In June 1986, we wrote that the situation in which Iraq found itself “underlines the vital need for the establishment of democracy…however broadly this may be defined.” Four years later, this plea has become more urgent; the regime has become even more powerful and repressive and has now extended its rule to Kuwait, initiating a crisis whose possible consequences for the region, if not the world, are fearful to contemplate.
The invasion has also highlighted the degradation of public life and political discourse in the Arab world over the past few decades. Popular demonstrations of solidarity in the streets of Amman and other towns of the Mashriq have little to do with support for Saddam Hussein and his rule; they are the expression of a widespread feeling of utter hopelessness. This springs from a variety of causes — perhaps chief among them the endemic decline in living standards that has affected the lives of large numbers of people throughout the region. In addition, Arabs have long been confronted by the West’s support for Israel and for the oligarchic political systems of the Arabian Peninsula. And they are well aware that the West enthusiastically backed Iraq in its war with Iran, so that its motives for suddenly now “discovering” Iraq’s appalling human rights record and its concern for the preservation of the integrity of Kuwait derive from an almost indecently narrow self-interest. The extent of popular support for Iraq in Jordan, the West Bank and elsewhere also reflects the weakness of the nascent movement for democracy in the region. Only when Arab governments are fully accountable to their peoples will there be hope for peace and prosperity in the region.
Last Years of the War
By the middle of 1986, the tremendous losses sustained by both sides in the Iran-Iraq war seemed to have both contenders bogged down with no end in sight. The burden of supporting Iraq financially was beginning to cause severe economic strains in Kuwait and Saudi Arabia. When the OPEC conference in October 1985 failed to reach agreement on export quotas, Saudi Arabia drove the price of oil down by increasing its exports from 2 million barrels a day to 4.5 million barrels a day in an attempt to cripple the Iranian economy. The price of a barrel of oil dropped from $27 in 1985 to $15 in early 1986. 
These developments led to a major shift in the war. By 1987 Iran and Iraq began to make serious attempts to destroy each other’s oil export facilities, and Iraq made sustained if generally unsuccessful attacks on tankers carrying Iranian oil. The fear of an Iraqi collapse forced Iraq’s Arab neighbors to commit themselves more unequivocally to its support. The war increasingly became a regional one, and the greater involvement of Saudi Arabia and Kuwait led to the internationalization of the war once the West felt its interests were more directly at stake.
Iran’s successful Fao offensive in 1986 was for Kuwait far too close to home for comfort. Kuwait put its forces on full alert and took a more publicly pro-Iraqi stance. In return, Iran began to step up its attacks on Kuwaiti tankers, and Kuwait requested naval protection from both the Soviet Union and the United States. The Soviet Union’s involvement remained marginal, but US naval intervention aligned Washington more firmly on the Iraqi side, a tendency which gathered momentum and became a decisive factor in Iran’s eventual agreement to a ceasefire.  The Soviet Union also came down firmly on the Iraqi side; Soviet-Iraqi trade increased to $1.2 billion in 1987, up 46 percent from 1986. 
On July 20, 1987, the UN Security Council passed Resolution 598, which called for an end to the war on terms favored by Iraq and the US. Iraq accepted the resolution; Iran prevaricated.  Although greatly weakened, Iran launched an offensive in northern Iraq in the spring of 1988 with the assistance of two Iraqi Kurdish organizations, capturing the Kurdish city of Halabja on March 15. The next day Iraqi jets bombed Halabja with poison gas, causing some 5,000 deaths among the civilian population. In April and June Iraqi forces again used chemical weapons to recapture Fao and Mahran.
By mid-July, Iran had lost almost all the Iraqi territory it had captured, and Iranian resistance was clearly crumbling. On July 18, Khomeini announced that the Iranian government would now accept Resolution 598 without conditions. During the rest of July the Iraqis drove Iranian forces out of central and southern Iraq, and by August 20 a ceasefire went into effect.
The human and economic costs of the war were staggering. Dilip Hiro cites Western estimates of nearly 400,000 dead, roughly a quarter Iraqi and three-quarters Iranian, and perhaps 750,000 wounded.  Kamran Mofid has calculated the total cost of the war as $452.6 billion to Iraq and $644.3 billion to Iran, based on a combination of “damage to the infrastructure; estimated oil revenue losses; and the estimated GNP losses.”  He notes that this total exceeds by $678.5 billion the entire oil revenues of Iran and Iraq since they started to sell their oil on the world market, in 1919 and 1931 respectively.
