Iran scores gains in war with Iraq. But observers puzzled why Iran hasn't pressed its advantage

Following recent military gains, Iran now has the potential to win its war against Iraq, say Western observers in Baghdad and Tehran. But Iran has not taken full advantage of its position -- a fact that leaves these sources somewhat baffled. One West European diplomat speculates that inefficient communications between the field and Tehran might have prevented commanders at the front from making the kind of decisive moves needed to capitalize on their gains.

However, if Iran hopes to win the war, it needs to move quickly because of the country's worsening financial situation, according to oil industry and other financial analysts. A Belgian bank executive says that Iran's financial base is rapidly being depleted -- because of plunging oil prices and the high cost of financing the 5-year-old war. Western military attach'es in Tehran say Iranian forces already have the upper hand in all sectors along the front:

In the northern area, the Iranians have advanced within a few miles of the Iraqi town of Sulaymaniyah. They have taken positions on a series of peaks around the Iraqi oil town of Kirkuk. Moreover, pro-Iranian Kurdish rebels recently took control of a strip of Iraqi territory along its border with Turkey. Iraq said Sunday it recaptured the peaks around Kirkuk, but Iran denied this.

On the central front, Iranian troops stand on the Meimak hills, less than 70 miles from Baghdad.

Further south in the Hawizeh marshes, Iranian forces are within sight of the Baghdad-Basra highway.

And on the Faw peninsula, Iraq has thus far been unable to dislodge Iranian fighters from positions they have occupied since Feb. 9. Latest reports from this area indicate that the Iranians are slowly advancing on the road that leads to Basra.

``During the battle for Al Faw, the Iranians cut the Iraqi Republican Guard to pieces. But their victory could have been much bigger,'' a Tehran-based Western diplomat says. But ``for unknown reasons they haven't launched a second thrust west of the city of Khorramshahr to take Iraqi positions north of Faw from behind. They have missed an occasion to cut the Iraqi Army in two.''

The Islamic Republic fighters' superiority on the ground is attributed by observers to the Iranians' high morale and to the recent reinforcement of their firing power. Iran has succeeded in buying military hardware from private companies in the West. In addition, during their recent offensives, the Iranians captured highly sophisticated French-built Crotale air defense systems from the Iraqis.

Iran has also obtained arms from three close Soviet allies: North Korea, Syria, and Libya. A European ambassador interviewed recently in Tripoli confirmed reports that Libya is supplying Iran with ground-to-ground and ground-to-air missiles and that the Soviet authorities are well aware of this. The Soviet Union has long been Iraq's main military supplier, selling Baghdad MIG-25 fighter jets, T-72 tanks, and SCUD-B ground-to-ground missiles. In effect, Moscow is selling arms to both camps, this diplomat concluded.

Western financial analysts and oil industry specialists agree that Iran's financial situation is its weak spot.

``Falling oil prices,'' the Belgian bank executive says, ``have reduced their public revenues by 39 percent during the last six months. The war guzzles a third of their annual expenditures. They may soon face a currency shortage.''

The Iranian central bank puts its currency reserves at $8 billion. But most Western financial analysts say half that amount is either frozen in Western countries or in escrow accounts. In essence, this means that the Iranian government has only about $4 billion at its disposal.

``If the war goes on and if they don't force their people to tighten their belts even further, those currency reserves will get thinner every day,'' one analyst says.

Oil industry specialists say last week Iraqi jets hit one of the main pipes at an onshore pumping station, bringing the Kharg Island terminal to a standstill.

``But the National Iranian Oil Company has proved to be very quick at fixing its damaged oil installations,'' says an executive with a European oil company. ``The NIOC has also built up a floating stock of about 20 million barrels off the island of Sirri which is out of the reach of the Iraqi Air Force. For the moment, Iranian oil sales remain at their normal level of 1.4 million barrels per day,'' he says.

Iran has responded to relentless Iraqi attacks against its oil installations and tankers near Kharg Island by stepping up raids against ships entering or leaving ports on the Arab shore of the Persian Gulf. Recent casualties in this tit-for-tat war have included French and Cypriot tankers, both hit by missiles fired by an helicopter believed to be Iranian.

Iran has also accused Iraq of resuming the shelling of residential areas and has announced it will retaliate in kind. But both sides appear eager to avoid a bloody escalation: The Iranians are aware that Iraq's high-flying Mig-25s can bombard Tehran and the Iraqis know that Baghdad is within the range of Iranian ground-to-ground missiles.

Claude van England writes on Iran from his base in Brussels.