and he no longer rejected Yasser Arafat’s leadership of the Palestine Liberation Organization (PLO). In addition, during the war Hussein had drawn closer to the "moderate" Arab states—Jordan, Saudi Arabia, Kuwait, and the Gulf emirates. The State Department also noted with satisfaction that the war had weakened Hussein’s ties to the Soviet Union, while Iraqi purchases of European weapons and US grain had drawn Hussein closer to the West.

The Reagan Administration was also influenced by other Arab governments; many of Iraq’s neighbors believed that Hussein was moving "into the mainstream." In comparison with revolutionary Iran, Hussein did not look so bad. In order to contain Iran and enhance regional stability, the Administration intended to encourage Hussein’s continued moderation. Using a combination of diplomacy and increased contact, both economic and political, the Reagan team believed that Hussein could become like Syria’s Hafez Assad—a ruthless dictator within his borders who could nevertheless act prudently or at least cautiously in foreign affairs. It was this approach that George Bush inherited.

Dissenting voice. During the transition from Reagan to Bush, a small dissenting voice could barely be heard. Zalmay Khalizad, a former professor at Columbia University, served on the staff of Under Secretary of State Michael Armacost. Khalizad suggested that, with the end of the war, Iraq had emerged as the regional hegemon. Under the logic of balance-of-power politics, it was only a matter of time before Hussein confronted the other regional power, the United States. Hussein had enhanced his military capabilities with the equipment which the Iraqi army seized from the collapsing Iranian forces. The only conceivable target of that new strength, according to Khalizad, was the US or its regional clients—Saudi Arabia or the Gulf emirates, including Kuwait. As Khalizad later recalled:

Iraq needed to be contained. The United States could have built up its military capabilities in the Gulf and contained Iraq by continuing Operation Staunch. In addition, we could have adjusted our policy toward Iran by eliminating the restrictions imposed on it during the war, while maintaining those restrictions having to do with terrorism. This would have allowed economic dealings with Iran; like Syria, Iran would have remained on the terrorism list. It would have been an undesirable ally, but it would have been manageable.

But Khalizad found no takers for this view in Washington. Especially after the embarrassing Iran-Contra scandal, no senior officials could see any basis for improving relations with the rabidly anti-American Iranian regime. If anything, the opposite occurred. The task force assembled by George Bush’s transition team argued that the United States needed to "recognize Iraq’s present and potential power in the region and accord it relatively high priority." Setting the tone for much of Bush’s first year in office, the group predicted that Iraq would function as "a more responsible, status-quo state working within the system."

Glaspie. One day before Bush was sworn into office, US Ambassador to Iraq April Glaspie was instructed to stress America’s concern over Iraq’s development of biological weapons—carried out in contravention of a treaty banning such work signed by most countries in the world (though not Iraq). Ambassador Glaspie was one of the leading experts on the Arab world at the State Department. Fluent in Arabic, she had served in Egypt, Syria, and Kuwait, and had been commended on numerous occasions for the quality of her reporting. Sent to Baghdad in March 1988, Glaspie was prepared for her job as few before her had been. Her only liability was a reputation in Washington for showing too much empathy toward the views of Arab radicals.

The Bush Administration

For the newly-inaugurated Bush and his immediate foreign policy advisors, Brent Scowcroft and Robert Gates, Iraq was a low priority for much of 1989 and early 1990. Compared to revolutionary change in Eastern Europe, upheaval in the Soviet Union, moves toward the unification of Germany, and democratic unrest in China, the issue of Iraq paled in importance.

Departments within the Executive branch analyzed the Iraq question each according to its own concerns. For the State Department, Iraq was important as one piece of a larger regional puzzle centered, for Secretary of State James Baker, on resolving the Arab-Israeli dispute. Given that Hussein had started to support negotiations between the PLO and Israel, Baker "saw Iraq as a potentially helpful Arab ally in moving the moribund Middle East peace process forward." At the same time, Baker had also stepped up efforts to resolve the intractable civil war in Lebanon. In October 1989, Lebanese politicians reached a tentative accord known as the Taif agreements; it remained unclear, however, whether the politicians could speak on behalf of those in Beirut with the weapons. Enforcing the Taif agreements would be easier with Iraq’s cooperation.

Baker first met with a senior Iraqi official, Nizar Hamdoun, in March 1989. The main subject was US compensation claims for damage done to the USS Stark, which had been mistakenly hit and nearly sunk by an air-launched Iraqi missile on April 4, 1988. Iraq was willing to meet American demands, an attitude seen by US government officials as an encouraging signal. Though Baker repeated US concern about the use of Iraqi chemical weapons during the Iran-Iraq war, he also expressed his interest in improved relations. Considerable discussion was devoted to continued Iraqi access to both Export-Import Bank short-term credit insurance and the Department of Agriculture’s Commodity Credit Corporation (CCC).

The Department of Defense (DOD) saw Iraq as the new regional military power and, given the US role as the guarantor of secure oil supplies from the Persian Gulf, a potential threat to US interests. The Pentagon was uneasy about Iraq’s pursuit of high-tech and unconventional weaponry. The CIA, too, worried about Saddam Hussein’s armaments programs and military maneuvers. For the Department of Agriculture (USDA), Iraq was a valued buyer of American agricultural commodities.

To the Department of Commerce, Baghdad was an avid customer of American manufactured goods—although US officials recognized that some of these goods had the potential for so-called dual-use application, meaning they could serve both a military and a non-military purpose. These products therefore could be sold only under special licenses granted by the US government. As for the Justice Department, its interest in Iraq was piqued in the fall of 1989 by Iraqi links with the Atlanta branch of the Italian Banca Nazionale del Lavoro (BNL) and suspected violations of federal banking laws.

National Security Directive-26

The Bush Administration did attend briefly to Iraq in 1989. As is typical for a new administration, Bush began his term by calling for a general assessment of foreign policy. One of the policy reviews considered the Persian Gulf, including Iraq. It was conducted by the NSC staff member in charge of the Middle East, Richard Haass. Since 1979, Haass had been a vocal opponent of closer relations with Iran. Therefore, he wanted to explore the possibility of forging warmer contact with Iraq. In February 1989, Haass instructed the various interested agencies—State, Treasury, Commerce, Agriculture, CIA—to contribute to the Persian Gulf policy review. The agencies forwarded their preliminary reports back to the NSC staff and to Haass. Haass then convened several Policy Coordinating Committee (PCC) meetings, attended by assistant secretaries from the concerned departments, to discuss options.

As a result of the PCC discussions, a draft presidential policy directive was drawn up by one of the two staffers in Haass’ office, Sandra Charles. Her draft directive was discussed in April by the NSC Deputies Committee, the interdepartmental body above the PCC which included the top subcabinet officials of the relevant agencies. Deputy National Security Advisor Robert Gates chaired the Deputies Committee.

The draft National Security Directive, NSD-26, was approved with little controversy by the Deputies Committee in June 1989, shortly after Khomeini’s death in Iran and in the midst of the student uprising in Tiananmen Square in Beijing. Bush finally signed it in October. The lag time between the approval of the NSD and its signature by Bush was not a sign of controversy; rather it was indicative of the low priority the Administration as a whole accorded Persian Gulf affairs in the summer of 1989.

