The Iran-Iraq war was fought entirely within the boundaries of the two combatant nations, but it was nonetheless a regional war. The war machine of Saddam Hussein’s regime was lubricated with billions of dollars in loans from the Arab oil monarchies, which were anxious to see the revolutionary state in Tehran defeated, or at least bloodied. Iraqi warplanes harried ships seeking to load Iranian oil at the Kharg island terminal and points south on the Persian Gulf coast. In 1987, the US Navy intervened to protect tankers and other commercial traffic from Iranian reprisals. These heated entanglements presaged the degree to which the war was to transform the political economies of many countries in the vicinity.

Jordan and Kuwait are commonly viewed as the two neighbors most directly affected by the war and the conflicts it spawned. Viewing snapshots of Jordan and Kuwait before and after the 1980-1988 war, it is tempting to see them both as mere onlookers, tossed about by currents outside their control. Fate, in this view, has been cruel to Kuwait and only somewhat kinder to Jordan.

In 1980, Kuwait was a leader in the Gulf, the first petro-princedom with an elected assembly and what would later be known as a sovereign wealth fund. The Kuwaiti elites were well heeled, compared not just to other Arabs, but also increasingly to the high rollers of the world. On weekends, Kuwaitis of middling wealth could drive 80 miles north to enjoy the cafés and parks along the corniche in Basra, Iraq’s second city. Even for expatriate Arab labor, things were not so bad. The mostly Palestinian neighborhood of Hawalli was bustling, and as the stories go, a popular daily routine for many on the way home from work was surf fishing to bring home a zubaydi, the tasty white pomfret of the Indian Ocean. Flash forward to 1988 and the emir had shut down Parliament, the country’s oil tankers were American-flagged and the economy was mired in debt. In 1991, Kuwait was liberated but destroyed, and preparing to expel hundreds of thousands of Palestinian workers with Jordanian citizenship because Yasser Arafat had backed Iraq in the preceding Gulf war. In the final act, the 2003 US invasion has provided no lasting relief. The fall of the Baathists in Baghdad has not reversed the fact that the country is no longer a leader, politically or economically, in the Gulf. Kuwait’s foreign policy cleaves tightly to Washington’s; parliamentary elections produce deadlock and malaise; and few would be brave enough to eat a zubaydi caught today on the Kuwaiti side of the Gulf.

In the Jordan of 1980, things were a bit slower. Memories and scars from the 1970 civil war were still fresh. Tourist interest sparked by the appearance of Petra in the Indiana Jones trilogy was nine years away. Amman was hardly a bustling capital. Flash forward to 1988 and Jordanian elites were prosperous, having feasted on trade deals with war-torn Baghdad and benefited from Amman being the preferred destination for Iraqi capital flight. But, within three years, the picture had darkened. The Palestinians kicked out of Kuwait flooded into Jordan and were in need of jobs. To add to Jordan’s woes, its most important export market — Iraq — was impoverished by international sanctions. And public debt was climbing. Jordan appears no better off after the US invasion. Islands of high-end consumption dot West Amman while the rest of the country gets by on per capita income levels not much higher than in the mid-1980s. Parliamentary elections register embarrassingly low turnout, and the massive external debt is kept in check only by the regime’s dependence on Washington.

From these vantages, Saddam Hussein’s decision to invade Iran in 1980 constitutes a kind of original sin that has afflicted Iraq’s neighbors until the present day. The problem is that such a view obscures events and decisions endogenous to the adjacent countries that shaped the impact of the war in both. [1] Jordan and Kuwait did not fight in the war, but neither were they innocent bystanders. In some respects, the war accentuated political struggles between regime and society that were already underway in both countries, and in other respects it catalyzed new dynamics. The reaction of each regime to the wartime dynamics helped to determine the extent to which Jordan emerged a winner of sorts and Kuwait a loser, its grandeur faded for good.

The Antebellum Gulf

Prior to 1980, the relations of Jordan and Kuwait with monarchical and then revolutionary Iraq were equally turbulent.

