BAGHDAD, IRAQ -- When the full moon shimmers on the Tigris River and the day's heat softens in a tepid evening breeze, Baghdad's riverside cafes turn on their terrace lamps, and the facade of contentment that this city has worn throughout the Persian Gulf crisis seems believeable.

But despite claims to the contrary, an economic embargo imposed by the United Nations Security Council after Iraq's Aug. 2 invasion of Kuwait has begun to take effect in small but unmistakable ways in a country that last year imported 80 percent of its food at a cost of $3 billion.

Some pastry shops, for example, have closed for lack of sugar. Restaurants often have been unable to serve bread with meals over the last week. The price of cooking oil has shot up to $60 a gallon. Tea is in short supply, and on Sunday the apparatus of President Saddam Hussein's ruling Baath Party began rationing key foodstuffs, including bread, in some districts. Rationing of other goods has been ordered for the end of the month.

Baghdad shopkeepers told reporters they were visited by officials from the Baath Party local block committee last week and told that rationing would be imposed on eight basic commodities, ranging from detergent to baby food. Along with a written list of the rationed items, the shopkeepers were given a list of residents on the block who would be the only ones allowed to buy from them.

An Iraqi laborer said his Baathist block organization already has handed out ration cards limiting him to three loaves of bread a day per person in his family -- one for each meal -- and a kilogram {2.2 pounds} of sugar a month per family member.

In an indication that the government expects the shortages to worsen, it announced Sunday that 15-year prison terms would be imposed for any Iraqi caught selling goods above government-approved prices. At the same time, Agriculture Ministry officials recently promised farmers free fertilizer and credit. Kamil Yassin, a high Baath Party official, visited farmers and agricultural experts last week in Iraq's rural Madain district urging increased wheat production.

As nearly as could be determined on an eight-day visit to Baghdad, however, the restrictions have amounted to little more than inconveniences so far, and most items are still readily available in Baghdad markets. Fruits and vegetables, including apples and mandarin oranges looted from Kuwaiti warehouses, overflow display racks, and most analysts here have concluded the embargo is unlikely to be more than an irritation for months.

"{Iraqis here} can easily, comfortably survive for three months, maybe more," said a one regional diplomat. "They won't starve."

Despite Iraqi complaints that babies are going without milk because of U.S. cruelty, for example, knowledgeable foreign residents said that Iraq has its own dairy industry and last year imported no milk except for boxes of the powdered variety.

Iraq is a battle-hardened country that appears staunchly determined not to be brought to its knees by the U.N. embargo. Its leaders long ago took steps to ensure that its economy can survive periods of hardship, and ruthless internal repression and a measure of genuine adulation for Saddam have given the leadership unquestioned authority to demand -- and get -- sacrifices from the people.

Most of all, observers here say, Iraq is a country where reality is what Saddam says it is, and questions of war and peace -- or any other subject -- lie entirely in his hands.

One Western diplomat said U.S. and European leaders are engaging in "wishful thinking" if they believe hardships imposed by the Security Council's economic embargo will stir up meaningful street opposition to Saddam's leadership.

In the climate of fear and conformity crafted by Saddam, political activity among civilians has been restricted to displays of support for their leader, who looks out at the country from thousands of official portraits depicting him in every incarnation from field marshal to peasant, from praying Moslem to debonair vacationer.

The same controls have made Iraqi citizens wary of speaking their minds in public. For example, while men and women seeking bread stood in long lines in plain sight at nearby bakeries, Baghdad residents repeatedly asserted they had experienced no shortages of any goods.

Hamdi Abdul Amir, 45, said his family's shop in the bustling Shurja Market is doing a rousing business selling woven mats. "Everything is just great," he told an inquiring foreigner. "People come from all around to do their shopping here. You can see these crowds 24 hours a day."

