The MacNeil/Lehrer NewsHour

MR. LEHRER: Good evening. Iraq's war on Kuwait again leads the news this Monday. The United Nations Security Council voted an oil boycott, arms embargo, and trade sanctions against Iraq. Saudi Arabia was reported to be massing troops along its border with Kuwait. Several hundred American and British Airline passengers were rounded up by Iraqi forces. We'll have the details in our News Summary in a moment. Charlayne Hunter-Gault is in New York tonight. Charlayne.

MS. HUNTER-GAULT: After the News Summary, the Kuwait crisis [FOCUS - STOPPING SADDAM] is our major story tonight. As the world grapples without to stop Saddam Hussein, we look at the how and why of the Arab world's response. Then we have two views [FOCUS - PRICE - SHOCK] on why the crisis has sent gasoline prices so high so fast. NEWS SUMMARY

MR. LEHRER: The United Nations Security Council today voted sweeping sanctions against Iraq. The vote was 13 to 0 for a U.S.- sponsored resolution to force Iraqi troops out of Kuwait. Cuba and Yemen abstained. The resolution orders an immediate arms embargo and a worldwide ban on all Iraqi oil exports. Afterward at the White House, Pres. Bush commented on the UN vote.

PRES. BUSH: We need to discuss full and total implementation of these sanctions ruling out nothing at all. These sanctions must be enforced. I think the will of the nations around the world, not just the NATO countries, not just the EC, not just one area or another, the will of the nations around the world will be to enforce these sanctions.

MR. LEHRER: This is the first time since 1967, the United Nations has imposed comprehensive sanctions against a member state. There were also signs today that the boycott of Iraqi oil by the United States and the European community may be taking hold. Iraq closed one oil pipeline into Turkey and reduced the flow of the second, the pipeline's pump the bulk of Iraq's oil exports. Also today Saudi Arabian troops moved into positions along the border with Iraqi-controlled Kuwait. U.S. Secretary of Defense Dick Cheney arrived in the Saudi capital this afternoon. He wants Arab support for getting Iraqi forces out of Kuwait. Several hundred Western airline passengers stranded in Kuwait were taken into custody by Iraqi soldiers. Twenty-eight are Americans. In Baghdad, automatic weapons were distributed to thousands of people in fear of a U.S. attack. A U.S. Naval task force left Norfolk, Virginia, this morning bound for the area. The U.S. carrier Saratoga and its support ships will carry 15,000 sailors and Marines. The Pentagon called the mission routine. Charlayne.

MS. HUNTER-GAULT: The Iraqi invasion continued to drive up world oil prices today. In London, North Sea crude was up more than $3 a barrel at $26.80, the highest level since December 1985. West Texas crude also rose more than $3 to over $28 a barrel. Financial markets also had another volatile day. The Dow Jones Industrial Average fell more than 93 points, with declining shares outnumbering those gaining by a 7 to 1 margin. In Japan, Tokyo stocks also plummeted more than 900 points, or 3 percent of the Nikkei Average.

MR. LEHRER: One American was among 14 hostages taken today by Liberian rebels. State Department Spokeswoman Margaret Tutwiler said the hostages were taken from their hotel in the West African nation to rebel headquarters. Earlier today the Pentagon reported 62 U.S. citizens had been evacuated from Monrovia, the capital of Liberia. Two hundred and twenty-five U.S. Marines came in and got them yesterday. The helicopter rescue mission was code named Sharp Edge. Pres. Bush ordered the action when rebel leaders called for the arrest of all foreigners. More than 200 Marines remain in Monrovia guarding a skeleton staff at the American Embassy.

MS. HUNTER-GAULT: In Pakistan today, Pres. Ishaq Khan declared a state of emergency after firing Benazir Bhutto as prime minister and dissolving her 20 month old government. We have a report narrated by Roderick Pratt of Worldwide Television News.

MR. PRATT: As head of state, Pres. Khan has the power to dissolve the government. He used that power to dismiss Prime Minister Bhutto's administration, accusing it of corruption.

PRES. KHAN: The national assembly has lost the confidence of the people.

MR. PRATT: At a news conference, Khan said Bhutto's government had lost all credibility because of extreme corruption. He described her administration as politically inept, saying it failed to take any action in response to public outrage. The dismissal took Bhutto's government by surprise and some cabinet members plan to fight back in court. It was 20 months ago that Khan agreed to Bhutto's nomination as Prime Minister. She was sworn in in December 1988, the first woman to lead a Muslim country, and she was hailed as a heroine for restoring democracy to Pakistan after 11 years of military rule. That image has been eroded largely because of growing charges of corruption among senior figures in her government and members of her family. Bhutto has also suffered deteriorating relations with the military. The army is angry over her handling of ethnic violence that has seen more than 400 people killed in recent months. Most of the fighting has occurred in Bhutto's home province of Sinh. Khan appointed opposition leader Mustafa Jatoi as interim prime minister. He has called for a new election in October.

MR. LEHRER: Pres. F.W. DeKlerk and Nelson Mandela met again today in South Africa. Mandela led an African National Congress delegation to talks aimed at working toward full scale negotiations on a new South African constitution. Mandela said yesterday the ANC would end its armed struggle if the government repeals strict security laws, releases political prisoners and allows exiles to return. At the United Nations in New York City, the United States and Vietnam began talks on Cambodia today. Last month the United States withdrew its recognition of a Cambodian rebel coalition. Vietnam invaded Cambodia and installed the present government in 1978.

