UAE breaks ice blocking Arab ties to Iraq

By Lin Noueihed - Analysis

DUBAI (Reuters) - The United Arab Emirates' decision to forgive Baghdad's debt and restore high-level ties reflects a Gulf Arab desire to counter Iran's spreading influence, but not all will be so quick to warm to the new Iraq.

Sunni Arab governments who once funded Iraq's 1980-1988 war against Shi'ite Iran have held back from restoring top-level ties with Baghdad since the U.S.-led war toppled Saddam Hussein in 2003 and brought in a Shi'ite-led government close to Tehran.

No Arab ambassador has been stationed in Iraq since Egypt's envoy was kidnapped and killed shortly after arriving in 2005.

In a major step toward easing Iraq's regional isolation, the UAE waived all of Iraq's almost $7 billion obligations during a visit by Iraqi Prime Minister Nuri al-Maliki on Sunday.

Baghdad hopes the UAE's initiative will encourage other Arab states to welcome Iraq, once a key player in regional politics, back into the fold.

Jordan said last month it would open an embassy in Iraq soon and Baghdad says Jordan's King Abdullah will on Wednesday become the first Arab head of state to visit since the invasion.

Saudi Arabia, the main bastion of Sunni Islam, promised last year to cancel 80 percent of Iraq's debt and reopen its embassy but has not moved on either front. It shuns ties with the Maliki government over its close ties to non-Arab regional power Iran.

"There was a previous Gulf policy of no debt forgiveness, no ambassadors and no investment, and despite U.S. pressure they stuck to it because they felt there was no point helping a government controlled by Iran," said Mustafa Alani of the Dubai-based Gulf Research Centre.

"Now they have had a change of heart because having no say and no influence in Iraq just pushes it into Iran's hands. The UAE is a test case ... Others will look to this to see if there is hope that Iraq will reconcile with the Sunnis."

NEW TIES

The United States has pressed its Arab allies to support Iraq's recovery by joining Western nations in forgiving their share of its debts and restoring diplomatic ties.

Saudi Arabia and other Arab countries want to see Maliki engage more in political reconciliation with Iraq's Sunni Arab minority, who naturally look to the region for support.

Iraq was on the cusp of civil war in 2006, when Sunni-Shi'ite violence worsened, but security has since improved and Baghdad hopes that will provide a more solid basis for other Arab states to normalize ties and, importantly, to invest.

"Iraq no longer exports tensions ... It is an important country and a point of stability and brings together the interests of others with joint ventures being launched," Iraqi government spokesman Ali al-Dabbagh told Reuters.

Saudi officials have said in private that the steps by the UAE and Jordan meant it was only a matter of time before Riyadh followed through. They said any decisions could be announced once the summer holiday period was over.