NEWS ANALYSIS : Saddam Hussein Bets He’ll Survive : Mideast: The Baghdad strongman is gambling that economic sanctions will end before his nation collapses.

Saddam Hussein is running his most daring bluff in 20 years as strongman of Iraq, betting that his Western enemies will fold before economic disaster swallows his regime.

Time and again since the U.N. Security Council voted last September to let Baghdad sell blockaded oil to buy food and medicine, Hussein has rejected the terms. Primarily, he refuses to pay reparations--part of the deal--for a war he cannot quite admit he lost.

His courtiers, diplomats and press pour out timeworn phrases of Iraqi defiance of the U.N. economic embargo and the proposed humanitarian exemption. “Iraq, while demanding its right to exploit its national resources, rejects the plundering of its wealth,” declared a government newspaper. “Iraq does not beg anyone and does not ask for any favor.” Another favorite chins-out retort is that the Iraqi people can survive for decades on the dates of Basra.

Meanwhile, reports from Baghdad detail widespread malnutrition, diminished stocks for the government food-ration system and sky-high prices on the open market. “Sanctions are strangling the country,” remarked Thierry Brun, a nutrition authority, after a tour of Iraq late last year. “But Iraq may be using malnutrition for political purposes, saying, ‘Look how we starve,’ to put pressure on the West to end the blockade.”

In part it’s working. News photos of skeletal Iraqi infants have an effect, churning stomachs in the West and raising anger in other Arab countries. The 54-year-old leader has made a cold, uncompromising gamble that these tactics can get him out of the Gulf War debacle without further loss to his personal power and his Arab Baath Socialist Party political machine.

The developing scenario is pure Hussein: Dig in, never retreat, dissemble, bully, tough it out. If the bluff is called and he’s short the cards, so be it. His enemies in Israel might concede that no leader in the Middle East has more chutzpah.

A Baghdad-based Asian ambassador once mused that Hussein’s character is not atypical of the Iraqis as a people. “They plunge ahead, giving little or no thought to the possible consequences,” he said. “And when they hit trouble, they improvise.”

For the last four months, a key arena of Iraqi intransigence has been the United Nations, notably Security Council Resolutions 706 and 712, which were adopted in the face of postwar humanitarian demands that increased food and medical supplies be sent to Baghdad. Under terms of the economic blockade imposed on Hussein’s regime shortly after his army’s August, 1990, invasion of Kuwait, food and medicine were exempted from the trade embargo, but postwar Baghdad has claimed it has no money to pay for imports.

The resolution would provide for a onetime $1.6-billion sale of Iraqi oil to raise funds. One-third of the proceeds would be set aside by a special U.N. commission to pay war reparations to Kuwait and other countries affected by the invasion and to cover U.N. humanitarian costs in Iraq. The rest could be spent for food and medicine, which would be distributed under U.N. supervision to ensure that they went to the needy and not to the military, police and political legions that keep Hussein in power.

No, said the president, and his men began to attack the formula from a variety of directions. From the start they opposed outside supervision as a violation of sovereignty and refused to countenance reparations. Then they began to chip at the numbers in the proposal. The $1.6 billion was not enough; they wanted four times that much in any deal. They wanted to choose the method of export, preferring to ship oil through a Saudi pipeline or their own Gulf terminal rather that send it through the dual pipeline across Turkey; the Turks wanted too much in user fees, the Iraqis said.

In mid-January, Iraqi negotiators came up with a new wrinkle, a proposed five-year grace period during which there would be no U.N. checkoff from Iraqi oil revenues for any reason. The proposal was later put to officials of the U.N. compensation fund in Geneva, and they told Iraqi authorities that only the Security Council could change the formula outlined in the two resolutions. Then the fund officials returned to the business at hand, tentatively setting compensation levels of $30,000 per person and $60,000 per family for victims of the invasion, more figures that Baghdad seems certain to reject.

The dispute over oil sales and reparations is similar in principle to, but less dramatic than, the bluff and deception by Baghdad on elimination of its weapons of mass destruction. Until that process has been completed, the economic blockade will not be lifted, according to the United States and other permanent members of the Security Council. Nevertheless, the Iraqi regime continues to harry U.N. inspectors seeking a full accounting of Baghdad’s missile and warhead stockpiles and its capacity to develop nuclear, chemical and biological weapons.

Last week, taking up its bimonthly review of Iraqi compliance with terms of the cease-fire that ended the war 11 months ago, the Security Council gave no indication that Hussein was likely to win a reprieve on sanctions.

“There is a very grave concern about a number of areas of Iraqi noncompliance,” said the council president, British Ambassador David Hannay. He cited Iraqi obstruction on weapons inspections, Kuwaiti detainees, the return of Kuwaiti property and some other financial issues.

The council met the day after a group of U.N. inspectors were roughed up by Iraqi demonstrators--and no one demonstrates in Baghdad without government approval--as they arrived in the capital. Meanwhile, a U.N. report detailed suspicions that Hussein’s regime was continuing to try to hide some weapons-related materials.

More unsettling disclosures confirmed Iraq’s evasions on its nuclear capacity. Only after German officials tipped off U.N. inspectors to shipments of centrifuges from Germany to Iraq did Baghdad admit their existence. The Iraqis claimed to have destroyed them after the war.

While Hussein continues to fence over U.N. sanctions on grounds of sovereignty and secrecy, the embargo remains in place, slowly tightening the economic pressure. He and his media have had some success in laying the blame on Washington and its allies, and Western policy is clearly aimed at trying to squeeze Hussein from power by almost any means.

Press reports from Baghdad indicate a mixed response. Some Iraqis ask journalists why sanctions remain since only ordinary people are being hurt, and they do not have the power to oust Hussein. A mother with a malnourished child has little interest in the politics of her situation.

Day by day, the situation worsens in Iraq. Its only major product was oil. The regime’s refusal to begin conditional sales leaves revenues near zero, and diplomats agree that one thing Hussein abhors is a shortage of funds. But another is retreat.