MS. HUNTER-GAULT: Still ahead on the Newshour, the Arab world's reaction to Saddam Hussein and why gas prices are up so high so fast. FOCUS - STOPPING SADDAM

MS. HUNTER-GAULT: The nations of the world today began grappling with the problem of how to stop Saddam Hussein. At the United Nations, the Security Council imposed some of the toughest sanctions in its history against Iraq and Iraqi-occupied Kuwait. Invoking the most binding provisions of the UN charter, the 15 member council prohibited virtually all trade, ordered an arms embargo, and a ban on the oil exports of the two countries. The vote was 13 to zero, with Cuba and Yemen the only Arab member abstaining. The United States was among several countries sponsoring the sanctions in Resolution 660. Here are excerpts from the Council meeting.

MOHAMMAD ABDUL HAFAN, U.N. Ambassador, Kuwait: [Speaking through Interpreter] Mr. President, we reached the conclusion that Iraq was not committed neither in form, neither in content to Resolution 660. They are not committed to its letter, nor to its spirit. Thus, now it is your turn, your role, your historic responsibility by proving to the whole world that the security of nations, be it big ones or small, is not a commodity for sale or for terrorism or threats. By taking a position vis-a-vis this resolution which is before you now, by this you are recording a historic shift in the work of the Security Council and imposing the influence of the Security Council, imposing the will of the international community through the imposition of sweeping sanctions, through overall embargo on a country that refused to heed to the will of the international community.

ABDUL AMIR AL-AMBARI, U.N. Ambassador, Iraq: [Speaking through Interpreter] This last resolution contradicts Resolution 660. In fact, the draft resolution contradicts some facts. To explain, my government on the 3rd of August told you that we intended to start, I repeat that we intended to start our withdrawal of troops as of 5 August. My government, in fact, has started to withdraw its troops and do that as of 8 o'clock local time. All those who follow the U.S. media know that vehicles withdrawn, what, 27 in all, Kuwaiti ones, made in this a reunion. In fact, a draft resolution to you does not help at all in resolving the crisis. Nor does it help the Iraqi troops to withdraw. Quite the contrary, this draft resolution exacerbates the crisis of the Gulf region and impedes troop withdrawal.

THOMAS PICKERING, U.S. Ambassador: Mr. President, we havejust heard a startling statement on the part of the representative of Iraq. He announced that Iraq was going to start withdrawal on August 5th. Even if that were true, it would be a startling statement. Resolution 660 asks for immediate and unconditional withdrawal. He has just told us that Iraq managed to withdraw 27 vehicles yesterday. Of all the hundreds and thousands of vehicles that took part in the Iraqi invasion, if 27 vehicles a day is the pace, it would take 40 days just for the first thousand vehicles. This is not what the council has asked; it's not what the world demands. Iraq must learn that its disregard for international law will have crippling political and economic costs, including but not limited to arms cut-offs. Our concerted resolve will demonstrate that the international community does not and will not accept Baghdad's preference for the use of force, coercion, and intimidation.

LI DAOYU, U.N. Ambassador, China: [Speaking through Interpreter] Personally, it is our consistent position that relations between the states must be based on the five principles of peaceful co-existence, that the principles of the UN Charter and the norms governing international relations must be maintained, and that resorting to force or threat of force by any country to violate the sovereignty and territorial integrity of another country must be opposed. We believe that the independence, sovereignty and the territorial integrity of Kuwait must be respected, and Security Council Resolution 660 must be implemented immediately effectively in earnest.

VALENTIN LOZINSKIY, U.N. Ambassador, U.S.S.R.: [Speaking through Interpreter] Given the situation of invasion by Iraq of Kuwaiti territory, the Soviet Union took a decision to halt arms deliveries and material to Iraq. The Soviet Union, together with the United States, took an unprecedented step, a joint appeal to the entire international community to join with them on an international scale to halt all arms delivered to Iraq, and the Soviet Union also called upon regional organizations, particularly the leader of Arab states, and also the non-aligned movement and the Organization of the Islamic Conference to take all possible steps to seek the withdrawal of Iraqi troops from Kuwait. We make a direct appeal to the Iraqi government to heed the voice of the international community.

MS. HUNTER-GAULT: In Washington, Pres. Bush, British Prime Minister Margaret Thatcher, and NATO Secretary General Manfred Woerner hailed U.N. Action.

PRES. BUSH: We are very encouraged, all of us, by this action taken in the United Nations, a strong resolution up there. It shows, I think, that the world is united against the kind of aggression that we've witnessed. But I'd like to ask our guest, the Prime Minister, to say a word and then the Secretary General, who's just arrived, and we were going to do this differently, but now we're out here. Go ahead, please, Margaret.

MARGARET THATCHER, Prime Minister, Great Britain: May I support the President of the United States in saying that the news from the United Nations and the strength of the vote, 13 votes in favor of mandatory comprehensive sanctions and no votes against is very good. That means that it becomes law in all the countries of the world. That is extremely good. It also follows the strong support that has been given by the European countries in their condemnation of the action of Saddam Hussein in invading Kuwait. Japan also condemns strongly and so did the Soviet Union. So really the world is condemning the action and the United Nations resolution will become mandatory and mean that those sanctions must be enforceable. I cannot remember a time when we had the world so strongly together against an action as now. And I hope that those sanctions will be properly and effectively enforced as a positive action against what we all totally and utterly condemn.