NSD-26 represented a compromise between those who wanted to encourage Hussein to support the US on Middle East issues; and those concerned over the pace and scope of Hussein’s weapons programs. Pro-conciliation officials could point to evidence that the current US policy of constructive engagement was bearing fruit. In addition to his support for a PLO-Israeli dialogue, Hussein had worked with Egypt’s President Hosni Mubarak at the end of 1988 to urge the PLO to recognize Israel. In February 1989, Hussein drew still closer to the moderate Arab states when he joined with Egypt and Jordan to create the Arab Cooperation Council—modeled on the European Community and intended to integrate Arab states which were not major oil producers. Saddam also sought good relations with his Gulf neighbors; in March he cemented a non-aggression pact with King Fahd of Saudi Arabia. Of course, many aspects of Hussein’s regime still disturbed American officials. His unconventional weapons program had only expanded with the end of the war, and it was common knowledge that Iraq wished to develop nuclear weapons. Iraq’s human rights record showed no signs of improvement.

NSD-26 therefore linked its economic carrots to a continuing threat of sanctions if Iraq did not curtail its unconventional weapons program and clean up its human rights performance. It embodied the consensus of interested bureaucrats as of the summer of 1989. In the words of one State Department official, the Administration hoped to "embrace Saddam in a cocoon of moderation." Though NSD-26 was not signed until early fall, as of June it became de facto US policy toward the Gulf. The relevant declassified portion of NSD-26 is carefully phrased:

Access to Persian Gulf oil and the security of key friendly states in the area are vital to US national security. The United States remains committed to defend its vital interests in the region, if necessary and appropriate through the use of US military force, against the Soviet Union or any other regional power with interests inimical to our own. The United States also remains committed to support the individual and collective self-defense of friendly countries in the area to enable them to play a more active role in their own defense and thereby reduce the necessity for unilateral US military intervention …

Normal relations between the United States and Iraq would serve our longer-term interests and promote stability in both the Gulf and the Middle East. The United States should propose economic and political incentives for Iraq to moderate its behavior and to increase our influence with Iraq. At the same time, the Iraqi leadership must understand that any illegal use of chemical and/or biological weapons will lead to economic and political sanctions. … Any breach by Iraq of [international] safeguards in its nuclear program will result in a similar response. Human rights considerations should continue to be an important element in our policy toward Iraq. In addition, Iraq should be urged to cease its meddling in external affairs, such as in Lebanon, and be encouraged to play a constructive role in negotiating a settlement with Iran and cooperating with the Middle East peace process.

We should pursue, and seek to facilitate, opportunities for US firms to participate in the reconstruction of the Iraqi economy. … Also, as a means of developing access to and influence with the Iraqi defense establishment, the United States should consider sales of non-lethal forms of military assistance.

There were few, if any, arguments about the portion of the document which dealt with Iraq. As one senior Administration official remembered:

The basic outline of policy was: Stand by your friends in the Gulf and use limited economic tools to encourage Hussein to be more moderate. The concern over Iranian fundamentalism was a given, but there was no need to shift gears or do anything radically different. Everybody knew Hussein’s reputation, and no one thought he was a potential member of the Kiwanis Club. But could he become a better member of the region? It was worth exploring the possibility, and we didn’t have a lot to lose, especially because we couldn’t get either the Arabs or the Europeans to sign on to anything more confrontational.

NSD-26 was based on the assumption that for the foreseeable future both Iran and Iraq would be consumed with rebuilding their economies after the devastation of the war. While the prevailing sentiment may still have been "a plague on both their houses," almost everyone believed that Hussein was easier to deal with than Iran. Iran was expected to continue its harsh anti-Americanism and rejection of all ties with the West. Hussein, on the other hand, was expected to seek expanded contact with the West, particularly in the form of trade and aid. NSD-26 offered economic aid and encouraged American businesses to deal with Iraq.

The BNL Scandal and CCC

Since the mid-1980s, the Department of Agriculture had been a strong proponent of good relations with Iraq. USDA’s Commodity Credit Corporation (CCC) was extending credit guarantees to Iraq for purchases of more than $1 billion a year worth of American agricultural commodities. It had lobbied consistently against congressional action that might jeopardize access to a valuable market for American agribusiness. By 1989, Iraq had become the ninth largest purchaser of American agricultural products, and it was the largest importer of US-grown rice. The United States, in turn, was Iraq’s largest supplier of non-military goods. Among the many politicians who met with Iraqi officials to lobby for Iraqi purchases of US agricultural products was the then-governor of Arkansas, Bill Clinton (although Midwestern governors tended to be the most aggressive advocates of this aid).

Iraq also received short-term credit insurance from the Export-Import Bank of approximately $200 million per year. This program generated controversy. In tktk date?, Representative Howard Berman (D-California) introduced a bill to deny Export-Import loans to any nation classified as a terrorist state, including Iraq. Berman’s bill sailed through the House of Representatives, but encountered strong resistance in the Senate. In the conference committee reconciling the House and Senate versions of the bill, Senate negotiators Daniel Inouye (D-Hawaii) and Robert Kasten (R-Wisconsin) insisted on modifying the Berman bill to include a provision allowing the President to waive the restrictions in the name of national security.

Meanwhile, the Export-Import Bank grew increasingly concerned about Iraq’s poor credit history. In fact, while Iraq had temporarily defaulted on some credits extended during the Iran-Iraq War, Baghdad had scrupulously made all its payments to American banks whose letters of credit were secured by CCC guarantees. CCC was important to Iraq.

Outside events, however, disrupted this mutually beneficial relationship. On August 4, 1989, federal agents raided the Atlanta branch of the Italian-owned Banca Nazionale del Lavoro (BNL) and seized thousands of documents. Coming in the midst of a scandal over savings and loan institutions, the seizure made instant news. It was soon revealed that BNL-Atlanta had loaned over $2 billion to Iraq during 1988 and 1989, with few visible guarantees of repayment. From 1985 to 1988, BNL-Atlanta had been a leading participant in the CCC program—fronting money to American agricultural exporters and issuing letters of credit to Iraq, with Iraqi repayment secured by CCC guarantees. Media attention to BNL-Atlanta quickly led to press discussion of the CCC program and a widespread (though inaccurate) perception that the CCC program gave or loaned cash to Iraq.

At issue was what had been done with the money BNL-Atlanta had loaned to Iraq. As Justice Department investigators probed in the summer and fall of 1989, they began to suspect that BNL somehow had "diverted" CCC-guaranteed credits to fund Iraqi purchases of arms or dual-use technology. In fact, CCC-guaranteed credits provided money only to American businesses. Wheat and rice went to Iraq, not cash. Iraq then had to pay cash to American banks on letters of credit for the money the banks had advanced to the American exporters. By 1989 and 1990, the cash Iraq was paying to American banks actually greatly exceeded the value of new agricultural purchases. But this situation was apparently not fully understood at first by Justice, nor by State. Initially, they thought American CCC credit guarantees were connected to BNL-Atlanta’s separate (and inadequately secured) loans of cash to Iraq, money Iraq had used to buy military equipment.

