Embargo of Iraq Develops Leaks : Mideast: Tensions rise as U.S. officials express anger over breaking of economic sanctions, while Baghdad accuses allied planes of sabotaging grain harvests.

Almost two years after Iraq’s invasion of Kuwait, tensions are escalating again between the Bush Administration and the regime of President Saddam Hussein over several issues--from sanctions-busting by Iraq to alleged crop sabotage by the United States--that reflect the dangers of a prolonged standoff between the two nations.

U.S. officials are angered and frustrated by a growing “leakage” in U.N. economic sanctions against Baghdad. Hussein has managed to skirt the restrictions and acquire millions of dollars’ worth of commercial goods transported through, and often produced in, neighboring Jordan, Turkey and Iran, according to U.S. officials.

Iraq has even been able to buy from private agents and outlets in European countries that were allied against Baghdad during Operation Desert Storm, in defiance of government prohibitions, the sources said. Among the sanctions busters are German outlets--particularly controversial because Iraq built its arms industry, notably chemical weapons, in the 1980s with the help of private German firms.

While this is not the first evidence of cracks in the U.N. embargo, the increasing magnitude of sanctions-busting has fueled Administration fears of further erosion of the only major pressure on the Iraqi leader.

“It’s not yet fair to call the Iraqi border a sieve, but it is becoming very porous,” a Pentagon official said. “Sanctions were imperfect to begin with. But the growing leakage will make it even more difficult to get rid of Saddam or to change the Iraqi system.”

Administration sources expressed special frustration with Jordan, charging that it has acted in collusion with Iraq to falsify records about goods crossing their joint frontier. U.N. sanctions allow only medicine and humanitarian goods into Iraq.

This weekend, Hussein boasted that the international economic boycott had helped Iraq become more self-sufficient. “The embargo has provided us with an opportunity to organize the economy, define emergency plans and harness available resources without relying solely on the wealth of oil,” the Iraqi leader was quoted as saying by Baghdad papers Saturday.

Anger is in turn growing in Iraq because of allegations last week that the U.S. and British governments have engaged in sabotage of wheat and barley crops around the northern city of Mosul. At the U.N. Security Council last week, Iraq asserted that Western warplanes dropped incendiary bombs on grain fields 22 times between May 27 and June 13, burning 7,500 acres of fields under harvest and 6,600 tons of grain.

Baghdad officials also said that an unspecified number of farmers and peasants suffered severe burns and that agricultural equipment was ruined, although they offered no proof.

Calling the alleged air strikes “one of the most serious acts of terrorism in the world,” Iraqi Trade Minister Mohammed Mehdi Saleh said the incidents provided “proof” that Washington “never hesitates to use any ways and means to prevent Iraqi people from obtaining the food and medicine they need.”

The Administration denied it engaged in deliberate sabotage. “It’s absolutely not U.S. policy to burn, destroy or do anything to Iraqi wheat fields or any Iraqi agricultural capability. We certainly do not intend to bring hardship on the Iraqi people,” a State Department spokeswoman said last week.

But State and Pentagon officials conceded that the Iraqi fields may have been set afire by flares dropped by U.S. or coalition warplanes during surveillance flights to track the night movements of Iraqi troops and antiaircraft equipment.

In public remarks, Administration officials have speculated that the crops also may have been burned by Iraqis for anti-American propaganda purposes or that the fields and leftover straw were burned as a standard post-harvest conservation measure. But the harvest is normally not finished until late July or August.

In private, however, U.S. military officials familiar with the incidents appeared prepared to accept the likelihood that coalition planes probably were responsible--accidentally--for the fires. One official said similar fires were common during summer training exercises using flares around U.S. air bases.

The U.S.-led coalition has made no secret of its aerial surveillance in northern Iraq. Military overflights were particularly heavy during last month’s Kurdish elections for a regional parliament.

“Overflights are the most visible symbol that we’re still in the area and that the Iraqis shouldn’t try anything funny,” explained an Administration Iraq specialist.

The alleged firebombing is sensitive in part because almost half of Iraq’s wheat and barley is grown in the Mosul region. Because of the Gulf War, the Kurdish uprising and U.N. sanctions, crop yields plummeted last year.

But Administration analysts expect Iraq’s grain harvest this year to produce bumper crops--and, in turn, give a significant boost to Hussein’s ability to defy pressures from the outside world. Some reports out of Iraq suggest the yield may be twice last year’s production.

The agricultural report coincides with significant reconstruction progress a year after the war and two internal uprisings. “A lot of Iraq’s infrastructure--electric grids, transportation facilities, bridges and so forth--has been rebuilt much faster than anyone thought,’ the Pentagon official said.

“The level of (war) damage turned out to be not as bad as originally assessed. As it turned out, Iraq wasn’t bombed back to the Stone Age.”

The Administration’s fears about the Iraqi leader’s durability also have grown because of the ongoing divisions among Iraq’s disparate opposition, underscored at a summit in Vienna this month.

Although more than 200 delegates from over 40 Iraqi groups agreed to establish a ruling council to serve as a government-in-exile, key opposition figures and groups boycotted the Vienna meeting. And among those who did attend, sectarian and ethnic differences among the Shiite and Sunni Muslim Arabs and the Kurds were repeatedly visible.

Despite a major increase in covert American funding for Iraq’s opposition, the diverse groups have still not organized a strong or viable alternative.

Meanwhile, Hussein’s government is quietly increasing its diplomatic profile. Deputy Prime Minister Tarik Aziz has been traveling to Arab and Third World countries, most recently to Algeria and Morocco, to explain Baghdad’s position.

Aziz even attended the U.N. environment conference in Brazil this month, while other Iraqi officials have attended international meetings in Europe, Africa and Asia. “The Iraqi leadership is no longer as isolated as it was a year ago,” the Pentagon official said. “And that makes it harder to squeeze Saddam.”