Indeed, the market, Baghdad's largest popular commercial center, was full of jostling shoppers one recent day. Men bought spices while women looked for notebooks and book covers for their children, who returned to school Sunday after summer vacation. A merchant walked up and down the narrow alleyways selling packets of 12 pencils imported from China for 2 dinars, or $6 at the official exchange rate.

Several diplomats also pointed out that many among Iraq's 17 million inhabitants genuinely admire Saddam as a man who has brought them economic and social progress, steered them through a war with the historically hostile Iranians and put Iraq into its rightfully prominent place on the Middle Eastern map.

"Saddam taught them to be proud," commented a diplomat from a Moslem nation.

Appealing to the sense of national pride evident here, Deputy Prime Minister Saadoun Hammadi told Iraqis last week that their country now owns 194 billion barrels of oil reserves, or 20 percent of the world's known supply. After what was described as the "merger" with Kuwait, Hammadi said in an Iraqi television interview that Iraqi oil revenues should reach $46 billion a year -- particularly now that Kuwait has "returned to the motherland," giving Iraq ports on the Persian Gulf from which it can export the precious resource.

"There are people who love Saddam Hussein from their hearts," the Moslem diplomat said. "Please don't get the impression that everybody hates Saddam."

In this context, Saddam's annexation of Kuwait is not thought of as a bully's gobbling up of a small neighbor, but as Iraq's reassertion of a historical right to part of its territory that had been handed to a corrupt clan by Britain's imperial treachery. The U.S. military buildup in the gulf, the Iraqi people have been told in relentless propaganda, is the latest of the same old Western designs on a region that belongs to Arabs and Moslems.

"We are not afraid of war; we had eight years of war," declared Abu Nabil, owner of a small tool shop, referring to the Iran-Iraq war that ended in a cease-fire two years ago. "We are used to it. But nobody wants war. Nobody wants it, but why then does {President} Bush come to our land?"

In any case, Naji Hadithi, the Information and Culture Ministry's spokesman, repeatedly has expressed confidence in talks with foreign reporters that Iraq will find a way around the embargo as time passes.

In the longer term, however, the loss of oil revenue and technology imports is expected to take a toll on spare parts for key machinery, such as generators and petrochemical plants. This could be particularly crippling to the million-man military, for which Moscow has cut off supplies, including spare parts for Iraq's arsenal of Soviet-made weapons.

"If all the pipelines are closed, and if all the shipping is blocked, then you can't sell the oil. And if you can't sell the oil, you have no money to buy anything," remarked an Asian diplomat.

Saddam's strategy to meet the West's challenge appears to center on an effort to keep the standoff in the diplomatic arena as long as possible while holding onto Kuwait and probing for an opening in the embargo. Because of his popularity in many circles, combined with political repression that has included executions of his own cabinet ministers and tight controls on his people, Saddam does not have to worry about pressure from a citizenry unhappy at dinnertime or government officials trying to put a softer face on Baath rule.

In this atmosphere, no one in the groups considered most likely to harbor opposition to Saddam -- the ruling Revolutionary Command Council, government ministries or the armed forces headed by Defense Minister Abdel Jabbar Shanshai -- appears capable of or inclined toward staging the coup d'etat that is openly wished for in Washington. Saddam, 53, has taken care to associate his closest aides with executions of suspected doubters, drawing them into a dark pact and making any possibility of betrayal more remote, according to a diplomat with experience in Baghdad.

Saddam's two closest lieutenants, First Deputy Prime Minister Taha Yassin Ramadan, who commands the militia-like Popular Army, and Izzat Ibrahim, vice president of the Revolutionary Command Council and head of the secret police, have been part of Saddam's secretive inner circle, plotting and agitating with him, since before the Baath Party came to power in 1968, and particularly since Saddam assumed undisputed leadership in 1979.

Outside the government, a Shiite Moslem fundamentalist underground, Daawa (The Call), made headway among the country's narrow Shiite majority in the early 1980s, but it was snuffed out by Saddam's security forces as part of Iraq's 1980-88 struggle against Iran.