The two years after the ceasefire saw various attempts to reach a permanent settlement. Iraq dragged its feet in negotiations, largely because Saddam Hussein wanted to claim a meaningful victory, and presumably also because the implementation of Clause 6 of Resolution 598 (“inquiring into the responsibility for the conflict”) would have confirmed that Iraq had started the war. Iraq rejected a Soviet offer to chair (and presumably to speed up) face-to-face negotiations early in 1989. This inconclusive state of affairs continued until the invasion of Kuwait. A few days after the invasion of Kuwait, in a dramatic volte face, Saddam Hussein offered Iran a settlement based on the full implementation of Resolution 598 and the restoration of the Algiers Agreement of March 1975, which he had ceremoniously torn up on Iraqi television ten years earlier.
The War and the Economy
Apart from the terrible devastation it caused in terms of human loss and suffering, the war had profoundly distorting effect on the Iraqi economy. As well as the virtual destruction of Basra and the oilfields around the city, the industrial plant and infrastructure at Khawr al-Zubayr and Fao had also been seriously damaged, and Iraq had amassed foreign debts estimated at between $60 and $80 billion.
At the beginning of the conflict in late 1980, due to a combination of misjudgment of the seriousness of the situation and an unwarranted degree of optimism that the Iranians would be forced into a speedy surrender, the Baath leadership tried to insulate Iraqi society as much as possible, continued its lavish development programs and put no restrictions on imports. In consequence, Iraq’s foreign reserves of some $35 billion declined very rapidly, while the effects of Iranian attacks on the southern oilfields and on Basra, and Syria’s closure of the pipeline to Banyas in 1982, caused oil revenue to fall dramatically, from $29 billion in 1980 to $9 billion in 1982 and to $7 billion in 1983.
Although the Gulf states had already begun to sell counterpart oil on behalf of Iraq and to give handsome cash handouts, foreign borrowing had to be stepped up. In order to overcome the disadvantages of being virtually landlocked, Iraq began to build new oil pipelines through Turkey and Saudi Arabia (although the line to the Red Sea only opened in 1989), which eventually alleviated the situation somewhat, so that some of its former export capacity had been restored by the latter years of the war.
Iraq’s greatest debts were to Saudi Arabia and Kuwait, which sold “war relief crude” worth some $18-$20 billion on Iraq’s behalf; if these counterpart sales are included, Kuwait and Saudi Arabia alone provided Iraq with about $50-$60 billion. At the end of 1987, Iraq owed $24 billion to the OECD states, of which $14-15 billion were export credit guarantees, while debts to commercial banks amounted to about $9 billion. Given Saddam Hussein’s constantly reiterated claim that he had fought the war on behalf of “the Arab nation,” and since his Arab creditors had no effective means of enforcing repayment even if they had wished or intended to do so, Iraq’s “real” debts were those it owed to the West; the repayment of debts to the Soviet Union, estimated at $10 billion, does not seem to have been considered a top priority.
This very considerable indebtedness complicated the transition from a war to a peacetime economy. Iraq’s annual food import bill amounted to at least $3 billion (about half from the US and half from Turkey). The annual cost of imports for civilian, military and reconstruction purposes was estimated at around $11 billion over the early 1990s, with some 36 percent (worth $4 billion) allocated to the military.
Politics and the Economy After the War
Although severely damaged, Iraq emerged from the war a much more substantial military power than it had been in 1980. In 1979-1980, the Iraqi army numbered some 190,000 men; by 1987-1988 it had more than quintupled to around 1 million. There were comparable increases in military hardware in the same years: The number of tanks increased from 1,900 to 6,310; combat aircraft from 339 to more than 500, helicopters from 231 to 422, and armored vehicles from 1,500 to 4,000. 