As public outcry over BNL grew in the fall of 1989, State, Treasury and Agriculture learned from the Justice Department that the BNL affair might have political repercussions. Alarmed at the negative press about BNL, State officials privately conceded that some of the money loaned by BNL-Atlanta was probably used to fund Iraq’s weapons programs. The Atlanta US Attorney’s office, conducting its investigation of BNL, initially developed a theory that BNL loans underwritten by CCC had been used for the Iraqi nuclear program. In early October 1989, the assistant US attorney in Atlanta briefed USDA Counsel Kevin Brosch. Brosch in turn informed State officials of the possible ramifications of the BNL investigation, apparently including the mistaken CCC money-for-weapons hypothesis. At least that was the impression of Frank Lemay, special assistant to Under Secretary of State for Economic Affairs Richard McCormack, who warned in an October 13 memo "that the investigation could blow the roof off the CCC." USDA was also investigating allegations of mismanagement of the CCC program on the Iraqi side. Indeed, by the fall of 1989, the Federal Bureau of Investigation, the Pentagon, USDA, the Internal Revenue Service, and Congress were all investigating some aspect of the US-Iraq relationship.

Baker meets Aziz. The increasing tensions within the Administration over the best approach to Iraq hung over the first meeting between Baker and Iraqi foreign minister Tariq Aziz on October 6, 1989. In line with Administration policy during its first year in office, Baker’s primary motivation was not to contain Iraq or limit its chemical weapons program, but to seek Aziz’s "help in moving along the peace process in the Middle East." Nonetheless, the two men discussed broader aspects of the US-Iraqi relationship. Baker assured Aziz that the United States desired better relations with Iraq but warned that the BNL investigation could adversely affect the relationship. Baker expressed concern over unconventional weapons proliferation, but reassured his counterpart that Iraq was not being singled out for criticism: these were "worldwide concerns." He also noted that "the Administration never supported sanctions on Iraq and that he had personally so testified." Such congressional actions were "limited to Iraqi use of CW [chemical weapons] during the war," and now "we need to look forward, not backward."

Aziz initially responded in kind, noting that Iraq was eager for good relations "on the basis of mutual respect and understanding." Indeed, Baker was initially impressed with Aziz as an "urbane, cosmopolitan man," but he quickly discovered otherwise. The Iraqi shifted tone, charging that the Bush Administration was interfering in Iraqi internal affairs, seeking to retard Baghdad’s efforts to expand its "technological base" (the code word for the nation’s military buildup), and authorizing "some American agencies" to destabilize Saddam Hussein’s government. Recalling this outburst in his memoirs, Baker described it as the work of a "latter-day von Ribbentrop."

Less then a week after this meeting, a State Department memo for Baker counseled caution in deciding whether to continue the CCC program with Iraq. At the same time, the memo emphasized the importance of constructive relations with Iraq. It said:

Given the apparent problems with the Iraq CCC program, it would seem wise to proceed with caution and prudence. We should not jump to conclusions before all the facts are known; nor should we continue with business as usual. USDA, acting against the advice of the Fed and Treasury, but with the support of other NAC [National Advisory Council] members (including State), recently approved a "first tranche" of $400 million in FY 1990 CCC credits for Iraq. … They have told the Iraqis that approval of additional credits will depend on the outcome of the ongoing investigations into the BNA [sic] scandal and charges of corruption in the operation of the CCC program. … In the meantime, the situation should be kept under close policy review because the stakes are big. We need export markets, and Iraq is a potential market and as the war-induced imports are replaced by commercial purchases, this market will undoubtedly increase in the next decade.

At the same time, the Iraqis let the US know that CCC was integral to Iraq’s economic survival. Under Secretary Nizar Hamdoun made this clear to Ambassador Glaspie on October 8, when he stressed that CCC was important not just to buy food but as a sign to the international monetary community that Iraqi credit was still good.

Iraq on Back Burner

While CCC and BNL were of major concern at USDA and Justice, and of less but still substantial interest to State in the fall of 1989, for other segments of the bureaucracy these were a non-issue. Top officials at the White House did not discuss US-Iraqi relations. There were no Deputies Committee meetings on Iraq between June 1989 and April 1990. "With the fall of the Berlin Wall and revolutions in Europe," Gates commented later, "no one really cared about Iraq" in the fall of 1989. Indeed, Iraq was not even among the top five regional priorities for Middle East specialists in the Bush Administration. The Arab-Israeli peace process, the US hostages in Lebanon, the volatile situation in Afghanistan after the Soviet pull-out, and the simmering crisis between India and Pakistan all ranked above Iraq in importance.

For analysts at the CIA and planners at the Defense Department, the only reason to pay attention to Iraq was mounting evidence of Hussein’s continued military buildup. The CIA reported that Hussein had not begun demobilizing his armed forces after the end of the war with Iran. In the early fall of 1989, CIA obtained photographic evidence of fixed missile sites in Iraq’s western desert. These missiles could have only one purpose: to strike Israel. The CIA also monitored the traffic of high-tech components into Iraq from Europe and elsewhere and informed the White House of Iraq’s progress in building its own missile launchers and crude rockets. Then there was the evidence of Iraq’s nuclear research and development of unconventional weapons. It was no secret that Iraq sought to evade non-proliferation controls and was trying to find non-US suppliers of the desired technology. It was also suspected that Iraq was attempting to evade Commerce Department dual-use export controls to obtain such items as specialized furnaces and machine tools, which could be used respectively for ballistic missiles and weapons factories. A number of Iraqi front companies made these purchases in the United States. The CIA followed such proliferation dangers but was not closely following BNL-Atlanta. The BNL case was viewed as a law enforcement matter and therefore a domestic issue, outside of CIA’s lawful purview.

Only the Pentagon took concrete measures in response to what it perceived as a significant change in Iraq’s status, caused by the imminent collapse of the Soviet Union and the devastation suffered by Iran in the 1980s. At the end of 1989, military planners reassessed US military strategy in the Persian Gulf and designated Iraq the primary threat to America’s friends in the region—Saudi Arabia, Kuwait and the other Gulf states. Planners prepared for the contingency of an Iraqi attack south, against Saudi Arabia or Kuwait.

CCC Survives

In November 1989, the debate over CCC credits came to a head. The State Department argued forcefully for their continuation. Baker himself gave his imprimatur to the CCC program. Concerned with the region as a whole, not with the administrative irregularities of CCC or a banking scandal in Atlanta, Baker stuck to the policy articulated in NSD-26. Assistant Secretary of State for Near East Affairs, John Kelly, was a staunch Baker ally in supporting the CCC program for Iraq. On October 26, the Near East and South Asian Affairs bureau (NEA) headed by Kelly recommended that Baker telephone Secretary of Agriculture Clayton Yeutter to urge agreement to the proposal to extend a further $1 billion in CCC credit guarantees to Iraq. Kelly argued that "in view of the evidence available, State believes that, to wall off an FY90 CCC program from the BNL investigation, it is sufficient to exact Iraq’s promise to cooperate in the investigation of past practices." Offering a $1 billion CCC program "would strengthen relations with Iraq, in line with NSD-26, and help US exporters." Baker promptly contacted Yeutter; by the end of the call, Yeutter agreed with his colleague.