Citing old Ottoman administrative boundaries, the revolutionary government of ‘Abd al-Karim Qasim staked a claim to Kuwait in 1961, prompting the deployment of British troops to the emirate and a tense standoff. Qasim’s alleged failure of nerve in this crisis was one of the pretexts of the first Baathist coup in 1963. Relations with Kuwait began to improve after the second coup in Baghdad that year, as the new government affirmed Iraq’s 1932 commitment to the League of Nations recognizing its border with Kuwait. [2] By the 1970s, Kuwait’s merchant community was advocating closer ties to Iraq. The affinity ran deep. Politicians in Baghdad had encouraged the majlis movement in 1930s Kuwait, an elected assembly established by prominent traders. When the experimental parliament clamored to oversee the country’s new oil concessions, the Al Sabah, the ruling family, shut it down, driving some merchant leaders into Iraqi exile. [3] Other merchants who owned land in southern Iraq, particularly those who had profitable date plantations around Basra, also got a taste of the abundance and wealth-generating potential of Kuwait’s neighbor to the north. With the oil boom, which enriched Iraq further, business interests began pushing the ruling family to expand Kuwait’s re-export services in Iraq’s direction. A frequent idea — one which older merchants recall with wistfulness, if not anger, any time Dubai’s free-wheeling port of Jabal ‘Ali comes up — was to create a free trade zone near Kuwait City’s port of Shuwaykh. The goods received there would be trucked overland to Basra and points north, undercutting the prices of commodities borne by ships offloading at Basra and Umm Qasr. Shuwaykh, the merchants feel, could have been Jabal ‘Ali. The ruling family resisted these ideas, however, viewing them through the prism of the merchants’ political opposition or focusing instead on Baghdad’s occasional attempts to lease or seize Kuwait’s Warba and Bubiyan islands at the mouth of the Shatt al-‘Arab. The debate was postponed by events. In 1976, the emir suspended Parliament, and shortly thereafter the bottom fell out of Kuwait’s new official stock market. Merchant leaders shelved their idea for a free port and shifted to demands for a bailout. The September 1980 invasion of Iran would draw out the merchant-regime tensions in new ways.

Amman’s relations with Baghdad soured after the violent overthrow of the Hashemite monarchy in Iraq in 1958. For the Hashemites in Jordan, Qasim’s coup was a family affair, and they remained cool to the successor regimes throughout the 1960s. Relations began to thaw with the rise of Saddam Hussein within the Baathist leadership after 1968, despite deep ideological differences and occasional diplomatic flaps. As Laurie Brand has shown, the Hashemites’ distaste for Baathism was trumped by their appreciation of the economic advantages of cooperation with their Iraqi neighbors. The Iraqi government’s battles with the Kurds disrupted the rail links to Turkey, and intra-Baathist intrigues eventually closed the Syrian border to commerce. With Iraq thus hemmed in, the Jordanian port of ‘Aqaba, theretofore sleepy, was attractive as a safe, albeit distant point of entry for Iraqi imports. [4] In return, Amman wanted aid and infrastructure investment from oil-rich Iraq, which would help to compensate for the broken promises of aid from other Arab states. Then, as now, external aid allowed the Hashemite regime to placate both the urban private sector, made up disproportionately of Palestinians, and the rural East Bankers who have long backed the regime in return for public-sector jobs and development projects. Amman needed the petro-dollars of Baghdad to keep the game going. In June 1979, Saddam Hussein became the first high-ranking Iraqi government official since 1958 to visit Amman for talks with King Hussein. Agreements followed for Iraqi-funded expansion of the ‘Aqaba port facilities and extension of the road network to support the overland trade. The timing would prove exquisite.

Wartime Gambling

In its first years, the Iran-Iraq war gave a big boost to Kuwaiti re-exports. The initial successes of the Iraqi army on the battlefield whetted an appetite for more, and the import-export businesses of Kuwait’s major merchant families, Sunni and Shi‘i, were on hand to provision the troops. Travel to wartime Basra took on a more prurient aspect. In what were colloquially termed “banana trips,” Kuwaiti men would drive to Basra, rent a room and engage the services of a prostitute, all for the price of a bushel of bananas or a similar foodstuff in short supply. Kuwaiti ports operated as virtual extensions of Iraq’s outlets to the sea, leading to renewed calls for a free trade zone by Kuwaiti merchants. Instead, the ruling family, in coordination with Saudi Arabia, offered the now infamous loans and oil barter arrangements to support Iraq’s war effort.

