BAGHDAD, IRAQ, DEC. 30 -- Despite the international embargo against Iraq, when Baghdad residents want a cold one after a hard day's work, they need go no farther than their neighborhood store to find a selection of canned imported beers such as Amstel Lager, "brewed and canned by Jordan Breweries, Amman."

Stamped on the bottom is a telling production date: Nov. 18, 1990 -- more than three months after Jordan and other U.N. members were supposed to have begun observing a total economic embargo against Iraq after its invasion and occupation of Kuwait.

The Amstel label goes far to explain why U.N. trade sanctions simply are not working as intended, and are unlikely to any time soon.

Shops, markets and stores throughout the city are brimming with goods produced both locally and abroad. And although Iraqis are paying higher prices for everything from bread and beer to meat and milk, they are getting virtually everything they need and most of what they desire.

"The borders here are extremely porous," a Western diplomat said, commenting on the ease with which goods are flowing into the country. The sanctions that were intended to produce abject hardship among the Iraqi population and thus generate widespread internal dissension and upheaval against President Saddam Hussein are functioning more or less like a loose-meshed fishing net: The big fish are getting caught, but lots of little ones get through.

Diplomats who are closely monitoring foreign compliance with the U.N. sanctions say there is strong evidence to suggest that Jordan, Iran, Turkey and even Syria are failing to check the flow of consumer goods across their borders into Iraq. In the case of Jordan and Iran, the diplomats say, the governments there may actually be encouraging some cross-border commerce.

Iran could be crucial to Iraq's current economic survival, according to Arab and Western observers here, because it could help Iraq breach one of the most successful aspects of the embargo -- the cutoff of Baghdad's oil exports.

Iranian delegations have been holding talks in Baghdad for several weeks, and a diplomat who was briefed by the Iranians said an oil-barter deal is being arranged in which Iraq essentially would hand over millions of barrels of Iraqi oil to be sold by the Iranians on the world market. This account could not be independently confirmed.

Iran is said to need the oil because its own oil-production facilities are in disrepair from the war. Iraq is eager to unload its oil, in part, because it has nowhere to sell it, and other oil-producing states such as Iraq's enemy, Saudi Arabia, are profiting from the withdrawal of Iraqi oil from the international market.

What Iraq will get in return remains unclear, but the diplomat said at least part of the Iranian profits from the oil sales would go toward Iraq's payment of war reparations, which could total as much as $50 billion.

The types of consumer goods coming across the border indicate Saddam is doing everything in his power to ensure that his people are kept fed and relatively content as the sanctions noose tightens. Last week, a "peace boat" carrying 250 women and children, mostly Arab, to Iraq from Algeria -- a boat that Iraq claimed was carrying supplies of medicine and baby formula -- instead reportedly was carrying tons of sugar.

Trucks and cars loaded with imported consumer goods arrive in the capital daily. At Baghdad's Saddam International Airport last week, several crates of fruit -- as well as a set of four tires -- were seen being unloaded by Iraqi soldiers off an Iraqi Airways flight from Jordan. A civilian was seen unloading two large sacks of fresh bread.

Nevertheless, Saddam complained as recently as last Monday that "there are Iraqis who are dying because of shortages of baby milk or certain kinds of medicines." He spoke with bitterness in a Mexican television interview about "those who sign such {trade embargo} resolutions {and} still talk in the language of humanitarianism, human rights and freedom and boast of belonging to the civilized world."

Iraqi civilians say the shortage of medicine at hospitals is a reality. "The problem for babies is very bad," said a father of four who recently visited a Baghdad hospital. "There is no milk or medicine for them."

But diplomats react with skepticism to such reports. "One has to greet these 'humanitarian appeals' with a great deal of cynicism if you take into account that, while babies are supposedly dying, truckloads of Amstel beer are arriving from Jordan," one foreign official said.

Those hit hardest by the sanctions, according to Iraqi and other Arab sources, are those who have stayed in Kuwait during the occupation. Reports from there indicate widespread, severe shortages of food and dry goods -- either because stores were looted by Iraqi soldiers soon after the invasion or because Iraq is seeing to it that Kuwait is the last place under its control to get supplies. The effect has been to force Kuwaitis to come to Baghdad for food and clothing, bolstering the Iraqi capital's economy at the expense of Kuwait and further depopulating it.