Though Treasury and the Federal Reserve Board worried about Iraq’s general credit record and debt burden, in the end neither agency felt strongly enough about CCC to kick the matter up to the White House for a higher-level decision. Treasury concluded that "given Agriculture’s expertise and State’s backing … we seem to have no choice but to indicate our concerns, encourage USDA to improve program controls, and allow the program to go forward." Baker later termed this policy development "squarely within the parameters of NSD-26."

Considering these arguments and following its own inclination, USDA concluded that the costs of jettisoning the CCC program far outweighed any benefits. According to the department, suspending the CCC assistance would have three negative consequences. First, it would be seen as an insult by the Iraqi government, undermining a process by which the US-Iraqi political relationship "has been carefully nurtured during the years of the Iran-Iraq war, and more particularly during the 10 months since the ceasefire." Secondly, a cutoff could harm the US image in the region as a whole, providing evidence to suspicious Arab nations "of their second class treatment in US foreign policy." Finally—as throughout 1989—USDA was concerned with the domestic ramifications of sanctions. US agricultural producers, "nearing the end of their patience," would undoubtedly protest strongly against any cutoff of aid, resulting "in considerable one-sided, negative publicity." Therefore, USDA endorsed the October proposal of the State Department and the NAC for $1 billion worth of continued CCC credit guarantees for Iraq in FY90.

On November 8, the NAC decided to continue with the CCC program for Iraq. State clearly had the deciding voice. The State Department representative at the meeting, wrote the notetaker from Treasury, "stated that, despite possible future revelations, overwhelming foreign policy considerations led him to urge support of the proposal. The $1 billion program would proceed in two tranches, with the first $500 million in credit guarantees available immediately and the second $500 million to be forwarded in early 1990, provided that neither the BNL investigation nor the USDA’s review of the CCC administration uncovered wrongdoing within the Iraqi government.

To critics, the Administration could answer that there was no hard proof Iraq was using food bought with CCC credit guarantees to purchase weapons. US officials were certainly aware that if Hussein could buy food on credit, he could use the hard currency saved to buy weapons on the world market. However, Iraq’s hard currency repayments to US banks exceeded the value of the new credits available with CCC guarantees. Another reason for Administration complacency was a National Intelligence Estimate (NIE) on Iraq, drafted in the summer and circulated in the fall of 1989. The NIE reflected the general view among US government experts on Iraq.

View from the CIA

The NIE was neutrally entitled "Iraq: Foreign Policy of a Major Regional Power." It argued that Hussein would focus on internal reconstruction rather than external expansionism for the next several years. Robert Gates recalled its conclusions:

People’s concerns about Iraq as a geopolitical problem were probably mitigated by the NIE … which said that we think this guy is going to focus on rebuilding for the next few years. The NIE said that Hussein may well flex his muscle or do some sabre rattling, but his policy would not be particularly expansionist or interventionist. The NIE contributed to the complacency, but didn’t create it. The conclusions of the NIE were consistent with what the policy-makers were hearing from their Arab counterparts: that Hussein was in desperate economic straits, and that he might put the squeeze on his Arab buddies to get the price of oil raised.

The NIE discussed Iraqi attempts to violate the Nuclear Non-Proliferation Treaty and detailed what was known about Iraq’s nuclear weapons research and development. It also noted the existence of fixed missile sites and a number of other weapons systems whose target was assumed to be Israel. Much was made of Iraq’s war-weariness and a chronic shortage of cash. The estimate acknowledged that the United States Central Command was reorienting strategy with Iraq as a potential adversary. There was even a discussion of Iraqi claims on Kuwaiti territory—the Kuwaiti islands of Bubiyan and Warba were mentioned as potential targets of Iraqi expansion. The NIE concluded, however, that Iraq would in all likelihood seek a way to occupy the islands short of force. Furthermore, though Iraqi aggression against Kuwait was mentioned as a possible danger, that possibility was not highlighted in the "key judgments" section of the document, the section that most policymakers would read.

Overall, the NIE assumed that Iraq under Saddam Hussein would behave rationally and predictably. It did not draw out the chain of choices that stemmed from Hussein’s economic problems. Although analysts were aware that Iraq had substantial debts and ever-mounting military expenditures, the estimate did not explore just how Hussein was going to get the money to pay for those.

Answering such questions would have been harder than asking them. American intelligence on Iraq was weak. Even during the Iran-Iraq war, American officials realized that intelligence resources on Iraq were not commensurate with Hussein’s ability to disguise his plans and to hide his intentions from both friend and foe. As of 1989, the CIA had few reliable human sources of intelligence on Iraq. While technical intelligence such as satellites gave the US a good sense of Iraq’s military capabilities, these were of little use in assessing Saddam Hussein’s intentions. The US, therefore, relied heavily on diplomatic reporting and on the perceptions of America’s friends in the region, especially the Gulf emirates and the Saudis. In 1989, these sources consistently argued that Hussein was becoming more moderate.

The one constant note of worry in intelligence reports on Iraq was Baghdad’s effort to acquire new weapons of mass destruction, such as nuclear weapons. Yet this unease did not cause American policymakers to reconsider the strategy of constructive engagement. As one senior State Department official reflected later, violations of the Non-Proliferation Treaty did not lead to breaks with Pakistan, South Africa or Israel, either.

Had the full extent of Hussein’s violations been known, there might have been an attempt to slow down or delay the program, but not necessarily confrontation. Much depends on the reading of intent. If we had suspected regional ambitions on the part of Iraq, we might have acted differently. But with the NIE saying that Iraq would seek power and prestige through means other than intervention, why get overly worried? Saddam was perceived more as a new Assad than as a new Khomeini.

Iraq Changes Stripes

It was only with a change in Iraq’s policies toward its neighbors that serious concern emerged among top officials in the spring of 1990. The catalyst was money. In debt to the tune of $80 billion as a result of the war with Iran, Hussein carefully kept up to date on payments to US banks. But the bulk of his debt was to creditors in the region, notably the oil- and cash-rich Gulf states. Hussein owed $10 billion to Kuwait alone. Just paying the interest would have forced Hussein to curtail or terminate many of his weapons programs, as well as subsidies for domestic social programs. Hussein began to exert increasing pressure on Arab creditors to forgive his debts. As 1989 drew to a close, Hussein’s facade of regional moderation began to break down as his economic situation became more desperate.

The first explicit crack appeared at the February 1990 meeting of the Arab Cooperation Council (ACC) in Amman, Jordan. Reasoning that the Iran-Iraq war had been a struggle not between Iran and Iraq but between Iran and the whole Arab world, Hussein now wanted other Arab states to compensate their champion. He claimed that Iraq had provided the manpower; it was only fair that the Gulf states provide the money. Iraq should no more repay its "loans" than the other Arab countries should supply Iraq with men to replace those who were lost in the war. Anticipating some resistance to his demands, Hussein declared: "Let the Gulf regimes know that if they do not give this money to me, I will know how to get it." At the same meeting, Hussein made one other noteworthy announcement: that the US military presence in the Gulf was no longer necessary. Now that the war was over, he argued, its only purpose could be to help Israel. It was time, Hussein said, for American warships to leave the Gulf. Hussein’s remarks provoked Egyptian President Mubarak to leave Amman early.