By the end of the war, Iraq had built up an important armaments industry whose products included a surface-to-surface missile based on the Soviet Scud, developed with Egyptian and Argentinian assistance. In 1989-1990 it became widely known that Iraq was manufacturing chemical weapons and sophisticated missiles, and might not be far from acquiring the means to produce nuclear weapons with components provided by firms in Western Europe and the US. The creation in July 1988 of a new Ministry of Industry and Military Industrialization, which combined civilian and military production and also controlled the vast petrochemical complexes, further centralized economic and political power.  The ministry, headed by Saddam Hussein’s son-in-law, Husayn Kamil Majid, is controlled by the armed forces and run according to military command structures.
Although he had frequently appeared in field marshal’s uniform before the outbreak of the war, Saddam Hussein had no military experience, and only honorific military rank. As the war progressed, the officer corps inevitably assumed a greater role, and there was always the possibility that a serious rival to the president might appear from within its ranks. To guard against this, Saddam Hussein exerted as much control as possible over the army and its commanders, which seriously hampered the conduct of the war. It was difficult for commanders to make independent decisions, and they were also constantly aware that they risked punishment if they made mistakes or were defeated. Several officers were reportedly executed after the rout at Fao in the spring of 1986. A similar fate awaited anyone suspected of “disloyalty.” Conversely, successful commanders were sometimes removed or transferred if it was felt that their exploits might turn them into heroes. Thus Gen. Mahir ‘Abd al-Rashid, the Tikriti commander of the Seventh Army who had emerged with credit from the latter part of the Fao campaign in April 1986, whose daughter was married to Saddam Hussein’s younger son, and several of whose relatives had reached high positions in the army and the bureaucracy, suddenly fell out of favor in the early autumn of 1988 and was apparently put under house arrest.  His cousin, another general, died in a helicopter accident soon afterward.
The immense military build-up served ultimately to consolidate Saddam Hussein’s position by the end of the war. He used the “victory” over Iran to make explicit claims to the leadership of the Arab world, which he and the “noble people of Iraq” had so assiduously defended for eight years. This claim was expressed in his use of Arab nationalist imagery, his carefully staged appearances in traditional Arab dress, his “rediscovery” of Islam and in his almost indecent haste to involve himself in the internal affairs of Lebanon (as an act of revenge against Syria for its alliance with Iran) even before the war had come to an end.
Nevertheless, Saddam Hussein’s power base during and after the war consisted almost entirely either of members of his own extended family, or of those who had been incorporated into it by marriage or by long association with him. Thus Saddam Hussein’s son Uday was married to the daughter of the vice president, ‘Izzat al-Duri; Husayn Kamil Majid, the minister for industry and military industrialization, himself a distant cousin of Saddam Hussein, was married to Saddam Hussein’s daughter Raghad, and Majid’s brother, Saddam Kamil, a colonel in the missile brigade, to another daughter, Rima. Until his untimely (and unseasonable) death in a helicopter accident in a sandstorm near Basra in April 1989, ‘Adnan Khairallah Tulfah, a maternal cousin of Saddam Hussein and the brother of his wife Sajida, was minister of defense; ‘Adnan’s wife was the daughter of the former president, Ahmad Hasan al-Bakr, and ‘Adnan and Sajida’s father, Khairallah Tulfah, a former primary school teacher, was for some years mayor of Baghdad, during which he became an extremely wealthy businessman. Qusay, Saddam Hussein’s youngest son, was married to the daughter of Gen. Mahir ‘Abd al-Rashid, but apparently separated from her when her father fell out of favor in the autumn of 1988. Saddam Hussein’s two other closest colleagues, Tariq Aziz, a Christian from Mosul and Taha Yasin Ramadan, from the Jazira (northwestern Iraq), were not related by blood or marriage but were closely associated with him before the Baath takeover in 1968.  Most of the 16 new cabinet ministers appointed in 1987-1988 had previously worked in the president’s private office. 
Economy and Bureaucracy
Quite apart from the war, the state’s commitment to modernization and its substantial oil revenues had generated opportunities for private business. Most local private firms lacked the means to carry out major infrastructural and high-technology schemes, but they benefited from state development policies as far as their capacity and technical skills allowed. Contracting became extremely lucrative.
Still, the economic might of the state remained paramount, reflecting the country’s continuing dependence on oil. Non-oil foreign exchange amounted to only $0.07 billion in 1988, compared with $13.16 billion earned from oil. Iraq’s capacity to muddle through thus depended crucially on its OPEC quota and its ability to defer or reschedule its debts to its international creditors.
