Global Policy Forum

By David Ignatius

President George W. Bush heads to Europe this week carrying some heavy baggage, especially on missile defense and global warming. And he will undoubtedly be chided by the Europeans for the administration's supposed arrogance and unilateralism on these issues.

But there is one foreign policy area where the Bush administration has been making slow but steady progress with good cooperation from its European allies. That is in recasting UN sanctions toward Iraq so that they punish the thugs and torturers who run Saddam Hussein's regime rather than the long-suffering Iraqi people. The new policy is known as "smart sanctions," to distinguish it from the tough-sounding but stupid sanctions policy that preceded it, which had the perverse effect of helping Saddam and his cronies but hurting ordinary Iraqis. The old sanctions regime was known as "oil-for-food." In theory it channeled oil sales through UN accounts to benefit the people. But it blocked imports that the population needed, and spawned oil smuggling and under-the-table surcharges for official oil sales that enriched Saddam's cronies and helped finance the regime's secret police. How's that for getting it backward?

Some hard-liners in the Bush administration initially opposed changing this policy, lest they appear to be easing pressure to topple Saddam. But Secretary of State Colin Powell wisely opted for a new approach that would seek to restrict military imports and smuggling revenues for the regime but otherwise open up the economy.

He managed to win over the hard-liners by arguing that this "smart" sanctions regime was a necessary condition for any successful effort to overthrow the Iraqi dictator. The Bush administration worked closely with France and Britain to hammer out the details of the new sanctions plan, and they have been pushing hard these past few weeks to sell it to the other two permanent members of the UN Security Council, Russia and China. They are now close to consensus, but one crucial task for Mr. Bush will be to get final Russian agreement when he meets President Vladimir Putin.

A key element of the U.S.-British-French proposal is a "compensation fund" to help Turkey, Syria and Jordan, which have benefited financially from Saddam's smuggling.

The British are said to have asked the Saudis and Kuwaitis to put up the money. The French propose instead that it come out of an escrow account of unspent Iraqi oil revenues. That's a nice touch - using Iraqi money to bribe the country's neighbors not to smuggle Iraqi oil.

All told, the compensation payments could total at least $500 million a year, a U.S. official estimates.

Saddam, no dummy, quickly realized that smart sanctions were potentially disastrous for him. Just how much they threaten his regime became clear last week when Iraq announced that it would halt all oil sales in protest. That move exposed the hypocrisy of Iraqi policy. They had complained before that sanctions were destroying the economy, but now that the United States and its allies were proposing to scrap the old system, Saddam wanted it back.

The Iraqis may have hoped that by withholding their roughly 2.5 million barrels per day from the market they could trigger a panic. But last week's OPEC meeting took the news in stride, with the Saudis announcing that they would increase production to make up for whatever the Iraqis held back.

The smart sanctions threaten the regime's lifeline - the cash that comes from smuggling and hidden surcharges. "This threat, more than any other, probably worries the Iraqis most, as these funds give the government spending flexibility and help it to sustain a patronage network that ensures its survival," noted a report last week by the Petroleum Finance Co., a Washington consulting group.

Saddam may have bigger problems ahead. He rushed last month to install his younger son Qusay to a top position in the Ba'ath Party leadership. Qusay already controls key intelligence and military units that safeguard the regime. Some analysts, noting that Saddam appears to have weakened physically in recent months, speculate that he may be rapidly grooming Qusay as his successor.

To complete the transition from dumb to smart sanctions, the Bush administration will have to finesse the corruption that surrounds Iraqi oil sales. Powerful interests in Turkey, Syria and Jordan now benefit from smuggling. And dozens of small, shadowy companies (including some based in Russia) appear to have been buying Iraqi oil at a discount, and paying hidden surcharges to Baghdad, before selling the oil onward.

"This is a minefield," notes the authoritative newsletter Middle East Economic Survey. "Many of the small firms are owned by the political elites in the countries concerned."

The Bush administration's success with smart sanctions offers a lesson. A little diplomacy, the old-fashioned kind where you work carefully with allies to build a coalition through the United Nations, can work wonders.