Automatic pilot policy. Since the flurry of activity in the fall of 1989, relations with Iraq had received little attention in Washington. The first tranche of $500 million in CCC credit guarantees was advanced on schedule, with the second tranche due for release in the spring of 1990. Other US assistance which might strengthen the strategy of constructive engagement was under consideration. In January, the Joint Chiefs of Staff (JCS) discussed possibly extending "low-level, non-lethal military assistance." While acknowledging that past Iraqi use of chemical weapons made the climate unfavorable for improved military-to-military relations, the JCS recommended proceeding with those assistance programs which did not require notification of Congress, such as training missions or officer exchange programs. On January 17, 1990, President Bush signed a national security waiver (provided for by the Senate bargainers in the Berman bill conference committee) enabling the Export-Import Bank to continue its short-term credit insurance program with Iraq.

Two weeks before the Amman ACC summit, John Kelly had made a highly publicized visit to Baghdad to meet with Hussein and Iraqi Foreign Minister Aziz. Hussein discussed the decline of the Soviet Union and the resulting leverage for the United States in the Middle East. He expressed the hope that America would use its preeminence not simply to support Israel. Kelly raised Iraq’s dismal human rights record, but assured Hussein that the United States viewed Iraq as an important potential contributor to regional stability. When Kelly returned to Washington, he was called to testify before the House Foreign Affairs Subcommittee on European and Near Eastern Affairs. When the subcommittee met on February 28, several days after the Amman summit, Kelly stated:

Iraq seeks improved relations with the United States. Trade will be a key factor in our future relationship. Though the country faces a difficult period of reconstruction, I saw firsthand that the effort is well under way. There are important opportunities for American business in Iraq… This is not an easy relationship, but it is an important one in which we have made significant progress in recent years.

High-level attention to Iraq revived after Hussein’s behavior at the Amman summit. Some American officials began to question whether constructive engagement was really having any effect. Haass, formerly a steadfast defender of the Iraq policy, convened several interagency meetings to review it. At the Defense Department, Assistant Secretary for International Security Affairs Henry Rowen decided that Hussein was the real source of instability in the Middle East and should be treated as such. In coming to this position, Rowen was influenced by a RAND study organized by none other than Zalmay Khalizad—the "dissenting voice" of 1988.

While these reviews were underway, USDA was in the process of deciding whether to issue the second tranche of CCC credit guarantees. In early February, Iraq had announced that it intended to request the additional $500 million for 1990. Under normal conditions, USDA would have made its decision based solely on its internal investigation of the CCC program. Conditions, however, were not normal. The CCC program embodied the recommendations of NSD-26; any decision on CCC was likely to have wider implications for US-Iraq policy. Moreover, from the Amman summit on, Hussein seemed bent on testing the Iraq-US relationship.

Offenses build. On March 10, 1990, British journalist Farzad Bazoft was condemned to death by an Iraqi court on charges of spying. Despite appeals for clemency, Bazoft was executed on March 15. Less than two weeks later, British customs officials at Heathrow airport in London seized a shipment of clandestinely purchased US-made nuclear bomb triggers bound for Iraq. On April 10, British customs officials (aided by US law enforcement agents) again intercepted an illegal shipment bound for Iraq—a cargo of components apparently intended to form part of a long-range "super gun." Major US newspapers and television networks reported extensively on these episodes, and the tone of the reports was overwhelmingly negative. Host Ted Koppel devoted an entire segment of the TV news magazine Nightline to Iraq’s police state.

This backlash against Iraq convinced Saddam Hussein that the US government was turning against him. His suspicion of America was never far from the surface. He had already interpreted a February 15 Voice of America broadcast condemning secret police in numerous countries, including Iraq, as official US censure. Hussein, who tolerated no free press in Iraq, apparently attributed criticism from the American media to the Bush Administration. The State Department, not wishing to alienate Hussein, instructed April Glaspie to disavow any official connection to the Voice of America commentary.

On April 2, 1990, Hussein delivered a lengthy speech defending Iraq and the execution of Bazoft. He claimed that the West, and the United States in particular, had been trying to sell him enriched uranium for years and now—after the trigger seizure—they were trying to frame him for the crime of developing a nuclear weapon (which he denied Iraq was trying to obtain). He called the US hypocritical for condemning him for Bazoft’s death, but not inquiring too closely into the murder of Dr. Gerald Bull—a renegade Canadian scientist helping Iraq build unconventional weapons who was assassinated by unknown gunmen in Brussels at the end of March. Hussein further threatened that if Israel tried to thwart Iraq’s military progress by attacking Iraq, as it had in the 1981 bombing of Iraq’s Osirak reactor, then "by God, we will make fire eat up half of Israel."

US Reexamines Iraq Policy

These events set off alarms in Washington. State Department spokesperson Margaret Tutwiler termed Hussein’s remarks "inflammatory, irresponsible, and outrageous." [FN??]] Those in the Administration and Congress who had never placed much faith in Hussein’s supposed moderation concluded that the Iraqi leader was finally revealing his true intentions. Under Secretary of State Robert Kimmitt, for instance, informed Baker that "these are tough guys. We have to deal with them toughly. Incentives haven’t worked; it’s time to go to disincentives."

For the time being, though, the Administration went no further than strong rhetoric. On Capitol Hill, the situation stimulated renewed calls for sanctions and other concrete action. In contrast to 1989, Congress seemed prepared to act in a unified fashion. Berman reintroduced his bill terminating aid programs to Iraq, and added a provision banning the export of dual-use goods to Iraq. In the Senate, Inouye and Kasten dropped their opposition to Berman’s proposal and indicated their support for a general trade ban against Baghdad.

The US intelligence community did not prepare a new National Intelligence Estimate to update its 1989 judgments. Instead, it issued specific reports about Iraqi arms proliferation efforts and Iraq’s worrying military buildup. The CIA warned that Hussein’s April 2 speech might be a harbinger of Iraqi aggression against Israel. Analysts concluded that, in the event of further deterioration of Iraq-Israeli relations, it would be difficult for the United States to line up a coalition against Iraq. After all, even America’s Arab allies were unlikely to side with Israel. To make things worse, the US-PLO dialogue had collapsed in the wake of a terrorist attack against Israel; America’s stock was particularly low in the region.

Officials were torn about what to do. One White House official recalled a late-March PCC meeting which, however, produced "no clear consensus." One complicating factor was continued insistence by US allies in the Arab world that "we got this guy under control, we can work with him." No one in the US government wanted to make a martyr of Hussein by attacking him unilaterally. The official noted:

The question by April was whether you keep the relationship open or shut it down. There was pressure from the Hill with the Berman bill, and some publicity which forced us to think about Iraq. We all agreed that we didn’t like the way Saddam was acting. The question was tactical. Were you more likely to maintain leverage and influence through continued, limited contact, or through severing it?

