Iraqis Feel Pinch of U.N. Sanctions : Gulf crisis: The noose is not choking yet. But factories are short of materials and parts, utilities are threatened, some food is scarce and prices have people grumbling.

The economic noose of U.N. trade sanctions, imposed 16 weeks ago to squeeze Iraq out of Kuwait, has begun to pinch here but not choke.

While President Saddam Hussein’s government cannot sell its oil and only a trickle of contraband is filtering across its borders, necessities remain available--at a price.

It’s the prices that have Baghdadis grumbling.

For instance, an average worker, earning about 200 Iraqi dinars a month, must pay a habit-breaking 35 to 40 dinars for a carton of local cigarettes.

Automobile tires formerly imported from the United States, Japan and Argentina cost 10 times what they did before the Aug. 2 invasion of Kuwait, provoking a rise in thievery. “I parked outside my house for dinner,” said one driver, “and when I came back out two hours later, the right-side tires were gone, wheels and all.”

The official line is that the embargo is a cruel and illegal punishment of the Iraqi people, forced through the U.N. Security Council by the United States and Britain.

Defiance is the response. According to an Asian diplomat, authorities have told him: “Iraqi peasants have been living for centuries on dates and hummus (a Mideast dish made of mashed chickpeas, sesame seed oil, etc.). A few decades more are not going to hurt them.”

“The government says the economy can hold out against the embargo indefinitely,” a Western diplomat added, “but there’s a lot of frustration in the streets.”

Broadly, these are key problems:

* Heavy and light industry has been hit hardest. Deprived of imported raw materials and spare parts by the embargo, it has received a second blow with the flight of foreign workers.

“They (the Iraqis) are keeping some factories going at a maintenance level just to keep the machinery in tune,” said the Asian diplomat. “Almost the entire industrial sector is grinding to a halt or just chugging along.”

“Ball bearings,” added a European in a confidential tone. “That’s what’s hurting them.”

Overall factory capacity may be down by 40%, according to some reports.

The government has released no figures. Most economic data falls under military security here. The

embargo’s effect on military production cannot be measured with confidence.

* With similar shortages of supplies and technicians, Iraq’s electric, water and fuel utilities are under pressure. The lifeline Tigris and Euphrates rivers still provide sufficient water, but the ban on imported additives like chlorine are threatening to affect potability of the supply, several Western diplomats noted.

The big oil refinery near the southern port of Basra, one of four in the country, has reportedly been shut down, they said, adding that a second refinery outside Baghdad appears to be limping.

The aborted rationing of gasoline early this month underlined the problem, although the government said, in dropping the plan, that the decision to limit supplies was based on mistaken calculations.

In the nine days it lasted, both diplomats and Iraqis said, reports reaching Baghdad told of motorists in the countryside pulling into service stations, leveling pistols at the attendants and demanding a full tank.

So far, electrical power appears unaffected, although the generators are dependent on imported spares. “When your hotel elevator no longer reaches the 10th floor, you’ll know the sanctions are biting,” one diplomat said.

* Food remains plentiful in Baghdad’s markets with some exceptions, most importantly sugar and tea, staples of the Iraqi diet.

The grocery stalls off Rashid Street in the old section of the city have been bolstered by small-time smugglers. Last week, five or six Kurdish men, dressed in traditional balloon-legged pants and turbans, sat on a curbside peddling apples, cigarettes and raw tobacco that crossed the Iranian border in the north.

Nevertheless, to make up for losses, the regime, which last year imported 70% of Iraq’s food supplies, has launched a much-ballyhooed program to increase agricultural production. Diplomats say a second fall wheat crop is being planted, and the evening news on Baghdad television pours out footage of good Farmer Ahmed tilling new fields.

With American wheat supplies shut off, Iraqi bread is already being made of a mix of wheat and barley. “It’s quite healthy and very good, to my mind,” remarked an Australian hostage, “but the Iraqis don’t much care for it.”

Chicken is currently available at a good price, an Iraqi woman said, because the rising cost of living is forcing farmers to slaughter their hens.

Western goods looted from Kuwait still line shop shelves, but diplomats who watch supplies say they are getting down to slow-moving luxury items.

However, Western reporters saw a warehouse where crates of Kuwaiti goods were being sold to middlemen, apparently under government auspices.

Since Sept. 1, most food staples have been rationed through government stores. But distribution is a problem under the centralized system, and empty government shelves have forced Baghdadis to shop instead at high-price private shops. Alert to the possibility that merchants are manipulating prices, the regime recently repeated its earlier edict: The penalty for hoarding is death.

Despite official claims that the West is depriving Iraqis of vital medicines, a foreign doctor here said hospitals in the capital have no shortage of basic supplies, and diplomats note that the embargo does not prohibit imports of needed medicines. U.N. approval is required, but so far, the government has not asked for it. Western diplomats argue that to do so would deflate the propaganda line that the embargo is endangering Iraqi lives.

* The Iraqi dinar has become a victim of the crisis if not of the sanctions themselves.

“This has become a dollar economy,” a European diplomat said, and the reason is the uncertainty of peace or war. Iraqis are forbidden by law to hold dollars, but demand for dollars is rising.

At one point this month, the black market rate topped five dinars to a dollar. The official rate is $3 to one dinar, for those permitted to buy dollars.

Those foreign workers not held hostage--primarily Asians and Arabs--can buy dollars at the official rate, but in mid-November the exchange windows at the banks were closed, several foreigners told a reporter. Western diplomats confirmed the report.

Despite heavy anti-American propaganda, Ben Franklin on the $100 greenback has become more popular than Saddam Hussein on the 25-dinar note in the black market. According to an unconfirmed story, Rashid Street shopkeepers are turning down the Hussein 25, asking customers instead for another Iraqi 25-dinar note that bears the picture of three horses instead of that of the president.

“They want the horses,” said an Iraqi, “because if something happened to this government the Hussein dinars might be worthless.”

The swings in the currency black market, which remains active despite severe penalties, mark the fears of war.

Some big businessmen reportedly are converting any asset they can into dollars, hedging against instability. “If war comes,” commented a Western diplomat, “don’t think for a moment that they won’t be able to buy their way out of here.”

Despite the eyes and ears of Hussein’s security forces, official corruption is a problem in Iraq. “How do you think all that Iranian stuff gets past the checkpoints coming down from Kurdistan?” one Iraqi businessman asked.

As important as the ban on exports to Iraq is the blockade of oil shipments out. At least 90% of the country’s hard-currency earnings came from the sale of oil, a resource so plentiful that it permitted the Iraqis to import nearly all the things they needed.

Under the embargo, with tankers facing a sea blockade and pipelines across Saudi Arabia and Turkey shut down, no money is coming in. Meanwhile, Iraq’s antagonists along the Persian Gulf are selling their oil at prices inflated by the absence of supplies from Baghdad and occupied Kuwait.

Oil analysts figure the embargo has cost Iraq nearly $10 billion in earnings so far, a painful statistic for President Hussein whose concern over oil profits triggered the invasion.