the gulf war and its aftermath: first...

The Gulf War and its aftermath:

first reflections

FRED HALLIDAY

Fred Halliday traces the reasons behind Saddam Hussein's invasion of Kuwait in August iggo and draws out some of the political and security consequences of the war and the ceasefire for the Gulf states andfor the WeVstern allies.

The crisis unleashed by Iraq's invasion of Kuwait must count not only as one of the major international postwar crises, but as a unique occurrence in several respects. If it bears comparison in the level of conflict with Korea and Vietnam and in drama with Cuba, it differs from all of these in being the first major postwar crisis not to have an overriding East-West dimension. For the first time, one member of the United Nations has been not merely invaded, but completely occupied and annexed by another. With this came the displacement of hundreds of thousands of people from Kuwait and Iraq, disruption in the international trade of two major oil producers, and worldwide economic and financial uncertainty. The coalition of forces led by the United States in response to the invasion the 'Desert Shield' that became a 'Desert Storm' then deployed a force of well over half a million personnel in Arabia.

The scale of the war can only be grasped by looking at it on various levels. The casualty level was far lower than in the major post-I945 wars (compare Korea with 4.5 million killed, Vietnam with over 2 million, Lebanon with 250,000, the Iran-Iraq War with 500,000 or more); but in terms of the mobilization involved and weaponry used, this was, after Korea, the greatest interstate conflict since the Second World War.

The rise of new technologies aside, what distinguished this war at the military level were three other characteristics. The first was the extreme asymmetry in casualties tens of thousands killed on the Iraqi side, a few dozen on the side of the coalition. The precedents were those of pre-i9I4 colonial wars, in which superior technology and organization made metropolitan armies almost invulnerable and able to inflict terrible costs on their opponents. The infliction of casualties north of Kuwait from the 24 to the 26 February was an inflated version of the fate that befell the Tibetan army at the battle of Guru in March I904: led into battle by intransigent generals and lamas alike, they lost 700 dead as against half a dozen wounded in the British Expeditionary Force. The second

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Fred Halliday

distinguishing characteristic was the manner in which the war ended a decisive calling of a halt by Bush, at a moment when in strictly military terms he could have pressed on to Baghdad. Here, the analogy that presented itself, of an equally political decision to halt when the road ahead lay clear, was the Chinese decision to stop its war with India in October I962. In both cases a Clausewitzian caution prevailed over military momentum. The third, and perhaps most dramatic distinguishing feature of this war was the ecological disaster which accompanied it, following the Iraqi decision to blow up the oil wells in Kuwait during their retreat. This was not the first time that war had been accompanied by ecological destruction: the destruction of forests and farmlands in the First World War, the impact of two nuclear bombs in the Second World War, and the widespread use of chemical defoliants in Vietnam were serious enough. In this case, however, there was no military purpose in an unprecedentedly destructive action which did much to pollute the atmosphere across a wide area of West Asia.

As a Middle East conflict it had three unique features. First, it was the first significant conflict involving the armies of Arab states. Second, the inter-Arab division was compounded by the fact that the whole of the Arab world, including North Africa, was involved, and by implication both in the war and in any future peace process of the three non-Arab states of the region, Israel, Iran and Turkey, the latter two hitherto excluded from inter-Arab politics. Third an insight obscured by the degree of anti-American sentiment found for a long time in the region this was the first time that US forces have in major numbers intervened in the region, the two much smaller interventions in Lebanon (of i958 and I982-4) excepted.

For the Middle East there has been no comparable crisis involving both regional and extra-regional forces since the First World War, which saw the collapse of the Ottoman Empire and the intervention of British and French forces, together with their Arab allies, in what became Iraq, Syria, and Palestine. Subsequent interventions-in the Second World War, Suez, the British wars in Oman are, by comparison, secondary. The differences and comparisons are, however, instructive. On the one hand, this war will not have the degree of impact that followed the First World War, in that the map, in the sense of the state divisions, of the region will not be significantly altered, nor indeed should, in the majority of the cases, the political character of the regimes in power. On the other hand, the past contains several warnings for the present. Like Desert Storm, campaigns of the First War involved a mainly external force with some token Arab political attachments: the latter, like the armed forces of some occupied countries in the Second War, for political not military purposes. Moreover, the history of the First World War was one of the maintenance of a disparate coalition by means of public unity but private divergence of goals. Specifically, behind the goal of defeating the Turks, contradictory promises were made: the Sykes-Picot agreement, the Husayn-Macmahon corre- spondence, the Balfour Declaration. It does not require much imagination (or distrust) to see that comparable and equally contradictory commitments have

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been made to a variety of actors in this war, and that the political consequences thereafter may equally arouse rancour and dismay. The coalition may have survived the war: it is less likely to survive the peace.