While the CIA noted Hussein’s increasingly radical behavior, the head of the State Department’s Intelligence and Research bureau urged a better understanding of the Iraqi leader. He wrote:

Despite the bluster, Iraqi President Saddam Hussein’s April 2 speech illustrates a real and abiding fear that Israel (with US and UK backing) is planning another strike against Iraq. While the media has focused primarily on his claims of "dual chemical" capabilities, Saddam did not directly threaten Israel with a first strike chemical attack… Recent incidents, coupled with a lack of understanding of the West (especially the press), have exacerbated Saddam Hussein’s traditional paranoia.

On April 11, several Republican senators and one Democrat (Howard Metzenbaum of Ohio) made a well-publicized visit to Iraq to meet with Saddam Hussein in Mosul. They listened sympathetically to Hussein’s complaints about the negative tone of American media reports on Iraq. Alan Simpson (R-Wyoming) assured Hussein that the media was not under the control of the Bush Administration and empathized with his resentment of the press. Senator Robert Dole (R-Kansas)—whose home state had benefited substantially from CCC credit guarantees—claimed that he opposed any curtailment of US aid to Iraq and said that he spoke for the President in expressing the hope for a better relationship between the two nations. "Please allow me to say," Dole added, "that only twelve hours earlier President Bush had assured me that he wanted better relations, and that the US government wants better relations, with Iraq."

Clearly, the Administration was of two minds: it neither wanted to jettison the relationship with Hussein, nor did it feel that the relationship was viable under current circumstances. The lack of consensus at the March PCC meeting was indicative of the Administration’s difficulty. Although there was a sense that policy needed to become more confrontational and so move away from constructive engagement, Iraq was still seen as too important to alienate completely. Moreover, those Arab states friendly to the US were unwilling to push Hussein into a corner.

CCC Suspension Debate

In the midst of this inconclusive reassessment, USDA came to a decision on the second tranche of the CCC credit guarantees. Based on an internal USDA report, the department concluded that although the suspected culprits were mostly exporters rather than the Iraqis, there were too many irregularities. The Agriculture Department did not want to be caught up in the scandal and congressional hostility beginning to surround Iraq. USDA was loathe to face an angry public if the investigation revealed widespread kickbacks and illegalities. Moreover, against the background of public outcry over a government bailout of ill-managed savings and loan institutions, USDA officials were nervous that they would be accused of mismanaging public funds.

At the beginning of April, USDA Under Secretary Richard Crowder circulated a draft press release announcing that the department was suspending $500 million in CCC credit guarantees. The USDA review, said the release, "has raised a number of questions regarding contract pricing, purchasing practices, shipments, requests for additional services and imposition of special taxes and fees." At the same time, Crowder apparently notified several congressional staffers of USDA’s decision.

Crowder’s draft announcement proved unacceptable to the NSC staff, as well as to the Near Eastern bureau (NEA) of the State Department. Both the substance and the process of USDA’s action annoyed Haass and Charles on the NSC staff. At the beginning of March, the Iraqi ambassador had complained to National Security Adviser Scowcroft about delay in releasing the second tranche. At that point, Haass and Charles had contacted USDA to press them to act. But this was not what the NSC staff members had had in mind. Now USDA was moving unilaterally to cancel the program, failing to coordinate such a significant policy decision with the rest of the government.

Over the next six weeks, the NSC staff and NEA jointly fought a holding action to protect the CCC program to Iraq. The NSC staffers thought there should be a coordinated examination of existing and future policy options. As one official remembered: "USDA was prevented from suspending CCC in April because it was no longer a solely technical agricultural issue. You couldn’t have GS-11’s [mid-ranking bureaucrats] in Agriculture making decisions of this nature. And until we heard otherwise, Scowcroft, Bush, and the rest of us felt that it was best to continue the CCC program."

At an April 12 PCC meeting (convened to set the agenda for a scheduled NSC Deputies Committee meeting on April 16), NEA Chief Kelly said NSD-26 should be the basis for future action. As he interpreted that document, this meant Iraq should receive the remainder of the $1 billion in FY90 CCC credits as well as $200 million in short-term Export-Import Bank credits. In addition, Kelly recommended increased contacts with Saddam Hussein and other Iraqi officials to stress in person the importance of moderation. Richard Haass reminded the group of the other themes of NSD-26: concern about Iraqi human rights abuses and the need to involve Iraq in the overall Middle East peace process. He feared a strategy of economic sanctions or containment would forfeit any chance to influence Hussein, and would be ineffective—earning no support from Europe and only harsh criticism from moderate Arabs who wished to work with Hussein. Haass also stressed the need for a coordinated, not an agency-specific, policy toward Iraq. The Department of Defense did not participate in the debate.

State worried. State’s diplomats were worried. Glaspie reported from Baghdad that she had met with Under Secretary [[of what?]] Nizar Hamdoun on April 2 (the same day Hussein gave his disturbing speech) and "stressed the serious problem which now exists between our two governments," trying to make him understand that "this does not mean that there is an effort to ‘get’ Iraq." Briefing Under Secretary of State Kimmitt before the upcoming Deputies Committee meeting, Kelly conceded that recent Iraqi actions "have virtually eliminated political support for efforts to build useful relations with Iraq." But he worried more about State losing influence within the Executive branch to rivals such as Commerce and USDA. "In order to regain control of policy toward Iraq," he reasoned, "we need to establish a political framework that provides a strong response to irresponsible Iraqi actions in the near term, and lays down some longer-term markers for gradually rebuilding the relationship."

Finding such a framework, however, had eluded the Bush team for over a year, and continued to do so. As Kelly observed, "the dilemma we face is that the relationship is already paper-thin." (If anything, Baghdad was increasingly gaining leverage in the relationship: US oil imports from Iraq, which totaled 80,000 barrels per day in 1987, skyrocketed to 675,000 per day in early 1990 and peaked at a daily 1.1 million barrels in July.) Terminating Export-Import loans or CCC guarantees would, in the end, hurt US exporters even more than Iraq. " The dilemma, Kelly admitted, was that "we [needed] to send a signal to both Iraq and the Congress that we [were] prepared to take action against Iraq as a sign of our displeasure," while simultaneously preserving "our ability to deal with the Iraqis in the longer term." Apart from urging preservation of the CCC program, Kelly offered no insight into how the United States could accomplish his goals.

The Deputies Committee meeting on April 16 was inconclusive. Kimmitt, unconvinced by Kelly’s argument, advocated terminating both Export-Import loans and CCC guarantees for Iraq. Gates agreed, as he recalls, that "the policy needed to be changed to one that was more confrontational." Under Secretary of Defense Paul Wolfowitz also agreed that Hussein could not be curbed. Yet Wolfowitz saw little significance to the issue one way or another, and worried about the reaction of domestic farm business lobbies. [[DOD did??]] Gates, in the chair, ordered several follow-up studies for another Deputies Committee meeting sometime in May.

In Baghdad, Glaspie was absolutely opposed to any cutoff of CCC credit guarantees. She reassured the Iraqis that the Bush Administration still hoped for good relations. In public, Kelly remained supportive of the CCC program. When he testified before the House in late April, Kelly claimed Bush himself opposed food-related sanctions. "Experience has shown that economic sanctions are most effective when they are imposed on a multilateral basis. There is no prospect of this in the case of Iraq," he added. While Kelly admitted that the relationship between the US and Iraq had taken a turn for the worse, he stated that so long as Iraq acted responsibly, relations would improve: "The potential for improvement in conduct is certainly there."