In the early years of the war, the leadership enacted regulations to encourage private capital to diversify away from real estate, contracting, commerce and services toward light and medium manufacturing. Some privatization measures were introduced, particularly in agriculture, in an attempt to reduce food imports, to promote better quality and more regular supplies, and to broaden support for the regime among the entrepreneurial middle classes. As the war progressed, though, the economic situation steadily deteriorated and a more drastic economic reappraisal became necessary.
By the winter and spring of 1986-1987, at a time of great demoralization in the face of Iranian military advances, the red tape and time-consuming complexities characteristic of large areas of the economy had become a considerable liability, particularly for supply and distribution. Claiming to have been a long time closet supporter of the market economy, Saddam Hussein came out in favor of giving private enterprise a more prominent role. The leadership made a series of declarations, known collectively as the “administrative revolution” (thawra idariyya), intended to reduce the powers of the bureaucracy — which also meant reducing the power of the Baath Party, as party members controlled most of the senior positions in the civil service. Forty-seven state factories producing foodstuffs, textiles, building materials, aluminum products and plastics were privatized; more state farms were sold to agricultural entrepreneurs, and cultivators were permitted to sell their produce directly to wholesalers. The public sector employees’ trade union was disbanded. 
This general easing of restrictions was accompanied by tax concessions for the import of raw materials and other industrial inputs, state funding for private firms, and lifting the ceiling on private investment. The government also encouraged joint stock companies, whose profits had soared as a result of restrictions on non-essential imports during the war. Private entrepreneurs were permitted to export goods provided they transferred 60 percent of their value back to Iraq. In addition, exemptions from normal foreign exchange restrictions encouraged investment from Arab countries. Most state-owned gas stations, garages, supermarkets and hotels were also sold off.
Such measures did little to strengthen the regime’s constituency among those party officials and bureaucrats for whom they represented a decline in power and influence. Deregulation, relaxation of bureaucratic controls and the declining emphasis on Baath ideology were symptomatic of the regime’s efforts to build up new constituencies among the middle classes and the military. At the same time the president and his circle continued to base their powers almost exclusively on instruments of coercion — the police and the various internal intelligence services — and on the military, whose political significance had grown substantially as a result of the general militarization of politics and military investments. All this was accompanied by the intensification of an already relentless cult of personality and the erection of a plethora of “victory” monuments.
The much vaunted economic liberalization was accompanied by ringing declarations of intent to move toward greater political liberty. Elections to the National Assembly, a parliamentary body provided for in the provisional constitution, were first held in 1980; a second election was announced for April 1, 1989, along with vague assurances that opposition political parties would be licensed at some future time.
Until the middle of 1990, the only obvious function of the Assembly was to act as a further mouthpiece for the leadership. Given the constellation of power in Iraq and the almost total absence of the rule of law, every Iraqi knew that genuine criticism of the leadership was at best foolhardy and at worst suicidal. Saddam Hussein warned in January 1990 that democratization should not be construed as a sign of weakness; a few weeks later Tariq Aziz informed a gathering of political scientists in Baghdad that the introduction of “democracy” could not take place in isolation from economic, social and cultural factors, signaling that the kind of political liberalization that the regime envisaged would not lead to any fundamental transformation of the political system.
In fact, the leadership’s measures seem to have done little to relieve the economic crisis in Iraq in 1989 and 1990, since Iraqi businessmen were clearly reluctant to bring their foreign assets home. More fundamentally, the kind of economic reform which Saddam Hussein thought would set Iraq on the road to reconstruction could not be achieved without a total transformation of the political system and the establishment of the rule of law. He thus found himself trapped by the incompatibility of his desire to maintain his own absolute rule and the basic requirements of a market economy.
Prelude to Invasion
Although Iraq’s economic situation after the war was certainly bad, it was not desperate, given the country’s very substantial oil reserves. Prudent housekeeping, tight control of imports and checks on government spending would have brought about gradual economic recovery, provided there was no disastrous collapse in the price of oil. However, while rebuilding cities, infrastructure and industry was certainly an important target, the leadership allocated $5 billion per year to rearmament over the period 1988-1992, and the $2.5 billion for reconstruction included “victory” monuments and a new presidential palace.
