Turkey Shuts Off Outflow of Iraqi Oil, Freezes Assets : Trade: The decision to stop loading tankers blocks movement of half the oil from Iraq, which itself reduced the flow through its Saudi pipeline as markets dried up.

ANKARA, Turkey —  Dealing a dramatic blow to its Muslim neighbor and key trading partner, Turkey told Iraq on Tuesday that it will no longer allow Iraqi oil to be loaded into tankers off the Turkish coast and froze all Iraqi and Kuwaiti assets in the country.

The Turkish decision, which in effect closes two Iraqi pipelines at their outflow point on the Mediterranean, effectively shuts off half of Iraq’s outlet for its oil. It also puts pressure on Saudi Arabia, the only remaining overland conduit for Iraqi crude oil, to join the rest of the world in blocking Iraqi oil from the marketplace as punishment for Iraq’s invasion of Kuwait last week.

Meanwhile, oil industry officials in Saudi Arabia said Tuesday that Iraq had significantly reduced the flow through its Saudi pipeline, perhaps by half or more.

A total of 800,000 to 900,000 barrels a day had been moving through the 979-mile pipeline, which carries one-third of Iraq’s crude oil across the desert to the Muajjiz oil terminal south of Yanbu on Saudi Arabia’s Red Sea coast.

Industry officials said they believe that Iraq reduced the flow because storage tanks at the Red Sea terminal are nearly full, since no tankers had taken on any Iraqi oil for at least two days.

On Monday, Iraq unilaterally closed one of the pipelines running through Turkey and reduced the flow in the other by 60% because of decreased demand.

In Iraq, a defiant President Saddam Hussein vowed Tuesday that he will never back down despite growing international pressure to withdraw his forces from Kuwait, according to wire service reports from the region.

The Iraqi strongman said his invasion of the sheikdom to the south was meant to correct flawed borders drawn up by the colonial powers that left a corrupt minority in control of much of the Arabian Peninsula’s rich oil reserves.

He said he would resist any foreign pressure for his forces to withdraw from Kuwait, where his army has toppled the Sabah monarchy and installed what Washington has called a puppet regime.

“We would rather die than be humiliated, and we will pluck out the eyes of those who attack the Arab nation,” Hussein said in a speech read by an announcer for Baghdad Radio and monitored in Nicosia, Cyprus.

Wire services also quoted Iraqi media as saying that a flood of volunteers across Iraq had led to the creation of 25 new military divisions--about 250,000 men--to prop up the provisional government in Kuwait, believed made up of Iraqi military officers.

Before the invasion, Iraq was estimated to have a 1-million-strong military, tested in battle against Iran in the eight-year-long war, and about 700,000 reserves.

Having rolled across Kuwaiti territory with ease last Thursday, Iraqi forces are now facing Saudi Arabian troops on the borders of a neutral oil zone owned by both the Saudi and Kuwaiti governments. Saudi Arabia, the main supplier of imported oil to the United States, has fully mobilized its military against the threat.

After Turkey’s decision to stop loading Iraqi oil, Turkish officials said that one tanker, under Moroccan registration, had already been turned away from the offshore Bay of Yumurtalik pipeline terminal by Tuesday afternoon. Three other tankers scheduled to load never arrived, the officials said.

Meanwhile, Turkish state television reported that officials moved Tuesday to freeze $200 million in Iraqi and Kuwaiti assets held in Turkey.

By joining United Nations sanctions against Iraq, Turkey rejected appeals from Hussein’s Baghdad regime to keep trade open between the two key regional powers.

Wearing a military uniform and a gun on his hip, Iraq’s deputy prime minister, Taha Yassin Ramadan, on Sunday had warned Turkish President Turgut Ozal that Turkish economic actions against Iraq would create a “crisis of confidence” between the two countries.

But the Turkish leader, whose country faces the potential loss of $2 billion a year in trade because of the boycott, decided instead to join the United States, its ally in the North Atlantic Treaty Organization, in taking economic action because of the invasion of Kuwait.

Oil accounts for nearly all of Iraq’s export revenue, which reached about $11 billion last year. Earnings from non-oil exports total only about $300 million a year.

The western Turkish pipeline and the southern Saudi pipeline together carry nearly 90% of Iraq’s exports of crude oil. The remainder goes out via tankers through the Persian Gulf.