The tidal shift of military fortune in 1982, when Iranian forces expelled the Iraqis and invaded Iraq, nearing Basra, and Damascus cut off the Banias pipeline, could not have come at a worse time for the Kuwaiti elite. First, loans to Baghdad had to be increased to make up for Iraq’s lost oil exports, while the fighting in southern Iraq drastically increased the costs of shipping, transportation and insurance for traffic moving in and out of Kuwait’s ports. Direct and accurate measures are difficult to obtain, but the available data show that the value of Kuwait’s non-oil exports (mostly, at this time, re-exports to Iraq) plunged by over 40 percent between 1980 and 1985. [5] Under threat of Iranian shelling, shipping and port facilities suffered as non-Kuwaiti lines shifted to the southern Gulf, where Dubai and the other city-states of the United Arab Emirates promised safe harbors and repair shops. [6] Second, and unrelated to the war, the Souq al-Manakh, a quasi-legal stock market trading in shares of offshore companies and powered by postdated checks, crashed in August 1982 when some poor fellow decided to cash one of the checks. This crash was far more serious than the downturn in the official stock market in the late 1970s and remains the largest dip in the history of the Gulf.

The billions in debt claims emerging from the crash amounted to 17 times the value of Kuwait’s foreign cash reserves. The fallout threatened not only the country’s entire banking system, since the postdated checks were drawn from local banks, but also the strategies of rule traditionally pursued by the Al Sabah. While the Souq al-Manakh was in business and everyone was jumping in, the market offered the ruling family an easy way to enrich a growing stratum of new merchants to counter-balance the traditional merchant opposition. Hence, it is not difficult to understand why state officials looked the other way as the gray-market trading took off and ignored warnings of impending collapse. Eventually, the thousands of postdated checks bouncing around the country piled up into a byzantine load of debt that landed atop nearly every socio-political group, including elements of the ruling family. It was no longer feasible for the Al Sabah to ensure political mastery by setting one group of ambitious up-and-comers against another.

As the war dragged on, Parliament was preoccupied with trying to hammer out consensus legislation to adjudicate repayment of the debts, in what was proving to be Kuwait’s most wrenching public debate to date. Combined with the decline in oil prices, the Souq al-Manakh fiasco caused Kuwait to run public deficits for the first time in its history. The press kept up a daily drumbeat of outrage as the foundational myth picturing Kuwaitis as hardy dhow traders turned shrewd businessmen vanished forever. The suspension of Parliament in 1986 and the ensuing press crackdown are commonly attributed to the café bombings in 1985, perpetrated by militants of the Iraqi Da‘wa Party seeking vengeance for Kuwaiti support of Saddam Hussein’s regime, and an assassination attempt on the emir. But the suspension and crackdown conveniently allowed the remaining scheming over debt resolution to take place out of the glaring public eye. Final resolution was still years away, but the suspension of Parliament ensured that the largest, politically favored debtors would be paid off, while the smaller would pay.

If the turn in the war hollowed out potholes for Kuwait, Jordan’s ride was much smoother, at least at first. The trade and infrastructure agreements reached before the war were quickly implemented, and studded with addenda, allowing ‘Aqaba to gain from Kuwait’s loss. In 1983, the tonnage of materiel passing through ‘Aqaba (reported under the rubric of “Other Exports and Transit” in Jordanian statistics, a special designation for goods destined for Iraq) jumped by 86 percent, continuing to rise in subsequent years. [7] By war’s end, Iraq would absorb close to 50 percent of Jordan’s total exports, protocol trade agreements would reach into the hundreds of millions of dollars and a quarter of all oil refined in Jordan would come from Iraq.

Several features of the new Jordanian-Iraqi relationship dovetailed with Hashemite strategies of rule. First, transportation infrastructure expansion in the south employed East Bank labor at a time when public-sector employment had hit a ceiling. The creation of a jointly owned government transport company in the south was central to this effort. By the end of the war, over 12,000 trucks would service the ‘Aqaba-Baghdad route. Public contracts to expand those roads were wildly profitable for the handful of East Bank construction companies with the right ministry contacts in Amman. Second, since the re-export trade was financed through letters of credit from Iraq and eventually through an oil barter agreement, Palestinian capitalist interests got their piece of the pie as well. Prominent Jordanians of Palestinian origin in the financial and commercial sectors took up the role of middlemen in this trade. The trade with Iraq was arguably the first instance of high-level Hashemite-Palestinian coordination (or, one might say, collusion) since the 1970 war between the Jordanian armed forces and the fighters of the PLO. As the war perdured, new East Bank business interests and Palestinian traders who had crossed the Jordan after 1967 got into the game. By 1986, it became clear that ministry officials were systematically ignoring rules of quality control and product origin, which stipulated that tax-free re-exports to Iraq required local value added, in order to encourage the newcomers. In many respects, these wartime adjustments set in motion a collusive political-economic relationship between Palestinian capitalists and the monarchy. Indeed, the young Palestinian business elites who have gathered around King ‘Abdallah II since 1999, to great unease in some East Bank quarters, cut their teeth in this period. [8] Fraud, substandard medical shipments and money laundering would eventually follow. In a manner of speaking, the exposure of this wrongdoing was Jordan’s own Souq al-Manakh, a scandal that would be paid for not by the perpetrators, but by the public at large.