At least two five-star hotels here reportedly are filled with Kuwaitis who have come to buy supplies, to visit the estimated 3,000 Kuwaitis brought to Baghdad as prisoners of war, or to abide by new Iraqi laws requiring them to register as citizens of Iraq.

Baghdad's hotels -- filled with Kuwaitis and scores of foreign journalists -- are becoming a useful source of hard currency for the government. The top hotels are charging up to 90 dinars a night, and accept payment only at the official exchange rate of $3 per dinar, bringing the cost of a night's stay to $270. (By comparison, black market exchange rates can go as low as 20 cents to the dinar, which would make the same hotel stay worth $18.)

Cash reserves of hard currency, diplomats say, have become crucial to Iraq's ability to circumvent the U.N. sanctions because it has no credit and its foreign bank reserves have been frozen. Ironically, the United States and other countries were forced to contribute to Iraq's cash reserves during the mass evacuation of their nationals from Kuwait and Iraq earlier this month. One diplomat said Iraq was charging $100,000 per evacuation flight, and there have been well over 100 flights just to evacuate U.S., French, Canadian, Soviet and Vietnamese workers here.

Although the sanctions have failed to create widespread shortages here, they have had a noticeable effect on food prices. A year ago, 30 eggs sold for 3.5 dinars. Today, they sell for 7 dinars. A kilogram (2.2 pounds) of tea sold for 1.5 dinars before the Kuwait invasion, but now sells for 15. Sugar, tea, bread, flour and rice all are being rationed.

But a shopper buying bread on the street in the Bataween shopping district said the government rations do not significantly strain the average consumer. He said, for example, that the monthly ration of 1.5 kilograms of sugar per person "is more than enough. I don't need more than that."

"If you go on the assumption that sanctions will work eventually, sure. But the Iraqis have been on a war footing for the past nine years," a Western diplomat said. "Their consumption mentality is totally different. Most people have been saying, 'Give me rice, give me bread, and I'll shut up.' "

A further reason for the failure of sanctions is that Iraq has had a bumper crop this year, reducing the country's reliance on food imports.

Some shortages of goods are attributed not to the effects of sanctions but to the Iraqi government's emphasis on wartime production to ensure that all military needs are taken care of first. Textile mills that previously manufactured shirts, pants and dresses are now reported to be producing army uniforms, jackets and tents. Even with the curtailed production, shops in Baghdad are filled with clothing made from locally produced textiles woven with Iraqi cotton -- resulting in large part from surplus production before the invasion of Kuwait, a Western diplomat said.

Surpluses also are believed to have developed because Iraqis, apparently fearing a long war and tough times to come, are saving their money rather than spending it, purchasing only the bare essentials.

The sanctions could begin to take a serious toll, analysts here say, if the country runs out of crucial spare parts to keep factories, oilfields and refineries running. Large, bulky items, such as pipeline pumps and generators, are not as easily smuggled in under the embargo, diplomats say, and must be brought in by a circuitous route that would involve importation by either Turkey or Pakistan and then overland transport to Iraq via Iran.

Maintaining fuel supplies, the diplomats add, is crucial to Iraq's ability to remain economically viable. A Western source said Iraq appears to be replenishing its supplies of gasoline and diesel fuel, although the octane level is reduced because of shortages of additives needed in refining. It remains to be seen whether Iraq has stockpiled enough jet fuel to maintain an active air force in time of war.

Iraq recently faced a critical shortage of chemical additives needed to purify its municipal water supply, but diplomats said a truckload of the additives arrived from Jordan via a secret military route. The arrival of the additives raised the possibility that the same route could be used for oil refinery chemicals needed for jet fuel.

As for Jordan, which has steadfastly supported Iraq politically while claiming to observe the U.N. embargo, diplomats say the flow of consumer goods across the border is rampant. One diplomat said he had been told of a desert military road that stretches between Baghdad and the Jordanian capital, Amman, where heavy commercial traffic has been reported. In addition, the diplomat said, traffic on the road would lend credence to reports that Jordan has been helping Iraq stockpile military supplies in case of war.

"If you study the weak points, the sanctions are not working," said another foreign official, who described the effect of the embargo as minimal in terms of pressing Iraq to withdraw from Kuwait. "I suppose if the sanctions continued for some years, they would eventually have an effect."