Iraq's threats against its tiny neighbors, oil-rich Kuwait and the even tinier United Arab Emirates, have not only raised tensions in the Middle East but already have had an effect on oil prices, both in the United States and abroad.
While Iraq has promised that it won't use military force against Kuwait and has begun pulling back troops and tanks massed on lightly defended Kuwait's border, the intimidation apparently has paid off. Kuwait and the Emirates have agreed to halt their overproduction of oil that had exceeded OPEC targets.There are a number of reasons behind Iraq's sudden belligerency, most of them growing out of the exhausting seven-year war with Iran that ended in 1988 in a virtual stalemate.
Iraq owes perhaps $45 billion in war debts, much of it interest-free loans from the same people Iraqi President Saddam Hussein is now threatening. Hussein may be doing some saber-rattling in order to pressure his fellow Arabs into forgiving most of those loans.
In addition, Iraq says it was upset over the fact that many of the 13 oil-producing nations of OPEC - including Kuwait - are not adhering to OPEC's agreed-upon quotas, thus driving down the world oil price and costing Iraq billions of dollars.
Another reason may be to pressure OPEC, now holding its midyear conference, to raise its average target price for crude oil to $20 a barrel. The target is now $18 a barrel, but the actual market price is only around $16 and has been as low as $13 this year due to a market glut.
With Kuwait agreeing to end its overproduction, Iraq may succeed in pushing the OPEC target price to higher levels and keeping it there. That will translate into higher gasoline prices for American motorists.
While Iraq is angered over the presence of U.S. warships doing "short-notice" maneuvers in the Gulf, the interests of the United States are clear. Kuwait is a major supplier of oil to the United States, and America could not stand by and let Iraq overrun that country. The U.S. State Department already has said it backs Kuwait's territorial integrity.
Kuwait has only 1.8 million people all told - about the size of Iraq's battle-tested army. The chance of an invasion appears slight, but nobody is willing to entirely rule out the possibility. An obviously power-hungry Hussein is not known for always being reasonable.
The United States must make it clear to Kuwait, the Emirates, Saudi Arabia and other friends - and especially to Iraq - that attempts to grab control of Kuwait and the OPEC oil market will incur at least diplomatic sanctions and economic embargoes.