Regional Outlook : Will It Be War or Peace in the Mideast? Each Option Offers Hazards : A zero-hour withdrawal by Iraq may be the most difficult scenario for regional stability.

With barely a week remaining in the chilling countdown to possible war in the Persian Gulf, the alternatives remain just as unsettling.

Amid feverish diplomatic efforts to avert a military catastrophe that could devastate the region, including the scheduled meeting in Geneva this week between Secretary of State James A. Baker III and Iraqi Foreign Minister Tarik Aziz, there are growing doubts about whether a five-month standoff between some of the most formidable armies in the world can really be put to rest with a handshake and the rumble of departing tanks--and whether there is any such thing as a peace plan that will send them home for good.

For the bitterly divided Arab nations that must live along Iraq’s borders for years to come, and for the world at large, the risks of peace may well rival the risks of war.

As the Jan. 15 deadline approaches, the scenario many fear most is that Iraqi President Saddam Hussein will suddenly announce a zero-hour withdrawal from Kuwait--plunging the international community into a whole new set of questions that many of those most deeply involved in diplomacy in the Middle East admit they are not prepared to answer:

Can the U.S. and other multinational forces afford to go home with Saddam Hussein still in power?

How can they justify remaining?

Even if Hussein is subsequently ousted by his disgruntled compatriots, is there any guarantee that a new Iraqi leader would be better than the old one?

How can a frightened Israel be prevented from taking unilateral action against Iraq--or should it be prevented?

How are future territorial and oil-pricing negotiations to be handled with a country that still has a million-man army revving its engines in the Iraqi desert?

“What happens,” asks one diplomat rhetorically, “if King Fahd (of Saudi Arabia) calls up the secretary general of the U.N. and says, ‘Saddam Hussein has phoned me, he’s backing out now, even as we speak there’s a tank moving across the border, and he promises the rest will be out in four weeks.’ The secretary general calls up the Security Council and says: ‘Guys, we did it. Pack up your bags and go.’ Talk about a nightmare!”

The scenario is troublesome because it envisions that the international community allied against Iraq wants what it says it wants: for Iraqi troops to withdraw from Kuwait and for Kuwait’s legitimate government to be restored.

The problem, according to Arab and Western officials seeking a solution to the crisis, is that the world must have more than that. For many, it’s not enough for Hussein to withdraw his forces from Kuwait, nurse his wounds in Baghdad, restock his chemical plants and live to fight another day.

“Just to defeat him isn’t enough. He has to be humiliated,” said a senior Egyptian official. “It is possible to have a peaceful solution, but it must include a full withdrawal from Kuwait, which equals humiliation. If he’s going to gain something out of this adventure, then he’s a winner, and nobody wants him to be a winner out of this crisis, that’s for sure.”

The question of war or peace and how badly Hussein must be defeated has to do not only with military security but the future political landscape of the Middle East.

An Iraq that emerges from the crisis in the Persian Gulf with its credibility as a leader of the Arab world and its military forces intact would remain a valuable counterweight against potential problems from Iran, Syria, and--in the view of its Arab neighbors, at least--Israel. It would also be in a position--even in the event of a brief military conflict with casualties--to virtually dictate future policy in the gulf, many analysts say.

“In the Arab world, you can win by losing. If Saddam could walk around Baghdad and say, ‘I lost 10,000 men fighting the Americans,’ he’ll walk into the next Arab League meeting and say, ‘Who was the last one who did anything for the Palestinians?’ And basically write his own ticket,” said one Western envoy.

“Six months from now,” suggested another, “Saddam calls Riyadh and says, ‘I’m running short of cash, turn down the pipelines for a few months, will you?’ How fast is Fahd going to say, ‘Yessir’? . . . He will literally dictate the price of oil for the next decade. He will also dictate most Arab foreign policy.”

If the Saudis and many other gulf states have sounded hawkish in recent months, this is why. Privately, senior Saudi government officials have been extremely worried that Iraq will abruptly pull its troops back into northern Kuwait, perhaps retaining the two key Kuwaiti islands that can provide access to the Persian Gulf and the disputed Rumaila oil field on the Iraq-Kuwait border.

Suddenly, Hussein would appear to have met most of the demands of the United Nations while retaining the territory that started the dispute with Kuwait in the first place. The international alliance could easily reply that the U.N. resolutions call for a full withdrawal from Kuwait, but is the world ready to go to war over two islands and a small oil field that Kuwait shares with Iraq?

It would be just as bad, in the view of the gulf Arabs, if the United States or European intermediaries agreed to end economic sanctions and to refrain from any attack on Iraq in exchange for a total withdrawal from Kuwait.

It sounds reasonable, admits one Saudi official, but it leaves the rest of the Arabs faced with the same problem they had before the Aug. 2 invasion: a formidable Iraq just north of their borders, armed with chemical weapons and the possibility of developing nuclear arms as well. With no economic sanctions, the official said, there will be no leverage with which to persuade Iraq to dispense with its most dangerous weaponry.

“If Saddam Hussein gets a deal where the embargo drops, we’re in the worst position we could be,” he said. “If we drop the blockade, we’re looking at a mess.”