PRES. BUSH: Are you prepared to say a word?

MANFRED WOERNER, NATO Secretary General: I just arrived, just a few thoughts which we have exchanged. My impression is that this is the moment for the West to show cohesion, determination, and to make it clear what cannot be accepted in this world, and to safeguard its own security interests.

MR. LEHRER: Now some analysis of today's events plus the dilemmas and fears and realities of the Arab worlds responding to this Arab on Arab invasion. An attempt to organize a unified Arab response to the Iraqi invasion over the weekend. President Bush has continued to voice frustration over the lack of Arab action and direct annoyance with one response that has come. Pro Iraq statements from King Hussein of Jordan. Joining us tonight Nicholas Veliotes, a former Assistance Secretary of State for Near Eastern Affairs. Also a former Ambassador to Jordan and Egypt. Is now President of the American Association of Publishers. James Akins for Ambassador to Saudi Arabia now a consultant. Joseph Sisco a former Assistance Secretary of State for International Organization Affairs, then Near Eastern Affairs. Later for Political Affairs under President Ford. He is now a consultant. Raghida Dergham, Senior Diplomatic Correspondent for a London Based newspaper published throughout the Arab World. She is an America citizen born in Lebanon. First Mr. Sisco have you seen anything like what happened at the UN today?

MR. SISCO: Jim I spent 20 years up there at successive General Assemblies and Security Councils. This is a remarkable document. It is based on chapter 7 and particular article 41. It calls for a cut off of all financial and economic relationships. There is a general paragraph call for all members to act in compliance and therefore this is universal law in that sense of the world. Now I think that it is the strongest action the United NAtions had taken because the permanent members are together and interestingly enough if we get to the point where Saudi Arabia should decide to cut off the oil of the Iraqis through this pipeline or that the Turks are looking for a legal cover in order to do this. This resolutions puts them in a position of saying not only are we doing this in our own national interest we are doing it in compliance with a chapter 7 enforcement action on the part of the Security Council. Remarkable.

MR. LEHRER: How do you feel. Remarkable

MR. MacNeil: Mr. Veliotes?

MR. VELIOTES: Very much so. Those of us who have spent time in the diplomatic arena are used to other wishy washy UN resolutions of one sort or another. Primarily because of the interplay of the permanent members, Soviet American problems and so forth. This is truly remarkable.

MR. LEHRER: Just watching the tape there of the United States, China and the Soviet Union Mr. Akins that is a remarkable thing too?

MR. AKINS: It certainly is. The question is whether it will work.

MR. LEHRER: That is what I was going to ask you. Will it?

MR. AKINS: I don't know it is hard to say. The most important part of it is the agreement not to buy Iraqi Oil. They won't have money to buy things. If they have money some one is always going to be willing to break a boycott but depriving of the oil is not quite as simple. And I really wonder whether it has been carefully examined by the people who have taken this decision. We are talking about taking at least ten percent of the World's trade in oil out of the trade and this truly can't be made up very easily and we are going to have to start talking about rationing. In fact we have to have rationing. We will physical rationing which I have not heard any one mention or it is going to be price rationing. It is going to go very very high if the oil stays out of the World market.

MR. LEHRER: The question is will Saddam Hussein say I can't live with this and pull out before it comes to that stage?

MR. AKINS: He certainly will go through it for a while until it starts to hurt him but it will start to hurt the consumers also. We can do them. We could hold out for a long time.

MR. LEHRER: Ms. Dergham how do you feel about what the United Nations did today. Is there a feeling there at the UN that it was a remarkable day and a remarkable event.

MS. DERGHAM: It was treated at the United Nations as big news as you can imagine. It is rare in the United Nations that sanctions of that magnitude are imposed on any country. Some countries of course expressed their wishes that this is a precedent that is applied in other parts of the World not only on Iraq. Whenever a country invades another country and occupies its land. However, these sanctions also touch on food stuffs as well as oil and other matter and therefore what does that mean the starvation of a nation. Of course the Gulf Countries are quite interested in seeing these sanctions applied but some other Arab countries thought that this constitutes interference in the affairs of the region. So there is no consensus in the Arab World on this matter.

MR. LEHRER: Let's open that up. Why is there no Arab consensus on this?

MS. DERGHAM: Well traditionally there is inter Arab competition for leadership particularly between Iraq, Syria, Egypt, Saudi Arabia and leadership is one issue that divides the Arab world because if one is vying for leadership for itself it is not going to welcome Saddam Hussien leadership. Secondly some Arabs feel that Arab efforts should have been given due time to see if they would produce results. And they felt that there was too much of an intimidation by threatening to use the military option or by the sanctions themselves. Now that is not to say that the others have taken a completely opposite position and said that sanctions must be imposed immediately so that the withdrawal will be eliminated. As you can also imagine this reflects on the Arab assessment whether there is a possibility of a return to the Status quo. That is a question that is being asked in the Arab world.

MR. LEHRER: When you say status quo meaning Iraq pulls its troops out the rulers of Kuwait come back and everybody acts like nothing has happened.

MS. DERGHAM: There is speculation that this is probably what is wished by some parts and I personally don't see it happening. I don't see it returning to the status quo before the first of August that is what I meant by that?