Third, financial alliance with Iraq’s leaders afforded Jordan’s political elite an avenue to personal profit with little political risk. A similar situation obtained in the beginning phases of the 1975-1991 Lebanese civil war. Then, government officials and Crown Prince Hasan reasoned that Amman could capitalize on the collapse of Lebanon’s banking sector by becoming the region’s new financial hub. According to Brand, officials eventually decided against the effort, as it might require the kind of legal and social modifications that could endanger the East Bank coalition upon which the regime had relied to prevail in 1970. The same, however, was not true of the aim of becoming the hub of Baathist finance in the 1980s. According to one former Iraqi Finance Ministry official who served in this period, the 1982-1983 turn in the war triggered a massive flight of capital to Amman. Officials and economists discussed measures to respond, but ultimately came to recognize “that the individuals sending the money and the ones handling the reception in Amman would not allow interference.” Unlike the project of capturing banking business from Beirut, financial and social adjustments were not necessary to harbor Iraqi capital, only political commitment at the highest level. Those commitments did not come for free; Jordanian leaders are rumored to have taken sizable cuts of the capital influx. This period of capital flight remains legendary in Amman’s banking sector. After all, it was then that Ahmad Chalabi’s Petra Bank realized its phenomenal growth. (Petra Bank would later fall apart in suspicious circumstances, making Chalabi a wanted man in Jordan and accounting in part for official Jordanian hostility to his role in the pre-2003 Iraqi opposition.) Because much of the fleeing Iraqi capital went to buying land, the country witnessed its first real estate bubble. Upscale neighborhoods like Shmeisani in West Amman, which today may seem a bit down in the mouth compared to the posh newer suburbs, sprawled thanks to the new investment. Like their post-2003 incarnations, these pockets of luxury embody the unequal growth and access to opportunity of all kinds that has defined Jordan’s political economy since the 1980s.

Aftermath

The end of the Iran-Iraq war brought little benefit to Kuwait’s rulers but an end to the periodic shelling. The Kuwaiti request that the West protect its ships by reflagging them touched off a revolution in the US military presence in the Gulf. In showing themselves to be willing to buy security, Kuwait’s rulers opened the door to US requests for military basing rights and American offers of huge arms sales, all of which have turned the Gulf into a virtual American lake. Since, in the eyes of Saddam Hussein, Iraq’s war debt was a security threat and since Kuwait wanted repayment to address its own problems, the foundations for the next war were set. [9] Once Iraq invaded Kuwait, Washington’s lead role in the international mobilization for liberation was therefore predetermined. Eventually, Kuwait would recover from its self-inflicted debt and Parliament would reconvene. A rise in oil prices obviously helped to refill the depleted coffers, but the rebuilding of Kuwait has achieved considerably less than hoped. While other Gulf states build internationally competitive industries like Emirates Air and SABIC, the Saudis’ petrochemical giant, Kuwait lags noticeably behind. Neither has the emirate attracted the international investment or tourist interest that its competitors to the south have. [10] Kuwait’s sovereign wealth fund, the Kuwait Investment Authority, was raided to pay for the 1991 liberation, and compared to those in Abu Dhabi and Qatar, it is no longer the respected international player it once was. The Kuwaiti parliament does not fear indefinite suspension today, and the level of political participation in Kuwait is far higher than elsewhere among the petro-princedoms. But with the exception of the introduction of female suffrage in 2005, the political system in Kuwait is otherwise no more powerful, dynamic or democratic than its 1960s and 1970s forerunners. [11]