Responding to pleas from his staff, National Security Advisor Scowcroft tried to delay as long as possible the official suspension of CCC credit guarantees. He called Secretary of Agriculture Yeutter on May 18 asking USDA once more to hold off on a press release announcing termination of the program. NSC staff member Haass personally travelled to Baghdad to impress on Hussein the seriousness of the current impasse. Haass told Foreign Minister Aziz that the future of the US-Iraqi relationship lay in Iraq’s hands. With Congress pushing sanctions, Haass warned that the Iraqis were giving the Administration little help in resisting Iraq’s opponents within the US. Aziz complained that with the recent bad press on Iraq in the US and the continued American military presence in the Gulf, it was clear to the Iraqis that Bush had adopted an anti-Iraq policy. "No," Haass remembers replying, "we are simply pursuing a pro-US policy."

As Gates had requested, an options paper was prepared for another meeting of the Deputies Committee on the subject of Iraq. The State-drafted paper noted that "suspension of CCC at this point would be a strong political statement." The memo raised the possibility of normalizing relations with Iran, but dismissed the idea as one that "would send paranoia-meters in Baghdad off the end of the scale. It would raise basic questions about our policy in the Gulf and the region as whole that would have to be addressed here." Any proposal to rally moderate Arabs into an anti-Iraq coalition seemed quixotic. In the spring of 1990, the Arab-Israeli dispute was the Middle East policy concern. Neither US officials nor Arab leaders dwelt on the possibility of an Iraqi military move against a brother Arab state.

CCC suspended. Fearing that the tide was turning against continuation of CCC credits, Glaspie cabled Baker on May 18 to protest the move. But her objections were overridden. On May 29, the Deputies Committee met, again with Gates in the chair. USDA reported on the results of its administrative review of the program and described some irregularities which, while not egregious, were still loose ends. Gates went around the table to ask what each department recommended. USDA’s Ann Veneman responded first: "I don’t even know why we are discussing this. USDA has already decided to suspend the program. There’s nothing left to decide." For State, Kimmitt still held to his April view, opposing further assistance to Iraq in response to Iraq’s misconduct. The Justice Department joined the chorus. Attorney General William Barr explained that, quite apart from the CCC program irregularities, his prosecutors in Atlanta were preparing to indict Iraqi officials for their complicity in BNL-Atlanta’s unauthorized and unsecured loans of cash to Iraq in 1988 and 1989.

Gates recalled later that the sentiment for CCC suspension was unanimous "with the sole exception of the Defense Department because of their argument that we shouldn’t use food as a weapon; it was not related to Iraq at all." The meeting also featured a long discussion about how to strengthen and tighten export controls, and all agreed that licensing requirements for dual-use exports to Iraq should be tightened. Haass and Charles from the NSC tried to soften the blow to US-Iraqi relations. The Iraqis were told that the second tranche was being withheld only temporarily, pending the outcome of the CCC and Atlanta investigations.

US Tightens Policy

The Iraqis took the suspension of CCC as yet more evidence of an anti-Iraq conspiracy in Washington. Diplomats at State, as well as the NSC staff, were pessimistic about future relations with Baghdad and they began to take more note of Hussein’s militancy. At the end of June, the State Department even considered putting Iraq back on the list of states formally designated as supporting terrorism, a list that would preclude any significant economic interaction between the two countries. Though NSD-26 was still on the books, it had clearly been overtaken. The Bush Administration decided for the time being against any further public advocacy of better relations with Iraq. At the end of June, Wolfowitz gave an interview to USIA (United States Information Agency) in which he commented that, while the USSR had collapsed, there remained someone in the Middle East who threatened to use missiles on his neighbors.

Although there was some ambivalence within the Administration over the wisdom of halting CCC, there was less debate on the need to tighten export controls. Officials developed new guidelines for export licensing in the weeks after the May 29 Deputies Committee meeting. Even before the new guidelines were in place, Haass made sure that tungsten furnaces manufactured by the Consarc Company were not shipped to Iraq. Though the Iraqis claimed that the furnaces were for the production of artificial limbs, the CIA reported that they were more likely to assist in the manufacture of nuclear weapons. Because the legislative revision was still incomplete, Haass was able to stop the shipment only by invoking an obscure provision of the 1978 Nuclear Non-Proliferation Act. The furnaces were seized on the docks, just before they were due to be loaded onto ships bound for Iraq in late June.

Hussein in trouble

In July, Hussein’s position worsened appreciably. The US was growing antagonistic. The USSR was gone. His debts were mounting. The French, Germans, Chinese, and a bevy of others were willing to sell him high-tech arms, but they were no longer willing to loan him money or let his government buy goods on credit. The CIA learned that Hussein personally received confirmation of this bad news from bankers in Europe before a July 1990 meeting of the Paris Club. Hussein had nowhere to turn but back to the very Arab states to which he was indebted. Foremost among these was a small but rich emirate on Iraq’s southern border called Kuwait.

Hussein’s plight was exacerbated by the falling price of oil, which had been steadily dropping over the previous six months. Almost all of Iraq’s earnings came from oil, and by July the price had dropped below OPEC’s agreed price floor. For every dollar per barrel reduction in the price of oil, Hussein lost tens of millions of dollars of cash which he needed to pay the interest on his loans. By 1990, he was regularly defaulting on payments to his Arab creditors, particularly Kuwait, which held some $10 billion of Iraq’s debt. If the price of oil continued to drop, Hussein would begin defaulting on his payments to Western creditors, and that could spell economic collapse. The drop in oil prices was no accident of nature. Kuwait and the United Arab Emirates were producing almost two million barrels more per annum than the 22 million barrel quota established by OPEC. This overproduction drove the price of oil down and, with it, Iraq’s hopes of sustaining both a military build-up and an economic recovery.

Hussein focused his anger on Kuwait. At a meeting of the Arab League in Baghdad on May 30, he accused the Kuwaitis not just of overproducing, but also of siphoning oil from the Rumaila oilfield which lay underneath the Iraq-Kuwait border. Over the next weeks, he repeated his demand that Kuwait impose a moratorium on Iraqi war debts, and he insisted that Kuwait repay Iraq for the oil which Kuwait "stole" from the Rumaila oilfield. Though there was some truth to Hussein’s accusations, the Kuwaitis refused to give in to the more flagrant demands, especially Hussein’s bill for $2.4 billion which Iraqi Foreign Minister Aziz claimed was the value of the "stolen" oil. His verbal threats having failed, Hussein moved several divisions of Iraqi Republican Guards to the Iraq-Kuwait border on July 15 in an attempt to bully the Kuwaitis into submission.

Bush Administration Hesitates

As the crisis developed from late May onward, the Bush Administration was slow to react. As in 1989, other foreign policy concerns intruded and drew attention away from the Gulf. In May, tension between Pakistan and India—both believed to possess nuclear weapons—rose to dangerous levels, raising the spectre of war. In the middle of May, Gates, Haass, and Kelly traveled to South Asia to try to defuse the situation.