MR. LEHRER: I see. Ambassador Veliotes how do you analyze in general terms why the Arab World can't get together on this. We just saw China, the United States, Soviet Union, of course it is not their part of the World it may be easier for them but what is your analysis?

MR. VELIOTES: Well first the Arab League took a vote in Cairo and the vast majority and certainly the most powerful Arab countries voted to be critical of Iraq is an important step.

MR. LEHRER: That was last week.

MR. VELIOTES: Last week but that is important. There was Jordan and a group of rather indistinct other countries that were opposed to this. For ten years rather ironically King Hussein has been arguing for the end of the unanimity law in the Arab conferences and incidently tried to use this in 1980 in Iman during the Arab Conference there that Syria be condemned for its lack of support for Iraq in the Iran, Iraq War. So there has been something that has happened that it different. The Arabs have spoken out they have not have been vetoed by the concerns of the lowest common denominator. Beyond that I think that you have some differing interests that are obvious here. You have the interest of the Gulf Countries, who are there they are the haves. They are the ones most immediately concerned and geographically next to this problematical neighbor. Then you have the other countries who are trying to play roles that are more or less helpful and also looking out for their own interests.

MR. LEHRER: King Hussein made a statement over the weekend that was considered pro Saddam, pro Iraq. A lot of people have trouble understanding that. Explain to us why he would do that?

MR. VELIOTES: I am not sure that I can explain it. I can explain some of the circumstances that might have led to this. I think that it is very Ironic. King Hussein who has always been in the fore front of those Arab voices calling for collective security in the Arab world. In 1960, I believe Jordanian troops went to Kuwait when the Iraqis threatened to invade. Jordanian troops were in Oman helping eliminate the Dolfar rebellion.

MR. LEHRER: He has got 85,000 troops in his Army compared with the million in Iraq.

MR. VELIOTES: I think the figures of troops in adding up all these things is not very helpful in this respect. I think that King Hussein is in a dilemma and I don't think he is sure how to come out of it. He doesn't know how the Arabs are going to come out of it. So he appears to be supporting the invasion of an Arab territory that some years before he took action to prevent this from happening.

MR. LEHRER: Anything you want to add or subtract on that Joe Sisco?

MR. SISCO: I think so. Fear and intimidation. I think that unity of the Arab world has been mostly in perception, Never really in reality. You have a situation in the Gulf where the Gulf States have been primarily pre occupied for years with oil. Really the Saudi Arabians buying off protection as far as the PLO is concerned, helping bankroll the Iraqi war against the Iranians largely because of the fact of a Shiite Challenge. So that you do have the differing national interests, Syria over Lebanon vying for power. What I would underscore in the Arab world they have been reactive. They can not in these circumstances play the Russians off against the Americans and therefore the geo political situation in the middle east has changed and I think the Arabs have been thrown in to a situation where they are expected to lead on a unified basis and they can not. And therefore the kind of leadership that I think the Bush Administration is giving at this time is what is required. I think that we have also seen a remarkable development of consensus world wide in these economic sanctions that have been agreed to.

MR. LEHRER: Mr. Akins what does Saudi Arabia do now? The UNited States is prepared to help them and use them to do something but how does Saudi Arabia handle that?

MR. AKINS: They are facing a very important problem right now. Iraq is certainly the strongest country in the Gulf, certainly the strongest country in the Arab World and for Saudi Arabia to challenge Iraq right now would be very difficult and would be even uncharacteristic of the Saudis.

MR. LEHRER: But also Mr. Veliotes said numbers don't mean anything but the Saudi Army has 65,000.

MR. VELIOTES: Numbers mean something you just can't add them up.

MR. LEHRER: I know but when Saudi Arabia masses its troops along the border it doesn't mean very much in this situation.

MR. VELIOTES: We are not talking about a War like the Iran, Iraq War or the first World War of huge masses of troops confronting each other. We are talking about the Iraqis trying to bring troops down to the Eastern Province of Saudi Arabia. It is about 300 miles of featureless desert. If troops tried to attack Saudi Arabia they would be completely exposed. The Saudi Air Force is very good, they have American planes and rockets and one has to assume that the Americans would be involved in that. And I assume that Saddam Hussein also assumes that. I don't think that Saddam Hussein is going to be attacking Saudi Arabia and I very much doubt that the Saudis think that they were going to be attacked. If the Saudis thought they were going to be the next victim of Saddam then I think that they would be acting quite differently but they don't and it is everyone for themselves. What is the next step of the Iraqi dictator is he going to move on me or not. I don't think the Saudis think really he is going to be moving in that direction and if he does they can be fairly sure that the United States and others would be involved.

MR. LEHRER: And they can win it you think.

MR. VELIOTES: They can win it.

MR. LEHRER: Ms. Dergham what about Syria? Describe your understanding of the relationship as another major power in that area, as another major Arab nations. Its relationship with Iraq particular Assad and Saddam Hussein.

MS. DERGHAM: Well they hate each other that is common knowledge as you know. The fact is that they wanted the issue to remain inter Arab that is to let Arabs resolve it rather than internationalizing it. I don't think this is out of fear of Saddam Hussein so much. I think that Arab feeling itself expressed by King Hussein is that foreign intervention normally has consequences that are not containable in the Arab world. The populist feeling is very much against intervention by powers outside the country. So Syria takes that in to account. It is not going to invite the United States. The Gulf might do it.

MR. LEHRER: Would it participate in an action against Saddam Hussein?