Jordan’s post-war journey was equally tumultuous. Overheated from the war’s capital inflows, the economy was dealt a crippling blow when King Hussein decided in 1988 to renounce Jordan’s claim to the West Bank. As Palestinian families in the West Bank rushed to sell their Jordanian currency (which, along with the Israeli shekel, was then widely used) for fear of what disengagement would mean, the dinar dropped precipitously against the dollar, and the ensuing austerity measures triggered riots among the very East Bank groups the war had helped to support. Before the next Gulf war in 1990, Jordan had turned to the International Monetary Fund for help. King Hussein followed up with another momentous decision — to support Saddam Hussein after the invasion of Kuwait — but this move, though conventionally portrayed as fateful, led to only short-term estrangement from Washington. The trade arrangements that were official during the Iran-Iraq war became covert during the 1990-2003 sanctions period, allowing Amman to hold on to both its US patron and its Iraqi lifeline for a time. Washington, which knew very well that trade with Jordan was allowing Iraq to bust sanctions, was able to wean its Hashemite allies off the Baathist-filled bottle only with increased aid beginning in the mid-1990s and, finally, the 2003 invasion. The reconvening of the Jordanian parliament in 1989 awakened hopes of meaningful political liberalization. But like the regime’s wartime decision to use trade with Iraq to fend off domestic political challenges, political liberalization turned out to be a means to short-term goals — not an end. Meanwhile, the success of the post-1967 Palestinian business class in Amman has eroded East Bankers’ trust in the monarchy, while doing nothing to ameliorate the persistent inequalities in the resource-poor country.

It would seem that the real estate cliché that location is everything is no less true in war. Proximity to the battlefields of the Iran-Iraq war awakened fears in Kuwait and Jordan, where the regimes had historical reason to regard Baghdad with trepidation. Notwithstanding its oil reserves, Kuwait knew it was vulnerable to the all-out war across its northern border, while Jordan knew instability in Iraq would inevitably be disruptive. Yet total war also sowed the seeds of opportunity, and each regime discovered it could exploit the fighting to serve domestic political and economic purposes. The sedentary Al Sabah survived the Iran-Iraq war by engineering domestic political deadlock and cementing the alliance with Washington, but also by accepting a permanent reduction in status in the Gulf. The Hashemites, who took perhaps the riskier course in tying themselves so tightly to the doomed regime of Saddam Hussein, wound up better off for having used the war to broaden their domestic political base. Just as Kuwait’s comforts in defeat are sparse, however, there is reason to believe that Jordan’s partial victory will prove hollow.

Endnotes

[1] See Marcus Kurtz, “The Social Foundations of Institutional Order: Reconsidering War and ‘The Resource Curse’ in Third World State Building,” Politics and Society 37/4 (2009).
[2] Jill Crystal, Kuwait: Transformation of an Oil State (Boulder, CO: Westview Press, 1992), pp. 141.
[3] Jill Crystal, Oil and Politics in the Gulf: Rulers and Merchants in Kuwait and Qatar (Cambridge: Cambridge University Press, 1990), pp. 52-53.
[4] Laurie Brand, Jordan’s Inter-Arab Relations: The Political Economy of Alliance Making (New York: Columbia University Press, 1994), pp. 196-220.
[5] Kuwaiti Ministry of Planning, Central Statistical Office, Annual Statistical Abstract (1989), Table 218.
[6] See Arang Keshavarzian, “Geopolitics and the Genealogy of Free Trade Zones in the Persian Gulf,” Geopolitics 15/2 (May 2010).
[7] Central Bank of Jordan, Department of Research and Studies, Quarterly Statistical Series (1964-1989), October 1989, Table 18.
[8] See Curtis Ryan, “Reform Retreats Amid Jordan’s Political Storms,” Middle East Report Online, June 10, 2005 and “‘We Are All Jordan’…But Who Is Jordan?” Middle East Report Online, July 13, 2010.
[9] See F. Gregory Gause, “Iraq’s Decisions to Go to War, 1980 and 1990,” Middle East Journal 59/1 (Winter 2002).
[10] See Steffen Hertog, “Defying the Resource Curse: Explaining Successful State-Owned Enterprises in Rentier States,” World Politics 62/2 (April 2010).
[11] See Michael Herb, “A Nation of Bureaucrats: Political Participation and Economic Diversification in Kuwait and the United Arab Emirates,” International Journal of Middle East Studies 41/3 (August 2009).

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