Iraq Impounds Foreign Assets : Gulf crisis: Baghdad targets countries that have frozen its holdings abroad. The regime will also withhold payment on its debts.

Hard-pressed by a tightening trade embargo, the government of Iraq retaliated Wednesday by beginning to take over foreign assets in Iraq and withholding payment on its debts.

In decreeing the move, Iraq’s ruling Revolutionary Command Council targeted countries that have frozen Iraqi and Kuwaiti assets abroad and have deprived Iraq of the proceeds of Kuwait’s vast investments.

The official Iraqi News Agency, which made the decree public, said it was issued under a new law dealing with the protection of “Iraqi interests, money and rights in Iraq and abroad.” It quoted the decree as saying:

“All money, assets and their revenues belonging to governments, institutions, companies and banks of countries that have taken arbitrary actions against Iraq are impounded.”

The news agency did not say how much money might be involved, nor was the U.S. State Department able to provide an estimate. Margaret Tutwiler, a department spokeswoman, said in Washington:

“It is not clear from the Iraqi statement in what form or against whom the action will be taken.”

The United States, and other countries as well, froze Iraq’s holdings abroad not long after Iraq invaded and occupied Kuwait on Aug. 2. According to the Iraqi News Agency, the new decree declares that action invalid.

Iraq’s order to seize foreign assets is the latest in a series of tit-for-tat moves President Saddam Hussein has made in an effort to counter the foreign pressure. Inresponse to the trade embargo, he has withheld food from foreign refugees trying to get out of the country; in an effort to deter military attack, he has moved foreign hostages to potential target areas.

The decree’s impact will vary from country to country. Britain, for example, has little in the way of assets in Iraq and is a net debtor. Several Japanese companies, on the other hand, are owed about $4.5 billion by Iraq.

Several foreign companies have lucrative construction and oil contracts with the Iraqi government, and Iraq has taken the position that it will not be responsible for delays in completing these contracts, suggesting that it will not pay for incomplete projects.

There was speculation in Amman that Iraq will confiscate diplomatic property in Kuwait. Hussein has already ordered embassies there closed and suspended guarantees of diplomatic safety.

The United Nations, meanwhile, took steps to tighten the net around Iraq by broadening the blockade to include air cargo as well as shipping and overland commerce. A proposed resolution would subject to inspection at intermediate stops all flights into and out of the country.

The resolution, introduced on the heels of reports that Libya and Yemen have not been complying with the embargo, would require all countries to close their airspace to planes approaching or leaving Iraq or Kuwait.

In Washington, a Bush Administration proposal to sell Saudi Arabia as much as $22 billion in arms encountered mounting opposition from members of Congress, who expressed concern about the potential impact on arms proliferation and the balance of power in the Middle East.

Lawmakers who attended closed-door briefings with top Administration officials said they received assurances that the Pentagon arms sale proposal is still under review by the White House and that no final decision has been made on its scope.

Sen. Alan Cranston (D-Calif.) said he and a group of other Democratic senators urged Administration officials in one session to scale back the proposal to only those arms needed immediately by the Saudis to help counter the threat of Iraqi aggression.

“Every senator raised questions about the sale and the capacity of the Saudis to absorb that many weapons with their small forces,” Cranston said. “The general suggestion was that it would be wise to tone it down so that there would not be a big battle in Congress.”

California Rep. Mel Levine (D-Santa Monica) said lawmakers are concerned that the original Pentagon proposal, which would provide the Saudis with advanced F-15 fighters and hundreds of tanks and armored fighting vehicles, would significantly escalate the Middle East arms race.

“It looks like the Administration is trying to use the crisis as a fig leaf to have everything but the kitchen sink thrown in,” said Levine.

Rep. David R. Obey (D-Wis.), chairman of the House Appropriations subcommittee on foreign operations, said he has “tremendous misgivings” about the size of the Pentagon proposal and the potential lack of congressional oversight. “This is the sort of thing that would make Ollie North salivate,” he said.

An aide to House Speaker Thomas S. Foley (D-Wash.) said there has been some discussion among members of Congress of providing the Saudis now with only those arms needed in the current crisis and delaying debate on the remainder of the package.

In other gulf developments Wednesday, an airliner carrying more than 400 Western women and children left Baghdad for London. The passengers were said to be mostly U.S. citizens but included some Britons.

In Paris, a spokesman at the French Foreign Ministry said Iraqi soldiers have arrested two more French nationals in Kuwait, adding to the thousands of foreigners held hostage in Iraq and Kuwait.

The embargo against Iraq continues to trouble Jordan, which appealed Wednesday for foreign aid. Before the Kuwaiti crisis, more than half of Jordan’s exports went to Iraq.

Jordanian officials have complained that the United States is dragging its feet in aiding Jordan because of its perception that King Hussein is supporting Iraq.

Japan and West Germany and other European countries have said they will provide Jordan with compensation, but the United States has yet to join in. Jordanian government spokesman Ibrahim Ezzedin attributed Washington’s reluctance to “some doubts and misunderstandings about our political position.”

Jordan has applied the U.N. trade sanctions to Iraq, but grudgingly. Jordan continues to import most of its oil from Iraq, claiming a hardship exemption.

In a statement likely to aggravate the already-strained relations with Washington, Jordanian Prime Minister Mudar Badran said Wednesday that the Americans will be the losers if it comes to war.

He said that Washington’s goal in the region is to compete with a united and powerful Europe by controlling the region’s oil.

Badran said this presents Washington with a dilemma because the region’s oil production facilities could be destroyed in a war.

“Based on this assumption, the United States will be the loser,” he said.

He appeared to accept Iraq’s assertion of rule over Kuwait, saying that neither Saudi Arabia nor any other state in the region is threatened.

Jordan has not recognized Iraq’s annexation of Kuwait, but has not condemned the invasion.

In recent weeks, the thrust of Jordan’s diplomacy and its public stand on the crisis have fallen more and more into line with opinions expressed by the Iraqi government: that the major problem in the Middle East is the presence of U.S. and Western troops in Saudi Arabia and that the invasion of Kuwait is an issue that can be settled by Arabs.

Staff writers Paul Houston, Karen Tumulty and John M. Broder in Washington contributed to this report.

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