MS. DERGHAM: It depends on what kind of action. If you mean British, American, French no. I doubt very much that the Syrians would join such a action.

MR. LEHRER: But would they join some kind of action, they have 404,000 troops by the way, Would they engage in a military action do you think if it was Arab organized, Arab sponsored?

MS. DERGHAM: Over what has happened so far?

MR. LEHRER: Yes.

MS. DERGHAM: Over the invasion of Kuwait I doubt it. I mean, after all I doubt that Syria would go that far. If there is an all out War in the Arab World, Arabs against Arabs in terms of numbers then I suppose Syria would take a position but I doubt that there will be Syrian military action.

MR. LEHRER: Mr. Sisco is there likelihood that any Arab nation would use military troops against Iraq without some coalition with the United States and the West?

MR. SISCO: Not without the United States. Egypt is a formidable counter force. Let me say about Saudi Arabia. I think that the situation is different today. I think that Jim Akins has well described what has been characteristic out look of the Saudis. I happen to believe that Saddam Hussein is a permanent threat to the entire Gulf. I think that it is a permanent threat to Western interests and I believe a permanent threat visa vie the Saudis. I think the survival eventually of Saudi Arabia is at stake in this situation. I am sure that Dick Cheney our Secretary of Defense is trying to get across two things. One you really do have to take action because we can't be involved unless you invite us and secondly to convince him that we are there to help.

MR. LEHRER: You don't see it that way?

MR. AKINS : No quite no. The relations between Iraq and Kuwait are quite interesting they go back a long time. Kuwait was taken away from the Province of Bosphora during the Ottoman Periods by the British and Iraq has had to a claim to all of Iraq for a long time. It goes back to the founding of the State of Iraq. This claim was repeated by everybody before there was oil in Kuwait. So this is not a new claim. Now something different happened, of course, when the Dictator was over thrown in 1963 the Government of Iraq recognized Kuwait. That was something new. So they gave up the claim to Kuwait.

MR. LEHRER: So how does that effect the Saudi question?

MR. AKINS: There has never been any claim on Saudi Arabia.

MR. LEHRER: I see.

MR. AKINS: They had a long term claim on Kuwait but they never had a claim on Saudi Arabia. But I don't think that the Saudis can rely on that entirely. I think that they have to rely on something else. That is the unpracticality and uncertainty of American involvement if Iraq were to attack Saudi Arabia. That is not only true today but in the future as well.

MR. LEHRER: Mr. Veliotes put Egypt in this picture now.

MR. VELIOTES: With respect to.

MR. LEHRER: With respect to troops who have trained with the United States.

MR. VELIOTES: That's right. One of the more remarkable features today what has happening is the leadership role of Egypt. I mean Egypt has not only emerged from its isolation. It is playing a major political role.

MR. LEHRER: Meaning it has emerged after the peace plan?

MR. VELIOTES: Meaning the Arab flags are flying in Cairo along with the Star of David a vindication of Camp David as far as I am concerned. So you have got Egypt playing a major role in this crisis. You have the Egyptian President trying to mediate, unsuccessfully but clearly he was told that Iraqis would not invade. Militarily you have Egypt in a dilemma. The Egyptians have helped the Iraqis. They helped them importantly in the early 80s. Egypt helped them including military advice which the Iraqis needed very much. Now would the Egyptians respond to a request from Saudi Arabia and explicit request from Saudi Arabia to help. I think so. If the request were made clearly explicitly we would like you to send troops in.

MR. LEHRER: In conjunction with the Americans?

MR. VELIOTES: If that was the Saudi desire I think there is a good chance that it would happen. But certainly the Americans aren't going to pick up Egyptian forces somewhere and fly them in to Eastern Saudi Arabia. These are difficult issues. I think the Egyptians will be and they have to weigh a lot of considerations but if they had an explicit and public request from the Government of Saudi Arabia to send forces to help defend Saudi Arabia I think they would respond positively.

MR. LEHRER: Ms. Dergham let me ask you this finally. Is there are a feeling among the Arab diplomats at least at the United Nations that this thing is going to get worse or is there is a feeling whatever the ins and outs that are going on that there is a way to get Saddam Hussein out. In other words to stop it now one way or another?

MS. DERGHAM: I heard the Iraqi Ambassador say today that the Sanctions resolution is going to probably impede the withdrawal of forces from Kuwait so there fore is escalation in many levels. It is the political the diplomatic and then the most dangerous escalation is that of a military threat that is apparently quite real in the region. Military threat in terms of interference with the Western Powers. In this case I don't know if the priority will remain for the withdrawal of Iraqi forces from Kuwait. I think this will change things in different directions in terms if you want to gauge the popular sentiment of the Arab world. It might even gain Saddam Hussein some support, although not one Arab country has condoned his action specifically to my knowledge, if there is an element of outside political interference he might juts gain that much.

MR. LEHRER: But Saudi Arabia inviting other countries in to protect it would not be seen as cover enough for this.

MS. DERGHAM: See there is a tradition in the Arab world for not appreciating even providing facilities, military facilities or bases for the United States or other countries. So if there is an out right invitation of that nature I doubt that it is going to be well received by the rest of the Arab populace. I am conveying only what I have heard. I am not sure that this would be very welcome because right now what is in danger as well are the forces of moderation are in danger. There is a possibility that those who are hardliners may be able to win their own argument.