The Bush Administration considered Turkish participation critical if the economic sanctions are to succeed. During the tense days when Turkey’s decision was still unclear, President Bush conferred at least three times with Ozal via telephone, U.S. Embassy officials here said.

With a 650,000-man army and a modern air force, Turkey is one of the few Middle Eastern countries strong enough to stand up to the Iraqis militarily. But the move to shut off the oil and freeze Iraqi and Kuwaiti assests could also cripple Turkey’s own economy and endanger the lives of an estimated 60,000 Turkish workers in Iraq.

Secretary of State James A. Baker III is scheduled to arrive in the Turkish capital Thursday for talks with Ozal and other Turkish leaders. Diplomatic sources said questions of economic aid, focusing on methods to help Turkey replace the crude oil it imports from Iraq, will probably be discussed.

A senior Turkish official said he expects Baker to ask Turkish permission to use the large Turkish-American air base in Incirlik, near the Iraqi pipelines, as a potential staging ground for military maneuvers against Iraq.

The Incirlik base, with 5,000 U.S. military personnel and their dependents, is the largest and most important American military facility in Turkey. U.S. officials denied published stories that squadrons of F-111 attack aircraft had recently been brought to the base, in position for an attack on Iraq.

A U.S. official said there are only 14 of the F-111s--the aircraft that took part in the 1986 air raids on Libya--on a temporary training assignment at the base. The official said that these planes are scheduled to be replaced by another squadron next week.

Although concerned about the potential damage the boycott will have on Turkey’s booming economy, Turkish leaders and political columnists have found their anger mixed with pride over their country’s new strategic role resulting from the invasion of Kuwait.

With the end of the Cold War and the collapse of Communist regimes in Eastern Europe, Turkey had lost its status as an important buffer against the Soviet Bloc. The interest in Turkey as a buffer against Iraq has put the country back in the limelight.

“Turkey’s strategic importance has become clear again,” boasted Ozal, a radical free-market advocate who has led an economic revival here since 1983 but whose status has fallen sharply in recent public opinion polls. The rotund Turkish president has enjoyed the attention, upstaging his prime minister--technically the head of government--and appearing on a succession of American news programs.

A senior civil servant, however, was fuming about the sudden international attention afforded the proud Turks. “Why is it that you Americans only come to us when there is something on fire and you need our help?” he asked.

Commented a Western diplomat in the Turkish capital: “There had been a concern that with all that is going on in Eastern Europe and the rest of the world that Turkey had been marginalized. I think they learned in the last few weeks, and in dramatic fashion, that this is not true.”

The government’s decision to join the sanctions imposed by the U.N. Security Council on Monday was announced somewhat ambiguously by spokesman Mehmet Yazar at the end of a Cabinet meeting directed by Ozal. “As a matter of principle, we will abide by the United Nations Security Council decision,” Yazar said, according to the semi-official Anatolian news agency.

As the day progressed, details of the Turkish participation dribbled out from government sources.

Turkey’s state minister in charge of petroleum, Mehmet Kececiler, announced that no tankers will be allowed to fill up with Iraqi crude off the Turkish coast. “We were not pressured by anyone,” Kececiler said.

In the one apparent wrinkle in Turkey’s compliance with the sanctions, Kececiler said that Turkey would continue to draw from the pipeline for its own domestic use until all the storage facilities are filled. He estimated it would take six more days of pumping to fill the tanks at the seacoast oil terminal.

According to diplomatic sources, Turkey justified this apparent violation of the boycott by saying that the oil would be confiscated as payment for money owed Turkey by Iraq. Last year Turkey used part of the surplus from its red-hot economy to lend Iraq more than $1 billion to help the Saddam Hussein government rebuild its country after the devastating eight-year war with Iran. Government officials said that more than $800 million remains on that debt, which was to be repaid in Iraqi crude.

But if Turkey sticks to the rest of the sanctions, its example will be noted. For one thing, Turkey will pay a higher price for adhering to the sanctions than will most countries. This nation depends on Iraq for 60% of its oil. More than 100,000 Turkish truck drivers are dependent on the important trade between the two countries. In addition, Turkey receives $250 million annually from the Iraqis in transit fees for the two pipelines.

In anticipation of economic troubles, the Turkish stock market in Istanbul fell 10% Tuesday.

Tempest reported from Ankara and Murphy from Cairo.