Three broad political lessons of wars would seem to be especially worth remembering in this context. The first is that, in all wars, states fight for a variety of goals and these may well change as the war progresses. The motives of the states that fought in the Second World War were economic, strategic and ideological all at the same time: the same mixture applied now. The shifting of war aims is common, as the debates among the Allies about what to do with Germany in both world wars indicated. Secondly, relations between allies both before and after wars are never easy, and there is always an element of competition between them. The Arab participants in the coalition have their own variant agenda, as do the non-Arab states. Equally the United States, while seeking to rally the maximum international support in the West, may also be able to use its military predominance in the war and the postwar situation to exert leverage against its allies, notably Japan and Germany, and to argue that any new international order should follow its priorities. Third, even when wars do not alter frontiers, they do bring about great strains within countries which may in the aftermath of war produce political and ideological changes. As with the I948, I967 and I973 Arab-Israeli wars, the impact of this war on the Arab world will only be visible years after it has ended. Pan-Arab and Pan-Islamic sentiment did not produce the insurrection that Saddam anticipated. Whether these are really spent forces or. whether they are capable of further impact on the region, cannot yet be assessed.

These general considerations should be enough to indicate the extent to which the uncertainties of the current war in the Gulf are common to all such conflicts. They should suggest their own admonitions. Whatever the outcome and whatever the duration of the conflict, this war will not 'solve' the problem of the Gulf, nor of the Middle East more generally. A range of policy issues will emerge from it which will remain to bedevil governments-as they did after the two world wars and after the various Arab-Israeli wars.

Why did Saddam invade?

The long-term background to the Iraqi invasion needs no rehearsal. Iraq has long had a dispute with Kuwait, on occasion denying the legitimacy of Kuwait as a separate state altogether, on others questioning the delimitation of the frontiers between them. In I96I it took the former approach, in I973 it laid claim to some Kuwaiti islands. At the same time, Iraq had been a restless power: the legitimacy and credibility of the Ba'thist regime, and of Saddam Hussein in particular, depended upon his attaining new foreign policy successes and enhancing Iraq's international position.

It was in the late I970S that Iraq began to pursue this new international role as the champion of Arab radicalism against Egypt, in particular against Sadat's opening to Israel, and as the opponent of revolutionary Iran. From I980 to I988

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Iraq fought Iran to a standstill. Following that ceasefire, it was expected that, exhausted, Iraq would accept peace and rebuild. But it did not: having forced Iran to accept peace on its terms, it then blocked the peace process by raising new demands, in particular for the revision of the Shatt al-Arab river boundary, and began to assert itself more forcefully in the Arab world. Iraq sought hegemony, not coexistence.

The decision to invade Kuwait came against this background, and reflected five broad elements of the situation in the early part of I990. First, the impasse with Iran. Iraq's attempt to impose a capitulationist peace on Iran did not succeed. Iran refused to renegotiate the Shatt al-Arab frontier, or to release Iraqi prisoners of war. After the new Iranian government had consolidated in late I989 after Khomeini's death, it was clear that Iraq had been blocked on its eastern frontiers. Second, the economic crisis within Iraq. In the late I970s, Iraq, by then discovered to have oil reserves second only to Saudi Arabia's in the region, was in a strong economic position. But eight years of war turned it into a net debtor (to the tune of around $70 billion), and despite government attempts to promote the private sector and domestic agriculture, Iraq remained in a weak position even after I988. The fall in world oil prices compounded this. The seizure of Kuwait offered a solution at several levels a distraction from domestic resentment at economic mismanagement, the possibility of acquiring Kuwaiti assets and investments, and the seizure of the oil wells themselves.