MR. LEHRER: I hear you. Ms. Dergham, gentlemen thank you very much. FOCUS - PRICE - SHOCK

MS. HUNTER-GAULT: It's clear that whatever else Saddam Hussein accomplishes with his military action, he's already achieved one goal, a big hike in oil prices. Just today, West Texas crude, a common benchmark for oil prices, jumped more than $3 a barrel in the stock market to $28.05 a barrel, and it's risen almost $7 since last week. Special Business Correspondent Paul Solman paid a visit to the place where big changes in the oil market are already taking place.

MR. SOLMAN: The New York Mercantile Exchange, a favorite haunt of business journalists at times of crisis in the Commodities Market. And these pits are the best place we know of to find out how the Middle East oil crisis is going to affect the price you'll have to pay in the future, because this is the futures market, where traders are betting big money on their predictions as to where the price of oil is heading. We don't have time for the details and neither do you, but in a sense what's happening here is not unlike what happens every day at, for example, the race track. Here at the track and at various off track betting facilities around the country, gamblers bet big money on their predictions, and as they bet, the prices constantly change, reflecting their best current guesses about the future rates. The final odds represent the collective wisdom of what's going to happen. Basically the same thing is taking place here, except instead of betting on Lazy Susan in the fourth, these betters are betting on light sweet crude on the 21st of August, or September, or October, and so on, that is, they're betting on the price that a buyer like Exxon say will actually have to pay for a barrel of crude oil on each of those future dates. Now the futures market is important, not only because it'sour best predictor of future oil prices, but because if those prices continued to soar as they did last week, they could seriously hurt an already weak American economy. Now to understand the method behind the madness, let's hear from a buyer, the man in the blue jacket, Rodney Dow.

RODNEY DOW, Commodities Trader: The uncertainty, the volatility in the Middle East has had people scared, in panic, and the gasoline and the heating oil and the crude oil, that's a very, very scary and bullish market.

MR. SOLMAN: Dow and his clients are predicting the future in placing their bets. We asked an oil analyst to tick off the reasons why they might be right.

LAWRENCE GOLDSTEIN, Oil Analyst: Well, the embargo that's being contemplated by the United States and our allies, if it's only partially successfully, could cut off more oil out of Kuwait and Iraq than the world has spare productive capacity, and that's what's driving this market today is the major uncertainty about future supply.

MR. SOLMAN: That's one reason they're buying today, another --

LAWRENCE GOLDSTEIN: Our inventory of products, particularly gasoline, is exceptionally low. 95 percent of our primary inventory is minimum operating. We have one and a half days of gasoline of availability above minimum operating at this moment in time.

MR. SOLMAN: And as if all that weren't enough, we just got word minutes before noon that Iraq has cut off most of the oil flowing through Turkey, threatening to further constrict supplies and adding to the panic.

TOM McMAHON, Commodities Trader: I've been in this business my whole life. My dad was a trader for 40 years and I've been here for 14 years, and I've never seen a market like this.

MR. SOLMAN: Not even in '79?

MR. McMAHON: No. Nothing compares to this. '79 was inflationary. It was a mentality in '79 on a slow and gradual environment. This has been compressed into 10 days. We'll probably never see anything like this again in our history.

MR. SOLMAN: So what's driving buyers here on the floor is not just the reality of what has happened, but the fear of what might happen, and the greater the fear, the higher the price, as buyers like Rodney Dow and those in the real world, refiners, distributors, even gas station owners, bid against each other for oil. Okay, so there are plenty of reasons why the price might rise. But remember, in this market as in any other, if you want to buy something, someone has to sell. So let's look at today's market from the seller's point of view. Tom McMahon is selling and of course, you sell something when you think its price is about as high as it's likely to get, but why would anybody think that today?

MR. McMAHON: People know there's inventories in the ground. We've got inventory in store. Coming into this situation, the U.S. is not too bad off with its oil supply. The people who own it say, look, big profits out here.

MR. SOLMAN: And those big profits are a big incentive to sell now when the price is high, so people who actually own oil can sell here, as can speculators, simply betting that the price has peaked. Our oil expert thinks that theoretically at least, there could be reasons to sell.

LAWRENCE GOLDSTEIN, Oil Analyst: We have 3 1/2 million barrels of drawdown capacity in the strategic petroleum reserve right now. That's a multiple of the amount of crude we're currently importing from Kuwait and Iraq. So an aggressive move by the United States to allow that oil on the market could have an instantaneous effect in the United States.

MR. SOLMAN: That's one reason to sell and there's even another.

LAWRENCE GOLDSTEIN, Oil Analyst: The Venezuelans have about 600,000 barrels a day of spare capacity. It would be in their interest and our interest to put that oil on the market today. The Venezuelans have always tried to get the United States to treat them differently than all other importers. They want to make the case that they in the U.S. have unique relationships. They have never embargoed in the United States and I think it would be productive for both sides.

MR. SOLMAN: So there are arguments for both the buy and sell scenarios. John Kenneth Galbraith says there are two kinds of economists, those who don't know the future, those who don't know they don't know. We figure we know even less than Galbraith, but of one thing we can be pretty sure. If oil continues to rise in price, it will hurt the American economy. We're now importing a higher percentage of our oil, 46 percent, than ever before. The more oil costs, the more of our national wealth we'll have to ship out to other countries to pay for it. Remember, these guys represent the best available prediction as to what prices will be. And what we're seeing up on those boards is the best guess of all those people as to what those prices are?

