BAGHDAD, IRAQ, OCT. 20 -- Two and a half months after it was imposed, the United Nations' economic embargo has begun to damage Iraq's economy, shutting down oil exports, inflating consumer prices and closing factories.
The embargo, by cutting off oil revenue and imports of raw materials and spare parts, has in the last several weeks moved beyond Baghdad's food markets and spread its effects through the industrial sector -- halting a leather factory here, slowing down a refinery there and making truckers scrounge for tires.
Although the faltering factories are not vital to life in Iraq, knowledgeable foreign businessmen and diplomats said the closures indicate shortages of parts and supplies that soon could affect infrastructure such as electrical generators, transportation and water systems. A shortage of petroleum additives forced the government to announce Friday that it will ration gasoline and motor oils.
The Iraqi economy will suffer even more extensive disruptions in the weeks ahead as stored-up supplies run out, these sources predicted. Mineral water plants have stopped getting plastic bottles from Turkey, for example, and Austria recently turned down a request to continue paper supplies for Iraq's domestically manufactured cigarettes, they reported.
In other instances, a factory making plastic bags closed for lack of chemicals and, according to a well-informed diplomatic source, one of Baghdad's main cooking oil plants is near closure because it can no longer get filters from its suppliers in India.
While the effects of such shortages on the Iraqi people are obvious, the best-informed sources here cautioned that government officials are probably right when they boast that Iraqis will endure great deprivation without challenging President Saddam Hussein's leadership or questioning the wisdom of his Aug. 2 invasion of Kuwait.
"If they lift a finger, he will cut it off," said an Iraqi professional with no love for Saddam's harsh Baath Party government.
In addition, most business and diplomatic sources in Baghdad noted that the Iraqi military and its industries, although they operate behind a thick wall of secrecy, are believed to enjoy an absolute priority that protects them from the shortages hitting the civilian economy.
Because data are scarce, they pointed out, it is risky to predict whether and when the U.N. embargo might reduce Iraq's will to fight.
Iraqi civilians already have grown used to the rationing system imposed early last month for commodities such as bread, milk and soap. Although people grumble that their normally white bread has darkened because wheat is now mixed with barley in the production process, government rationing also means a guarantee that families get a basic minimum despite shortages, a diplomat pointed out.
The impact of food rationing has been cushioned by looted Kuwaiti goods of all kinds that are flooding Baghdad markets. Prosperous Iraqi women have been buying French perfume for themselves, pastries for their children and packages of instant noodle soup for quick family dinners.
According to one Western estimate, Kuwaiti warehouses, which often served as distribution centers for imports to other gulf countries, held enough food to feed a population of 2 million for six months. Baghdad, where diplomats have said Iraq is working hardest to assure good supplies, has about 4 million of Iraq's estimated 17 million people.
For those who have the money, Baghdad markets have a greater variety of goods than before Aug. 2. Lamb meat, most Iraqis' favorite, has dropped in price, from about $30 a kilogram (2.2 pounds) to about about $20, as growers slaughter their flocks early because of scarce feed.
Encouraged by the government, Baghdad businessmen have been flying to Kuwait in large numbers to buy up looted goods, transport them to Iraq and sell them to shopkeepers. Business is so brisk that travelers jostle for seats on Iraqi Airways' several flights each day.
The best deals have been arranged in Kuwait by Iraqi wholesalers with good connections in the government, an Iraqi source said.
Cars have become a special case because they require registration and the government has forbidden Iraqis to loot them without authorization. According to Iraqi and diplomatic sources, Iraqis pay about $1,800 to get around the ban by having officials in Baghdad register cars lifted from Kuwait as if they had been purchased before Aug. 2.
Some food also has been brought from across the Turkish and Iranian borders, both by Kurdish traders working for profit and by Iraqi officials, according to Kurdish sources in Iraq and abroad. A Kurdish professional said one of his relatives in northern Iraq recently earned about $3,000 by smuggling in from Iran a pickup truck loaded with tomato paste. The border trade, which includes sugar, honey, rice and cooking oil, is of only a tiny scale compared to Iraq's needs.
Despite the plentiful Kuwaiti goods, most prices have skyrocketed, placing much of the new-found abundance out of reach. A large can of powdered milk, which sold for about $12 before the crisis, has risen to more than $90. A 25-pound bag of rice has gone from about $20 to $150 on the free market, making Baghdadis glad they have rice rations in government-subsidized stores.
At his tea shop amid the car repair garages on Maaskar Rashid Street, Mohammed told visitors the other day he has been forced to raise the price of a cup of sweet tea fourfold since the crisis began, to about 60 cents, because of the sharp price rise in sugar.
In what was interpreted as the most dramatic sign that the embargo has begun to bite, Iraqi motorists lined up today to get the gasoline ration cards that will be required beginning Tuesday. An irate taxi driver predicted that, with gasoline purchases limited, he will be able to work only every other day.
The obligation to ration gasoline in one of the world's largest oil-producing countries was explained by the government as the result of shortages in chemical additives previously imported from Europe. Oil Minister Issam Abdul-Rahim Chalabi said the rationing would be easy, since it had existed for about a year in the early part of the 1980-88 Iran-Iraq war.
Deputy Prime Minister Saadoun Hammadi, who directs the nation's economy, warned last week that the embargo was taking hold. Despite official declarations that Iraq will stand firm, he declared in an interview with the government newspaper Al Jumhuriya, "any talk that Iraq has not been harmed by the blockade is not true." Particularly affected are development projects, many of which have been canceled, he said.