Third, the Cold War had ended. The fall of the communist regimes in Eastern Europe, and in particular the fate of Ceau?escu in Romania, led to a widespread debate in the Arab world about possible future democratization in Iraq and elsewhere. Despite their help to him in the past, Saddam suspected both Soviet and US intentions towards him. This led him to adopt a more hostile attitude to the United States in particular, and from early I990 he was openly criticizing Washington. He called for the withdrawal of US forces from the Gulf and an Arab financial boycott of the United States. He no longer felt he needed the US backing he had used against Iran: he now saw benefit in confronting the West.

Fourth, Iraq's dispute with Kuwait. On top of the long-standing border issues, in I990 Kuwaiti relations with Iraq deterioriated as a result of four new questions the Iraqi demand that its debt to Kuwait incurred in the war with Iran be cancelled; the related demand that Kuwait pay compensation for Iraq's defence of Arab interests in that war; the charge that Kuwait, along with the Amirates, had deprived Iraq of oil revenues by producing above its OPEC quota and so pushing down the price of oil; and the charge that Kuwait had taken oil unfairly from the Rumaila field, which straddles the two states' frontier.

Fifth, stalemate in the Arab-Israeli context. The situation in the Arab world was not an instigatory cause of Iraq's invasion of Kuwait, but it was an important part of the background and provided an opportunity for Iraq to reassert its claims to regional leadership. For the two years prior to August I990

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the Arab world had been dominated by the failure to make progress in the Arab-Israeli dispute. The Palestinian intifadah from November I987 and the PLO's concession of Israel's right to exist in November I988 raised hope of a breakthrough. Instead, nothing happened, while the majority of Arab states maintained polite relations with the West. On top of that, in the course of I989 and I990 there came the beginning of mass Soviet Jewish emigration to Israel. A climate of frustration, focused on the Palestinian issue, developed, one that Iraq could take advantage of.

In this explosive situation, negotiations between Kuwait and Iraq failed to make progress. The Kuwaitis were over-confident; they seem to have imagined that Iraq would never invade, and they were not minded to conciliate even where the Iraqis had, by general agreement, some cause, as on the oil prices issue and over Rumaila. The Iraqis saw an opportunity to assert their power, and when negotiations failed they took a sudden decision to invade. 2 August followed. It is possible to argue that Saddam had decided weeks or months before to invade Kuwait. But while the logic of events had built up over months, with contingency plans for such a move having been prepared years before, it is quite plausible that Saddam took his decision on the spur of the moment, much as he seems to have done in I980 when he decided to attack Iran.

The fallout for Gulf politics

The core of the current crisis is Iraq itself, and the link that has long existed between the dictatorial regime of the Ba'th Party within and the aggressive policies it has pursued abroad. Iraq is a country with a strong, well-educated middle class including in its ranks many skilled professionals: they could form the core of a system that could address the country's development problems and put the oil revenues to good use. Saddam Hussein has abused this class, but his ability to survive and to transform Iraq as he has done rests partly upon the reluctant support he has received from it. The question that is now posed is whether in the aftermath of Ba'th rule more rational, competent and peace- oriented government could emerge in Iraq, commanding the support of a democratic majority.

The outcome depends upon a number of factors, as yet incalculable. First there is the question of the longer-run impact of the defeat, and in particular whether it leads to the effective breakdown of Ba'thist control, and law and order, in the country. In the latter case there could well emerge a situation of civil war, with rival ethnic, religious and political groups vying for power or, in Lebanese fashion, controlling particular bits of territory. Such an eventuality could also bring in outside powers, not least Iran and Turkey. A second possibility is a relatively weak, unstable military regime at the centre, reminiscent of the period between the fall of the monarch and the advent of the Ba'th to power between i958 and I968. A third possibility is the replacement of the Ba'th by a strong nationalist/military regime emerging from the army,

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less aggressive and more benign than the Ba'th but basically constituting a more human version of the same. This may well be what sections of the armed forces themselves want, and it may also be what those outside who are considering the future of the country would want: for the coalition states, and for those such as Egypt, Syria and Saudi Arabia who are advising them on postwar Iraq and are harbouring elements of an alternative regime, the temptation must be to go for the most calculable substitute.