MR. McMAHON: The smartest minds in the world picking prices, and if they can't pick it and stabilize it, nobody can.

MR. SOLMAN: At the moment, world oil supplies are down only 4 percent or so, but prices here are up 50 percent. If these prices are right, you can bet on several consequences, higher trade deficits, since we'll be shipping out more of our money to pay for imported oil, a higher inflation rate since oil is a key component of the Consumer Price Index, and if history is any guide, an economic downturn, because in the past when oil crises have pushed prices higher, an economic recession has promptly followed. We leave you with a final tip. At the risk of beating a dead horse or in this case beating a horse metaphor to death, we'll lay at least even money that if this were the race track and oil prices continued to bolt as they did today, finishing at $28 a barrel, some of the OPEC economies would be moving briskly. But the already hobbled U.S. economy would be by comparison out of the running and out of gas.

MS. HUNTER-GAULT: Retail gasoline prices have jumped as much as 15 cents a gallon since the invasion began five days ago. Echoing some congressional sentiment, White House Spokesman Marlin Fitzwater questioned whether all the price increases are necessary and said it would be most unfortunate if there was any gouging or if anyone were trying to take advantage of the situation. For more on that we have Ed Rothschild, Energy Policy Director of Citizen Action, a Washington, D.C.-based consumer group with 2 million members, and Tom Burns who is the manager of economics at Chevron Corporation, where he analyzes world energy markets. Mr. Burns joins us from San Francisco. Mr. Burns, what's your opinion as to why gas prices have risen so high so fast?

TOM BURNS, Chevron Corporation: Part of it is in reflection of the uncertainty that we just saw demonstrated in the New York Mercantile Exchange and the world oil markets. Part of it also is associated with the very rapid run up in crude oil prices over the last six weeks. We've seen prices run up in crude oil of 10 or 12 dollars a barrel which is already 25 to 30 cents a gallon, and the gasoline prices have tended to lag behind that, because gasoline prices in the middle of the summer driving season already were relatively high.

MS. HUNTER-GAULT: And what was driving the crude oil prices up?

MR. BURNS: Crude oil prices were going up in anticipation first of what OPEC might do at their meeting, which was concluded on July 25th, and then as Iraq began rattling the sabers in the last two weeks of August in anticipation of what Iraq might do and then finally now this week in recognition of what Iraq has done with the invasion of Kuwait.

MS. HUNTER-GAULT: So all of this was anticipatory?

MR. BURNS: That's correct.

MS. HUNTER-GAULT: How do you respond to the White House questioning whether these increases are necessary and some Senators who have just flat out said that what's happening is price gouging?

MR. BURNS: So far the gasoline price increase that Chevron has had has been 5 cents a gallon, which is about 4 percent, which is extremely modest in view of the overall situation. Our motorists in California are of course feeling the pinch because on August 1st we had a 5 cent a gallon tax increase, now about 5 cents a gallon product price increase, and then sales tax on top of that adds another penny, so our gasoline prices here are up 11 cents, but that's pretty easily explained.

MS. HUNTER-GAULT: Mr. Rothschild, how do you explain it?

ED ROTHSCHILD, Consumer Advocate: Well, I guess we all ought to be grateful to Chevron for protecting the American consumer by not raising prices as much as they could have. Point of fact, since January, between January and July, crude prices fell by $5 a barrel, yet the oil companies raised oil prices as much as 5 cents a gallon, so their margin, their profits on gasoline, have been going up. Gasoline prices were already high. Now they have preempted what has happened with crude prices. Crude prices have been going up, but those costs have not been seen by the refineries yet. Those crude supplies that the companies are buying haven't come into the refinery, haven't been refined with crude oil, so they're preempting the market, they're jumping up prices to gain an advantage, to take advantage of the situation, to take advantage of consumers, and to, you know, satisfy their need for higher prices. I understand that and my concern is what the American government is going to do and we've been urging consumers to take action against these companies for this kind of price gouging that they're engaged in.

MS. HUNTER-GAULT: Mr. Burns, he's reiterated what I said a few moments ago, that some people call this price gouging.

MR. BURNS: That's correct. Ed said that he doesn't understand that. He hasn't really ever understood how a market really works. We've just seen a clear demonstration of that in the Mercantile Exchange, the free interchange of commodities by willing buyers and sellers. That's the way price is developed. Price is one of the ways that that is balanced out. We had an extremely bad decade for the gasoline consumer in the 1970s when we had price and allocation controls. We also had price controls on natural gas. Both times Ed has seen price fly ups, prices increasing rapidly after that when the opposite took place. 1981 we had gasoline prices on the average of $1.37. The national average just recently was $1.17. So that gasoline prices have fallen steadily through the 1980s. It's true that they have increased slightly in response to high demand, in response to changing specifications, more environmentally sound gasolines, less lead in the gasoline. All of those changes have come about and have resulted in a tighter gasoline market. The refinery has been operating full speed. Gasoline inventories are low today.

MS. HUNTER-GAULT: So what you're saying is that the gasoline companies are not taking advantage of this particular crisis.