War, some officials admit privately, is the neatest solution to this particular dilemma.

“At this point, no one has articulated how you deal with the problem of Iraqi arms short of war,” said a senior Western diplomat based in the gulf. “If there is a conflict, the Iraqi army is going to be downsized. I guess that’s a polite way of putting it. The chemical, biological and nuclear weapons facilities will go up in smoke.”

What remains “most unclear,” he said, is how Iraq can be pressured into giving up its nuclear and chemical capabilities short of combat. “A lot of Arabs believe this is not an issue, because if Saddam does withdraw, following his capitulation with Iran, it will result in his being unseated from power,” he said. “Obviously, Saddam shares that concern, and that is one of the reasons, probably, that he has not withdrawn from Kuwait. It is a crucial issue. It is one that has not been addressed by the Saudis, by the U.N., or by us.”

Both the Saudis and the Egyptians have argued vehemently against any kind of negotiations with Iraq before a full withdrawal.

“The majority of Saudis would say they prefer to negotiate--because they are foolish enough to think this can be solved without blood, without casualties,” said a close associate of the Saudi defense minister, Prince Sultan ibn Abdulaziz.

“You see, people who think it’s possible to negotiate with Saddam Hussein don’t understand that Saddam Hussein is a criminal, an extortionist. You never negotiate with an extortionist. Never. Because he will only increase his demands,” he said.

Also at stake, say many diplomats and government officials, is the ability of the international community to maintain order in the post-Cold War era, particularly in a region like the Middle East, where good neighborliness was at least usually assured by a delicate balancing act between the two superpowers.

Now, most of the Arabs allied with the West--and even some of those who most resent Western intervention in the current crisis--say the United States has taken over the job of international policeman.

“We are entering a new order where security is not going to be guaranteed by an agreement between the two superpowers, and who is going to do the job now if not America?” said one diplomat. “Who will prevent Hungary and Romania from starting a war over their borders? Who is going to stop them? Everything is possible, and this is test case No. 1, Iraq and Kuwait. Our international interest is: Stop it. Because if we don’t, there is going to be jungle law, and we can’t afford it.”

A senior Egyptian military official said that negotiating a peaceful resolution to the crisis remains unthinkable--for all of these reasons.

“It means any place in the world, not only in the Arab countries, it means you do not respect the Charter of the U.N., it means you do not respect the neighborhood relationship, and we’ll go to a period of disorder in the world,” he said. “The problem is not only an Iraqi occupation of Kuwait. It’s a problem of legality, principles and human beings.”

Faced with the seemingly irresolvable dilemma, one Egyptian opposition leader raised his hands and looked at the ceiling.

“Really, there is no way to solve it except (if) someone plucks Saddam and sends him to God,” he sighed.

But even an internal coup in Iraq or an assassination of Hussein, in the view of many officials here, does not resolve the problem. With no viable political opposition inside Iraq, it is likely that the same Baath Party structure that has held Hussein in place would replace him with one of his top aides. “Both of them,” said one diplomat of the aides, “are stupid versions of Saddam.”

Even some of the Arab countries that have called loudest for war sound chagrined as the prospect for conflict looms ever nearer.

“Perhaps there are three permanent facts in life: that death will be true for all of us, and you can’t really change history and geography. It’s easy to say Saddam and King Hussein are not our neighbors--but they are,” said one Saudi official.

“If you took a poll around here today, the majority of the people would say, to hell with the Palestinians, to hell with all the Arabs. But that’s not the kind of analysis that stands up to further reflection. It’s not a matter of love and hate, it’s a matter of fundamental interests, and these go beyond the crisis today.”

What, he and other Arab officials wonder, would be the landscape of the Middle East after a war? And will the Arabs ever be able to settle their disputes peacefully?

“Really, this region must be disarmed, one way or another,” one senior Egyptian army officer said in a recent interview. “The most important thing for this area of the world is to look how to live in peace after this crisis. After what’s happened in Lebanon, the West Bank, all this region, there is fighting everywhere, always. Look at Southeast Asia, all the fighting is finished. South America, all the fighting is finished.

“We are the only area of the world (where) we have arms, fighting every day. We must disarm, and not Iraq’s military only. Any military power. We might live in what we call an era of discipline. We might reduce the military power, we might replace military power with agreements, with peaceful ways. Really, the existence of arms and weapons encourages people to make mistakes. We have had enough mistakes.”

* VOICES FROM THE GULF: Americans on duty in Saudi Arabia comment on their difficult duty. H8

Who Has the Oil?

TOP 10 CRUDE OIL RESERVES 1. Saudi Arabia 2. Iraq 3. Kuwait 4. Iran 5. United Arab Emirates 6. Venezuela 7. Soviet Union 8. Mexico 9. United States 10. China

TOP 10 CRUDE OIL PRODUCERS 1. Soviet Union 2. United States 3. Saudi Arabia 4. Iran and Iraq (tied) 6. China 7. Mexico 8. United Arab Emirates 9. Venezuela and Kuwait (tied)

SOURCE: U.S. Dept. of Energy