There are, however, a range of opposition forces that aspire to replace the current regime in Baghdad by a more open, civilian, and pluralistic regime. The four main constituents of the opposition-dissident Ba'th and army officers, communists, Kurds and Islamists have formed a coalition with a political programme that would allow for a transition to a democratic government. Among other things, this calls for the implementation of the I970 agreement on Kurdistan, which could avert pressure for a Kurdish secession and breakup of Iraq by giving the Kurds some autonomy. Were this programme to be implemented, then the long-run goal of establishing a stable, democratic and peaceful government in Iraq would be achieved. Just as war destroyed militaristic dictatorship and brought democracy and prosperity in Germany and Japan, so it could in Iraq. But the prospects for such an outcome are not good. The coalition itself is frail, and various outside forces, notably Syria and Iran, have their own candidates for power; the coalition and particularly the Saudis are unlikely to want to accept democracy in Iraq, so near themselves; and the conditions inside Iraq are not going to be propitious to such a democratic transition.

The question of democratic politics is, however, also posed for the other states of the peninsula, and in particular for the monarchies of Saudi Arabia and Kuwait. In both cases the royal families have in the past made promises of reform when under pressure, but have not implemented them later on. The human rights records of these regimes have been criticized by international bodies, although they pale into insignificance before that of the republican revolutionary regimes they adjoin, namely Iraq, Syria and Iran. The lack of democracy played a part, however, in the onset of this crisis: first, because it enabled Saddam Hussein to pose as the champion of popular resentment against the 'Croesuses', the parasitic rich monarchs of these states, both within the peninsula and among Arabs in other poorer states; and second, because in the case of Kuwait the disastrous diplomatic mishandling of the crisis by the al- Sabah family and the unnecessary provocation of the Iraqis over the oil issue was in part motivated by a desire to use conflict with Iraq to quell domestic dissent. Unlike Saudi Arabia, Kuwait has a constitution which allows for democratic politics and limits the powers of the Amir: this has been little respected by the Amir, however, and in I986 he dissolved the duly elected parliament. On past showing and despite promises to the convention of Kuwaiti politicians held in Jidda last October the al-Sabah were reluctant to allow a democratic opening in Kuwait, or to subject the country's finances and reconstruction work to public scrutiny. Given the serious incidence of corrupt

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administration and incompetence shown by the royal family in the I98os, there was considerable concern among Kuwaitis about the pattern of the postwar system in their country.

The issue of democracy is equally posed for Saudi Arabia itself. One of the pressures on the al-Sabah not to liberalize has been from Saudi Arabia, and it can be assumed that current preferences of many Saudi princes are for a restoration of strong Amiri control within Kuwait once it is liberated. Yet in neither Saudi Arabia nor Kuwait are the ruling families of one mind, and, as in other countries, the difficulties of promoting democracy cannot be attributed merely to the self-interest of the rulers. Democracy takes time to develop in any society it took centuries to do so in Britain, the United States and France, and is relatively recent in a range of major countries including Germany, Italy, Spain, Greece and Japan, let alone Eastern Europe. In addition to the social and economic tensions present in these societies, there are three particular reasons why a move to democracy may be especially hard. First, these are fragmented societies, without common political and social values: Iraq and Syria have been ruled by small minorities (Sunni Arabs and Alawite officers respectively), while Saudi Arabia, it is often forgotten, is a modern creation, the result of the conquest of the peninsula by the Saudi tribes in the I920S. Second, the continued interstate tension, focused both on the Arab-Israeli and on the Gulf arenas, militates against confidence in democracy: the degree of militarization of these societies' internal and external systems encouraged army rule and repressive security. Third, there is the fact, unique to the region, that many of those pressing from below for democracy have themselves an undemocratic programme: the Islamist forces, which in most cases appear to be the strongest contenders for power in a more open context, aim not to establish a democratic government or one that respects human rights or international norms, but to impose their own populist but coercive regimes, as the example of Iran shows. The results of recent elections in Jordan and Algeria indicate that in exchange for the established and often stale undemocratic regimes, vigorous and popularly backed undemocratic regimes are waiting to take their place. Quite apart from the international orientations of these regimes (which are very hostile to the non-Islamic world) and their probable incompetence in administration and international economic management, such successor governments, however democratically elected, would not bring the expected benefits, whether political or economic, to the peoples in question.