In both Washington and Baghdad, State Department representatives took no position on the respective merits in the Iraqi-Kuwaiti dispute. But they did insist that the controversy be settled peacefully. On July 19, Baker sent a circular to all American ambassadors in the Middle East clarifying official American policy on the Iraq-Kuwait clash:

A central principle in international relations is that disputes should be settled by peaceful means, not through intimidation and threats of the use of force. The United States takes no position on the substance of the bilateral issues concerning Iraq and Kuwait. … US policy is unchanged: We remain committed to ensure the free flow of oil from the Gulf and support the sovereignty and the integrity of the Gulf states. … We also remain committed to supporting the individual and collective self-defense of our friends in the Gulf, with whom we have deep and longstanding ties.

From July 15 on, the CIA monitored the situation on a daily basis. Hussein continued to dispatch more and more troops to the border with Kuwait. On July 25, CIA Director William Webster briefed President Bush and top officials that the intelligence community was issuing a formal "warning of war." The warning was based on troop movements, not on special knowledge of Hussein’s intentions. The degree of military mobilization indicated that Iraq would be capable of advancing through Kuwait and deep into Saudi territory, CIA reported. The intelligence community did not predict where Hussein would strike, where he would stop, or what he intended to do; but it did warn that an attack was coming.

Yet this intelligence analysis was contradicted by Iraq’s neighbors. Jordan, Egypt, Saudi Arabia, even Kuwait and the UAE urged the United States not to become involved in the dispute and cautioned that Hussein was unlikely to carry out his threats. Bush called the Egyptian president, the King of Saudi Arabia, and the King of Jordan. All assured him that they knew Saddam Hussein, and no attack was imminent. The intelligence warning had explicitly noted that the Kuwaitis believed Hussein was bluffing, and stated flatly that the Kuwaitis were wrong. Bush and his advisers had to wonder, Gates remembered, "Who knows Saddam Hussein better? King Fahd, the Amir of Kuwait, or a GS-15 analyst out in Langley, Virginia?"

The conventional wisdom in Washington was that any attack would be limited to the border areas. Gates recalled that most people believed Hussein would take the Rumaila oilfield and possibly the islands of Bubiyan and Warba. While the Administration was not pleased by the prospect of an Iraqi attack, even a limited one, no one believed that much could be done about it. At a July 25 press conference, State Department spokesperson Margaret Tutwiler emphasized that the United States was not committed to defending the territorial integrity of the Gulf states. "We do not have any defense treaties with Kuwait," she said. "There are no special defense or security commitments to Kuwait." She added, however, that "coercion and intimidation" had no place "in a civilized world."

Even these veiled American warnings were too much for Kuwait, Saudi Arabia, and other moderate Arab states. They feared that such sentiments expressed publicly would provoke or embarrass Hussein and that he would respond violently in order to save face. The only Arab country willing to send a cautionary signal to Iraq was the United Arab Emirates. On July 24, the US conducted aerial refueling exercises with the UAE as a show of support for Kuwait. But when Tutwiler made these exercises public at a press conference later in the day, the UAE reacted angrily to what it perceived as America’s heavy-handed tactics. At this juncture, and without any warning, Saddam Hussein invited April Glaspie for a private audience.

Glaspie’s meeting. Glaspie had no time to get special instructions for her meeting. So, like Tutwiler the day before, Glaspie informed Hussein that the United States had no defense treaty with Kuwait and no opinion on the substance of the border dispute. She told Hussein that Bush had "instructed her to broaden and deepen our relations with Iraq and … had very recently reaffirmed his desire for a better relationship and has proven that, for example, by opposing sanctions bills." She again emphasized that the United States could not endorse anything but a peaceful settlement and, according to her report, Hussein agreed. He wished to see the issue resolved without violence at an OPEC meeting scheduled for July 28 in Jeddah, Saudi Arabia.

Glaspie later claimed that she informed Hussein in no uncertain terms that the United States would respond forcefully to any Iraqi incursion. These claims are unsubstantiated by what she reported to Washington, and there is no evidence that Washington had decided on such a momentous warning, which would have required the backing of at least Kuwait and Saudi Arabia. Nor does it seem likely that a firm statement from Glaspie would have carried much weight. Any assertion to the contrary, Gates said later, "is post facto lint picking… The fact is that Saddam Hussein was convinced that the United States would not act, and there was nothing we could have done beforehand to persuade him otherwise."

At the White House, the arrival of Glaspie’s cable reporting on her meeting with Hussein was greeted with relief. The White House took Hussein’s assurances that he looked to a diplomatic solution at the upcoming OPEC meeting as a sign that the Arabs were finally going to settle the dispute amongst themselves. Haass even pulled back from a stern memo which he had written to Bush hours before hearing the news of Glaspie’s meeting. In it, he urged that Hussein be warned in no uncertain terms against a violent settlement of his grievances with Kuwait. After reading Glaspie’s cable, Haass and Charles drafted a letter from Bush to Hussein trying to build on this seemingly positive turn of events. Once again, it seemed, "Arab diplomacy is at work." The crisis appeared to be subsiding.

At the July 28 OPEC meeting, the Iraqis agreed to a further meeting with the Kuwaitis in Jeddah with the Saudis as arbiters. That same day, the State Department cabled Baghdad with the message from Bush to Hussein. The balanced, nuanced tone of the message disturbed some officials at the Defense Department. Henry Rowen and Under Secretary Wolfowitz tried to convince State to send a sharp warning, but the White House believed that too strong a message would torpedo the Arab diplomatic efforts. The White House ultimately sent the message without a Pentagon clearance. In the message President Bush said:

I was pleased to learn of the agreement between Iraq and Kuwait to begin negotiations in Jeddah to find a peaceful solution to the current tensions between you. The United States and Iraq both have a strong interest in preserving the peace and stability of the Middle East. For this reason, we believe that differences are best resolved by peaceful means and not by threats involving military force or conflict. I also welcome your statement that Iraq desires friendship rather than confrontation with the United States. Let me reassure you, as my ambassador, Senator Dole and others have done, that my administration continues to desire better relations with Iraq. We will also continue to support our friends in the region with whom we have had long-standing ties. We see no necessary inconsistency between these two objectives. As you know, we still have certain fundamental concerns about certain Iraqi policies and activities, and we will continue to raise these concerns with you, in a spirit of friendship and candor. … Both our governments must maintain open channels of communication to avoid misunderstandings and in order to build a more durable foundation for improving our relations.

But the July 31 meeting in Jeddah came to naught. On August 1 the intelligence community upgraded its formal "warning of war" to a "warning of attack"—meaning a judgment that the outbreak of fighting was imminent. The Deputies Committee hastily convened a meeting. Gates was out of town. Kimmitt asked Kerr, the deputy head of CIA, to estimate the chance of an Iraqi attack on Kuwait. Kerr said the probability was "99.9" percent. That’s not what Iraq’s Arab neighbors are saying, Kelly pointed out.

Kimmitt and Haass considered sending a second message from Bush, more strongly worded than the first, but Hussein preempted any further action. In the early morning of August 2, before the sun rose, thousands of Iraqi troops and hundreds of their tanks began a rapid conquest of Kuwait.