HIGHLIGHTS: Iraqi Media Warns Kurds Not to Join U.S. Attack against Iraq||Russia, Iraq Plan 5-year 40 Billion U.S. Dollar Economic Deal||Baghdad Ends Oil Surcharge for Some Clients: MEES||Iraq Leaves Door Open for Return of UN Inspectors|| STORY: The United States has expressed official displeasure about critical comments made by German Chancellor Gerhard Schroeder regarding a possible US-led war on Iraq.

The New York Times newspaper wrote Saturday that US ambassador to Germany Daniel Coats went to the chancellor's office in Berlin this week to relay Washington's unhappiness about recent remarks by Schroeder describing the proposed US preemptive strike against Baghdad "an adventure."

Washington "is not happy at the accusation that it is not consulting with its allies" or that Bush is "a trigger-happy Texan," one senior American official told the Times.

It was "a highly unusual event between such close allies," one unnamed official told the daily.

Coats did not speak directly to Schroeder -- a choice made by the United States in order to keep its criticism more general and low-key, officials told the Times.

Last week, Schroeder told German media that an attack on Iraq could "destroy the international coalition against terrorism" formed after the September 11 attacks on the United States.

"The Middle East needs peace, not a new war," Schroeder said.

Schroeder was the first major European leader to publicly state his country's refusal to join any military intervention aimed at toppling Iraqi President Saddam Hussein.

Nevertheless, the chancellor's comments reflect general European doubts about the urgency and wisdom of an attack on Iraq in the absence of intelligence showing that he currently has nuclear weapons or that he has aided the al-Qaeda terror network.

KURDS WARNED NOT TO JOIN U.S. ATTACK ON IRAQ

Iraqi media has meanwhile warned Kurds living in Iraq, but outside the control of Baghdad, not to join any US strike to oust the regime of President Saddam Hussein.

"The sons of our Kurdish people are urged to act quickly to cut off the path to foreign forces and their auxiliaries before irresponsible statements become a shameful position and a fatal error," said Al-Iraq, the official newspaper of Kurds loyal to Saddam.

It was referring to Iraqi Kurdish leader Jalal Talabani, head of the Patriotic Union of Kurdistan which controls an eastern sector of Iraqi Kurdistan.

He told CNN on Tuesday that the US army will be "very warmly welcomed" and offered Washington use of territories his faction controls amid expectation of a military strike against the Baghdad regime.

Talabani on Wednesday denied he had offered the use of military bases controlled by his group for a possible US attack and said his remarks to CNN had been "misinterpreted."

IRAQ, RUSSIA PLAN ECONOMIC DEAL

Russia and Iraq plan to sign a new 40 U.S. billion dollar economic cooperation agreement despite growing threats from the United States to move to drive out Iraqi President Saddam Hussein, the Washington Post newspaper reported on Saturday.

It quoted Iraqi and Russian officials as saying the five-year deal will set up cooperation in areas ranging from oil to electrical energy, chemical products, irrigation, railroad construction and transportation.

"Russia was, is and will be our main partner," Abbas Khalaf, Iraq's ambassador to Moscow, told the newspaper.

The Post said the agreement could make it even more difficult for the United States to rally Russian and other skeptical world leaders behind any invasion.

Oleg Buklemeshev, a top deputy to Prime Minister Mikhail Kasyanov, told the Post that the new five-year agreement was ready for signing. 

BAGHDAD ENDS OIL SURCHARGE FOR SOME CLIENTS

Iraq has stopped levying on certain clients a surcharge which prompted a freefall in sales in recent weeks, the Middle East Economic Survey (MEES) says in its Monday edition.

Baghdad's State Oil Marketing Organization has lifted the illegal surcharge on at least six cargoes sold to Russian firms and traders in the past 10 days, the Cyprus-based weekly says, quoting industry sources.

However other buyers are still paying the 15-cent surcharge and having difficulty re-selling to third parties, MEES adds.

Iraq's UN-supervised oil exports plunged to 4.4 million barrels per day (bpd) in the week ending August 9, or about half the figure of the previous week.

The executive director of the United Nations' Iraq programme, Benon Sevan, warned the Security Council on August 6 that the drop in crude exports threatened to have serious consequences on the humanitarian situation.

IRAQ LEAVES DOOE OPEN TO ARMS INSPECTIONS

Iraq again opened the door this weekend to a possible return of UN arms inspectors, but kept up its anti-US rhetoric in riposte to Washington's determination to oust President Saddam Hussein.

The official media returned Saturday to the attack over allegations that Baghdad has developed prohibited weapons.

Iraq on Friday renewed a proposal to continue discussions with the United Nations about the return of arms inspectors to verify the US charges.

Foreign Minister Naji Sabri in a 10-page letter to UN chief Kofi Annan called for new "technical discussions".

The letter came in response to one from Annan earlier this month asking Sabri to confirm whether Iraq was prepared to obey the will of the Security Council, notably orders to disarm following the 1991 Gulf War.

Meanwhile, Al-Jumhuriya said Saturday, "The US lies about Iraq are lame because they are not based on any reasonable logic."

"No one wants to hear them and the numbers supporting them has fallen even in the United States and Britain."

Al-Iraq dismissed the accusation about Iraq's weapons of mass destruction as "unjust fabrication by the evil American administration which is trying to build a new coalition to give legitimacy to its threats against Iraq.

The influential Babel put the spotlight on the "scatter-brained" US President George Bush and added a menacing tone.

PHOTO CAPTION

Iraqi shoppers walk near a large picture of Saddam Hussein in the Friday market in Baghdad, August 16, 2002. U.S. threats to invade Iraq have not affected the daily lives of ordinary Iraqis who still go about their daily lives as usual. REUTER/Faleh Kheiber
- Aug 16 3:32 PM