There is, of course, one additional reason for the lack of development of democracy in the region over the whole of the modern period, and that is the policy pursued by outside powers. In a curious combination of self-serving myths, Western and Soviet policy has accepted the idea, engagingly asserted by most Middle Eastern rulers, that in some way or other the region is not 'ripe' for democracy, or alternatively that in some countries there are different forms of consultation and legitimacy in operation, unseen by external observers with their inept, universalistic, criteria. One has only to contrast the policy pursued by the United States towards communist dictatorships in Eastern Europe or the

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Third World with that towards a range of undemocratic regimes in the Middle East, traditional monarchies and nationalist republics alike. Patchy as the US record may be throughout the world, and overshadowed as it is by considerations of strategy and convenience, there is a marked contrast between the degree of pressure and sanction exerted against Soviet-style and (since the mid-Ig7os) right-wing Third World dictatorships, and the enduring indulgence of undemocratic regimes in the Middle East. The Soviet Union, with its support for 'national democratic' and 'socialist oriented' regimes (Iraq, Syria, Libya, South Yemen, Nasserist Egypt) has no better a record. It was, indeed, the fear that this indulgence might come to an end that was one of the main reasons for Saddam's sudden turning against the United States in late i989 and early I990. It remains to be seen, however, whether there will be any clearer Western and Soviet commitment to democracy in the region, and whether, even if there is, it will lead to clear or long-sighted policy implementation.

The many faces of regional security

The term 'regional security' is usually used as a portmanteau to cover at least three different elements of security the maintenance of peace between regional states by means of some kind of acceptable military 'balance' and a formal set of treaty arrangements; the stability of the regimes themselves against internal and external opposition; and the management of external relations with the region, in both strategic terms (i.e. so as to keep out rival outside powers) and economic ones, most notably oil. The myth of those who propound security systems is that such systems benefit all forces equally, whereas this is necessarily not so. The regimes in power benefit at the expense of their (often coercively suppressed) subjects; the regional powers associated with such a system compete for gains and influence within any alliance system; and great powers from outside propose 'security' systems that are to their particular advantage and seek to minimize or completely exclude the influence of their rivals. This latter point was as clear to Dr Kissinger in the post-I973 situation in the Middle East as it was to Mr Brezhnev in Eastern Europe in i968.

In the case of the Middle East this issue is clearly of vital importance. The region is pre-eminent in the contemporary world in the degree of the interstate war and the attendant arms races and tension; and its interstate competition is more complex than anywhere else in the world because it involves not just a bipolar conflict, as was the case with the Cold War in Europe, but a set of interlocking conflicts Arab-Israeli, Iran-Iraq, Iraq-Syria, Iraq-Saudi Arabia, Saudi-Yemeni, Syrian-Lebanese, Syrian-Jordanian, Egyptian-Libyan, Moroccan-Algerian, Palestinian-Syrian, and so forth. The history of formal and informal treaty organizations in the region is one of weakness, incompleteness and failure: by the Arab League in the I940s, by the Baghdad Pact-CENTO in the ig5os and I960s, by the 'Twin Pillar' approach in the Gulf in the I970s, by the Gulf Cooperation Council and the Arab Cooperation Council, which failed to protect a member state and foundered on 2 August

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I990. The problems are well known: no organization can be created that includes Israel and the Arabs, or even the Arabs and Iran or Turkey; the Arabs themselves are divided, as the rival GCC-ACC lineup prior to the Kuwait invasion showed, followed by the breakup of the ACC itself; the Arabs as a whole are reluctant to sign formal treaty agreements with the Western powers that have a direct interest in supporting them and in guaranteeing access to oil; and Arab public opinion is hostile to Western troop deployments even where, as in Saudi Arabia, these troops are there to protect the country from external attack.

The ability of local and external forces to build a system that meets the goals of legitimate regional security is therefore limited, and this will be exacerbated by some of the likely consequences of the Gulf War-widespread anti-Western feeling in major Arab states, the weakened legitimacy of Middle East coalition states, the enhanced position of Iran (which will use its power to oppose arrangements it does not like), the refusal of Israel to make any concessions on the Palestine issue, and increasing discord among the great powers about what kind of solution to come up with. The defeat of Iraq, however, and the sense of urgency which many even the Saudis will feel, may lead to some development, within obvious guidelines. These might include, first, the maximum use of indigenous military forces, notably those of Egypt; second, the deployment of multilateral peace-keeping forces under UN, Arab League or Islamic auspices, at least to act as a buffer between Kuwait and Iraq; third, the deployment as far as is practically possible of Western military capabilities on sea and in the air, with actual troops (as distinct from prepositioned equipment) kept out of the region, possibly in Turkey or other NATO countries; fourth, a concerted effort to seek (if not find) a solution to the Palestinian question; and fifth, greater attention to programmes of economic and social development designed to rebuild destroyed countries, notably Iraq, and to remove the widespread problems found in much of the rest of the Arab world.