Various efforts to restructure the economy led to steep price rises; inflation was estimated at 45 percent for 1990. This hit hardest those on fixed incomes, particularly government employees. Private capital had responded to the privatization measures by speculative rather than sustained investment; the rich got richer and the middle and lower classes got poorer. The “cuts” imposed on the bureaucracy since 1987 had led to high unemployment; rapid demobilization was thus politically impossible, and women who had been brought into the labor force while men were at the front could not easily be persuaded to stay at home. Those sections of the population who had grown used to the state providing them with secure employment and subsidizing most essential items of consumption throughout the 1970s and 1980s were left with a deep sense of dislocation and insecurity. Widespread hopes that peace would bring greater prosperity and security remained largely unfulfilled by the middle of 1990.
Saddam Hussein had made it clear immediately after the war that the reconstruction of the country, and particularly of Basra, would be costly. Having abandoned the commitment to social welfare which had been central to Baath ideology, Saddam Hussein now cast about for new means of creating tensions in which nationalism could thrive while reaffirming his devotion to pan-Arabism and the Arab nation.
Early in 1990 a combination of factors came together to enable the Iraqi leader to project himself as “embattled” once more. In February the New York-based Middle East Watch published a scathing denunciation of Iraq’s human rights record; in March Iraq’s execution of British journalist Farhad Bazoft occasioned widespread condemnation in the Western media; in April a scandal erupted over the so-called Iraqi supergun and later over the discovery of essential parts for nuclear weapons in the baggage of Iraqi travelers passing through London’s Heathrow airport. Saddam Hussein represented these incidents as evidence of imperialist machinations against Iraq and the Arab nation; the Iraqi media waged a fervent anti-American campaign that evidently won at least some hearts and minds in Iraq and in other parts of the Arab world.
At the same time, differences of opinion on oil pricing policy within OPEC were beginning to surface.  In brief, Kuwait and the UAE, which had a higher production capacity than their export quotas, wished to maintain the existing oil price. As Iraq was producing well within its production capacity, it was keen to press for a price increase. Early in 1990 Iraqi officials lobbied the Gulf rulers to lower their production and to push the price up from $18 to $20 per barrel, which they were unwilling to do. Iraq raised the stakes further by resuscitating its claims to parts of northern Kuwait, demanding access to the islands of Bubiyan and Warba (which would provide it with a deep water anchorage outside the Shatt al-‘Arab), and castigating Kuwait for demanding repayment of some of Iraq’s debts. On August 2, Iraq invaded Kuwait.
 Dilip Hiro, The Longest War: The Iran-Iraq Military Conflict (London: Grafton, 1989), pp. 213- 215.
 The US declared on March 7, 1987 that it would reflag and escort Kuwaiti oil tankers, and signed a five-year economic and technical agreement with Iraq on August 26, 1987. This was accompanied by $1 billion worth of food aid. Iraq became the third largest export market for the US in the Arab world. Ofra Bengio, “Iraq,” Middle East Contemporary Survey (1987) (New York: Holmes and Meier, 1990), pp. 422-459.
 Hiro, p. 239.
 Ibid., p. 190.
 Ibid., p. 250.
 Kamran Mofid, The Economic Consequences of the Gulf War (London: Routledge, 1990), pp. 127-128, 135-140.
 Ibid., pp. 87, 88.
 On arms manufacture, see Economist Intelligence Unit, Iraq: Country Report 4 (1988) and 2 (1989).
 Economist Intelligence Unit, Iraq: Country Report 4, 1988, p. 11.
 Ibid., various issues, 1986-1990; MidEast Markets, January 8, 1990; Ofra Bengio, “Iraq,” Middle East Contemporary Survey (1986), pp. 361-396; personal information.
 See George Joffe and Keith McLachlan, Iran and Iraq: Building on the Stalemate, Economist Intelligence Unit, Special Report 1164, November 1988, p. 37.
 Although trade unions were to be permitted in the private sector, presumably, according to Bengio, private employers would have sufficient muscle either to prevent their formation or to keep them weak. Middle East Contemporary Survey (1987).
 After the war, Saddam Hussein had used this aggressive pan-Arabism to intimidate the smaller Gulf states, and Saudi Arabia became sufficiently concerned about his intentions to ask him to sign a non-aggression pact in March 1989.