MR. BURNS: I think that the changes in prices in the marketplace do reflect the tremendous amount of uncertainty about current and particularly future oil supplies. We heard Amb. Akins in the first part of the show talking about what is going to happen in the world in the event that 4 1/2 million barrels a day of very vital oil production does get shut in. The United States is importing half its oil today. Those kinds of signals get transmitted very rapidly around the world through the physical markets where oil can move easily, but also through the electronic markets, as we saw on the snips on the futures market in New York.

MS. HUNTER-GAULT: Mr. Rothschild, this is the free market at work. What's wrong with that?

MR. ROTHSCHILD: It's not a free competitive market at work. There really hasn't been a competitive market at work in the oil industry. What we're talking about now is that Chevron ought to know. They bought up Gulf Oil. There's been a lot of consolidation in domestic oil refining business over the last 10 years, where competition now is very, very limited in most major gasoline markets. The oil companies, the major ones, dominate the markets. They're able to set the price. That's what happened in the first half of this year. As crude prices plummeted by $5, we didn't see falling gasoline prices. We saw increasing gasoline prices because they were able to run their refineries at lower levels, produce gasoline, limit supply, and thereby keep pressure up on prices. The consumers end up paying both ways. We don't get benefits when the crude oil price go down, and now when there's a panic in the marketplace, we end up paying even before those higher fuel prices hit the refineries, and I think Tom ought to answer those kinds of questions.

MS. HUNTER-GAULT: What about that, Mr. Burns, that the price went up before there was any impact actually felt in the market?

MR. BURNS: One of the things that happens immediately is that the uncertainty is felt immediately. But in point of fact, crude oil that is purchased today is almost exclusively purchased and is priced at the date of delivery. It is no longer like it used to be in the old days where you would buy and pay for a tanker of oil at the wellhead in the Middle East and then buy it and then refine it into oil and into products. Today it is priced as it arrives. For instance, a tanker of oil arriving in Texas this morning is priced at today's price. And so that money, that increased price that has occurred in the four to six weeks since the tanker was afloat accrues back to the oil producing country in the Middle East.

MR. ROTHSCHILD: That still doesn't explain --

MR. BURNS: Things have changed very dramatically in the oil business in the last 10 years.

MS. HUNTER-GAULT: Mr. Rothschild, what do you think American oil companies should have done and should be doing now?

MR. ROTHSCHILD: I think the President of the United States has to do something. Pres. Kennedy in the 1960s called in the heads of the steel companies when they were raising prices and said, look, this is not good for the national economy, this is not in the national interest, we want you to act responsibly. All countries should act with some restraint, because this is our economy at stake. All economists are talking about what the impact is going to be with these drastically increasing oil prices. They have to show some restraint. People understand --

MS. HUNTER-GAULT: Mr. Burns, what about that, because the White House was calling for restraint, Senators on Capitol Hill including Robert Dole, Sen. Riegle, are calling for roll backs, price roll backs?

MR. BURNS: One of the things to keep in mind is that the oil business is highly competitive. It's very difficult for any one company acting alone to under price the market. We sell at the market price, the competitive price, as is established in the marketplace, and you'll see 19 major companies. There are no other industries that have as many as 19 competitors. There has been consolidation. The oil business has been a very poor place to have been in during the 1980s. Many companies have disappeared. The marketplaces have changed dramatically and the profitability has been extremely low throughout the 1980s.

MS. HUNTER-GAULT: Let me just ask you both to respond very quickly then to this final question. I mean, what do you see happening, the price going up, people hurting, recession, as Mr. Akins said earlier, or what?

MR. ROTHSCHILD: I agree. I think there's going to be some serious problems in the economy. There's no way that we're going to be able to restrain these price increases unless some drastic action is taken. The President ought to think very, very strongly about opening up the strategic petroleum reserve. That will help limit the kinds of price increases, because as people think that there's going to be restraint on supply, you stop bringing supply into the market, that will lower the price expectations.

MS. HUNTER-GAULT: Just very briefly, Mr. Burns, what do you think is going to happen, higher prices, recession?

MR. BURNS: One other thing that we've not talked about --

MS. HUNTER-GAULT: Very briefly just to that question because we have to go.

MR. BURNS: The consumer, the consumer can be careful about the amount of gasoline they use. They can conserve, they can car pool, they can do a lot of things that tends to reduce the demand side pressure.

MS. HUNTER-GAULT: But at this point you see the price going up and the possibility of a recession?

MR. BURNS: I see the price going up in the near-term. Whether that leads us into a recession is anybody's guess. We are experiencing slow growth. There are other things the U.S. can do besides the strategic oil reserve. We do have available sources - -

MS. HUNTER-GAULT: I think that's going to have to be another program, Mr. Burns, but I'm sure we'll get around to it eventually. Thank you though very much for being with us. And Mr. Rothschild, thank you. RECAP

MR. LEHRER: Again, the major story of this Monday continues to be Iraq's war against Kuwait. The United Nations Security Council voted severe measures against Iraq that included an oil boycott, trade sanctions and an arms embargo. Saudi Arabia massed troops along its border with Kuwait to protect against a possible Iraqi attack. U.S. Defense Sec. Cheney flew to Saudi Arabia to drum up support for U.S. efforts against Iraq, and in South Africa late today, the African National Congress said it would suspend its 29 year armed struggle against the white dominated government. Good night, Charlayne.

MS. HUNTER-GAULT: Good night, Jim. That's our Newshour for tonight. We'll be back tomorrow night with continuing coverage of the Mideast crisis. I'm Charlayne Hunter-Gault. Good night.