The difficulties with this programme for security are evident, however. In the first place there is a direct conflict between the long-term need to establish, develop and maintain viable democratic regimes in the region and the more immediate concerns of security. Faced with this choice, there is a presumption that the Arab regimes and their Western backers will choose stability, i.e. the status quo, over the riskier path of democratization. They will point to what happens when the lid does come off in Iran, Jordan, Algeria, Tunisia to reinforce their case.

Second, any remotely foreseeable security system will fail to address the Palestinian question. The Israelis do not appear to be going to compromise. The PLO may be discredited, not least among the Gulf Arabs, but will not disappear, let alone allow a viable alternative representative to emerge. If there is a substitute for the PLO it is the more intransigent Hamas, inspired by Iran. Welfare programmes alone are not going to do much to quell Palestinian anger. There is no 'developmental fix' as far as the Palestinian issue is concerned, no

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killing the intifadah with kindness, even assuming there was agreement within Israel and the Arab world on helping rather than punishing and marginalizing the Palestinians.

Third, the major regional powers have their own postwar agenda, each of an incompatible kind. Turkey does not, unless there is a complete breakdown of government in Baghdad, want to acquire Iraqi territory; the oil of northern Iraq has only 20 years to go and Ankara does not want another four million Kurds within its borders. But it does want a new security role in the region, as an ally of the United States and as an influential power in a region where (Turks will point out) all the trouble is caused by quarrels between their erstwhile colonies.

Iran not only does not want Turkey to have a role in the Gulf, but it wants to exclude Egypt, Pakistan and the Western forces as well. In the current climate in Iran it is almost inconceivable that any Tehran government could join a formal treaty organization with Western powers or the conservative Arabs, however loosely defined. For Iran the issue is simple: the Kuwait crisis shows the need for the traditional regional hegemon to reassume the mantle of maintaining order. The area is not called the Persian Gulf for nothing. Saudi Arabia, on the other hand, sees the war as both a threat and an opportunity: it feared, reasonably, invasion by Iraq, and it will allow US troops to remain for a considerable period. It wants to make sure, however, that it controls the postwar settlement: that there will follow re-establishment of political control in Kuwait, establishment of a more friendly Arab nationalist regime in Baghdad, the polite exclusion of Iran, the return of Turkey to pre-crisis abstention. On the issue of Israel, Iran retains the classic rejectionist stance, refusing to accept the legitimacy of any Jewish state. The Saudis have also to look to the disarray in which the world Islamic community finds itself, with even groups that were hitherto funded by the Saudis, such as FIS in Algeria and various Egyptian forces, now supporting Saddam Hussein.

On the outside, the preconditions for securing access to oil and maintaining 'stability' are not so propitious either. The United States will not bear the financial and human costs of a large Gulf deployment single handed, not least because of domestic opposition on financial grounds, but its OECD allies have an ambivalent attitude-on the one hand refusing to play military and financial roles comparable to the United States, on the other suspecting that once the war is over the US will use the 'leverage' it has acquired over Gulf oil supplies to exact concessions from Japan and Western Europe in future economic and security negotiations. The paradox is that the other OECD states are suspicious of what they see as a re-establishment of US hegemony, but are ready for the United States to accomplish it. The US public, as distinct from the Pentagon and the White House, is not that concerned about hegemony or dying for Kuwait, but does want to see a reassertion of hegemony as against their increasingly intrusive commercial competitors.

