FOR a decade, Iran and Saudi Arabia were considered the twin "pillars" of United States policy in the Gulf. But the overthrow of Shah Mohammed Reza Pahlavi in 1979 and the accession of the violently anti-American regime of the Ayatollah Ruhollah Khomeini opened the door to a far more serious threat: a Shiite Muslim revolution that could jeopardize longtime United States allies in the region, including Saudi Arabia, and the oil fields they were perched upon.
It was this confluence of events in the Gulf, culminating in the outbreak of war between Iraq and Iran in 1979, that threw US policymaking onto two separate and conflicting tracks and into the disarray that culminated in the Iran-contra and Iraqgate scandals.
After the humiliating ordeal of the year-long Iranian hostage crisis, Iran emerged as the primary enemy to the US public. Convinced that Iraq was on the verge of losing its war with Iran, the US imposed an arms embargo on Iran. Worried Central Intelligence Agency (CIA) officials, meanwhile, hastened to provide covert assistance to Iraq.
"The CIA was convinced that if the US did not intervene in the war on the side of [Iraqi President] Saddam Hussein, he was going to lose the war. The Iranian Revolutionary Guards were going to go all the way to Baghdad," says Mark Perry, author of a recent book on the CIA.
According to published accounts, Jordan's King Hussein and Saudi King Fahd intervened to convince Saddam that the US offer was genuine. Reluctant at first, Saddam finally agreed to an intelligence relationship that provided US information that Iraq used to anticipate Iranian attacks, shore up defenses, and deploy and dismiss field commanders. In the end, the CIA not only helped Saddam win his war; it helped him save his regime.
But even as the CIA was throwing its weight behind Saddam, National Security Council officials were pursuing an alternative policy.
The catalysts were agents representing Israel who convinced key NSC staff members in 1981 that there were moderate elements in Iran, that their power could be enhanced by using them as a conduit to sell arms to Iran, and that such arms sales could lead to the release of US hostages held in Lebanon.
The underlying premise of the argument was that Iraq, not Iran, was the main enemy of Western and Israeli interests in the region. As a result, the Reagan administration secretly embarked on an "arms-for-hostages" deal. A new dimension was added when the NSC used the profits from the arms sales to fund an anticommunist rebel force in Nicaragua.
One former US intelligence official notes that when the policy was discovered by the CIA and State Department, it was deemed "lunacy." When word of the secret dealings with Iran leaked to the public in 1986, the Reagan administration was plunged into its severest crisis. "What really did in the [pro-Iran] policy was that we had been so publicly anti-Iran," says the official.
The Iran overture now dead, the Reagan administration resumed its policy of quietly providing information to Iraq. But by now there was an expanded rationale behind it. Advocates of the pro-Iraq policy hoped that Saddam, chastened by a near defeat, would emerge from the war more moderate and more pro-US.
The hope was codified in the first days of the Bush administration in National Security Directive 26, which deemed Saddam a "ruthless but pragmatic" leader whose behavior could be moderated by the US through a policy of limited cooperation.
Thus, despite the end of the Iran-Iraq war, the US continued to pump in aid, high-tech exports, and more than $5 billion in loan guarantees that Saddam diverted to fund arms purchases.
That the policy was sustained in the face of mounting evidence of human-rights violations and lethal-weapons development, President Bush's critics say, shows the extent to which the administration had become captive to its hope of moderating Saddam's behavior. Paradoxically, that hope led Mr. Bush indirectly to his best moment as president: the allied war to expel Iraqi troops from Kuwait. It also led to his worst: the tangled web of Iraqgate.