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The economic dimension

Beyond the issues of international strategy and internal politics within these countries lie a set of questions pertaining to the oil industry and the place of the region in the world economy. In one sense, external interest has focused on the wrong aspect of the economic impact of this war. Most attention was paid to whether it would provoke a rise in oil prices, but after the initial uncertainties of August the world supply made up the five million barrels a day of lost Iraqi and Kuwaiti output, and the outbreak of war inJanuary did not disrupt output or transportation from the lower Gulf. Far more important were two others less immediately quantifiable, aspects of the crisis: the impact on the budget deficits and hence on the overall economic prospects of the United States and Britain, and the impact on international commercial and financial confidence. The former is hard to quantify, since no one could say what the war was going to cost the coalition states, in particular the United States. With an annual military expenditure of $300 billion, the additional expenditures associated with the war (of, say, $So billion mostly covered by contributions by other states) might not seem so large. Compared to the costs of the other major crisis that hit the US government's financial calculations in I990, the savings and loans crisis, the Kuwait crisis appeared small indeed, estimates of the latter's cost over a number of years running from $soo to $i,Soo billion. Nevertheless, the distortions of the US and British budgets may well have long-term deflationary effects. Even more so, the fall in business confidence and the impact on certain especially vulnerable sectors-airlines, tourism-meant that the broad, long-run and macroeconomic impact of the war have been considerable, however stable the oil price will have been shown to be.

Against this background, it is nonetheless possible to identify four particular economic issues that any assessment of the war must confront.

Oil prices: The war was in part caused by an oil price dispute within OPEC, between the high-price group including Iraq and the low-price grouping of Kuwait, Abu Dhabi and Saudi Arabia. One lesson which has probably been learnt by OPEC states, in the Gulf at least, is that such playing with oil prices is too dangerous to be worth it. A consensus in favour of holding oil prices is therefore likely to emerge. If there is a greater integration of Iran into the Gulf, and a desire to promote the rebuilding of Iraq under a new regime, support for relatively higher prices is also likely.

Production levels: This political and economic interest in holding prices will, of course, run up against the fact that when Kuwaiti and Iraqi production come on stream again they will either push down prices or entail that others who have raised output since August lower their production once again. This may take time a year or two to achieve. In the longer run from i995 onwards the world oil market will more and more come to be dominated by a core of Gulf states: Saudi Arabia, Kuwait, Abu Dhabi, Iraq. They will be able

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to maintain prices, provided they are united, and the knowledge that their domination is going to increase may act to consolidate OPEC discipline sooner.

Soviet output: Before I990 the USSR produced about I2 million barrels of oil a day, of which 3-4 million were exported. In addition it supplied substantial amounts of gas to Western Europe. The crisis within the USSR has hit output of oil and gas in several ways: levels of output have fallen because of strikes, management is not taking investment and maintenance decisions, output of investment goods (centred in Azerbaijan) has been hit by strikes. This has led to a marked fall in production and exports. Output in January I99I was over 8 per cent down on I990, and the current Soviet budget predicts that oil exports will fall by So per cent in 1991. Some Soviet experts now predict that by I992 or I993 the USSR will be a net oil importer. For Eastern Europe the changes within the USSR are doubly threatening, since they involve both cutbacks in physical supplies and rises in price to world levels, as well as, from i January I99I, Soviet insistence that all payment be in dollars. This means that East European demand for oil on the world market will increase in the months and years ahead. Even if Soviet and Gulf prices are the same, the East Europeans may calculate that non-Soviet supply is more reliable than the intermittent exports of a troubled USSR.

Security of supply: Given the tensions and conflict that have long prevailed in the Gulf, not least the Iran-Iraq War and the attendant tanker war, it is striking how little oil supplies have been disrupted over recent years. The Kuwait crisis has followed the same pattern. There remains, however, a long-term concern in the outside world that Gulf oil supplies will be threatened, if not by direct attack, then by political conflict within states and by interstate wars, and that measures need to be taken to insulate as far as possible this supply from the political environment in which it takes place. No system can operate against the wishes of governments in the region, and it is in their long-run interest to ensure that oil keeps flowing. Any broader system of regional security, with or without the presence of external military forces, will need to address this question. The technical preconditions for secure supply involve the protection of production and refining facilities and the guarding of tanker shipping lanes and pipelines. Given past and recent experience, this should not be too difficult to organize. What is more difficult is the overall political environment: here the focus returns to the question addressed above, of the regimes in these countries and the ability of the oil-importing states to find reasonable common ground with legitimate and stable governments. The security of oil ultimately derives from the political strength and legitimacy of the states in the region.

I0 March 1991

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