Kuwait Stops Blacklisting Firms Trading With Israel : Mideast: Official says other Arab nations will follow. But the symbolic move doesn’t end a direct embargo.

NICOSIA, Cyprus —  Kuwait on Tuesday became the first Arab nation to announce that it is easing restrictions in a four-decade-old economic blockade of Israel, declaring that it will no longer blacklist foreign companies that do business with the Jewish state.

Foreign Minister Sheik Sabah al Ahmed al Jabbar al Sabah said that other Arab states have agreed to follow suit. But Sabah said Kuwait will continue to abide by the Arab League’s direct boycott of Israel, signed by 21 member countries in 1951.

“Kuwait will not break off from the direct boycott of Israel,” he was quoted as saying by the state-run Kuwait News Agency monitored in Cyprus. “But Kuwait and other Arab states have broken off from the indirect boycott for considerations of national interest.”

U.S. State Department officials had been pressing the tiny emirate and its Arab neighbors to lift the indirect embargo since the United States forged and led the military coalition that drove Iraq’s occupation troops from Kuwait in early 1991.

Most Kuwaiti economists, businessmen and diplomats said the decision is largely a political and symbolic move that will have little impact on the wealthy emirate’s trading patterns.

“It is very important politically as well as morally, but, from the economic standpoint, it really will have no effect at all,” Jassem Saddoun, a prominent Kuwaiti economist and adviser to the Kuwaiti Parliament’s finance committee, said in a telephone interview.

Most major corporations doing business in Kuwait have found ways around the so-called secondary blockade, he said, but he stressed the political significance of the move because “the Kuwaiti stand used to be the most firm one of all the Arab nations.”

“It may well make the others in the Gulf region do the same,” he said. “Certainly, it will facilitate their decision if they want to but have been holding back.”

Publicly, all other Arab states except Egypt remain committed to the indirect trade ban. Egypt lifted trade restrictions on Israel in the 1979 Camp David peace accords.

The Arab boycott prohibits any Arab trade with Israel or with companies that also are trading with Israeli companies. In practice, trade has flourished, particularly in recent years. One method of evasion has been through offshore Israeli trading companies that are registered in Cyprus. Last year, Israeli exports to Cyprus jumped 36% to $28 million, and most of the increase is thought to be re-exports to Arab countries.

Still, the Israeli government hailed Kuwait’s move as a significant first step, and Israeli Foreign Minister Shimon Peres appealed to other Arab governments to “cancel this ugly, unjustified discrimination” against Israel.

“The time has come that all Arab countries should put an end to this ugly politics and join a world that prefers to open borders and trade freely,” Peres added.

Assessing the 42-year impact of the boycott, the Federation of Israeli Chambers of Commerce in Tel Aviv calculates that, since 1951, it has cost Israel $27 billion in lost foreign investment and lost exports totaling about $22 billion.

Under Peres’ instructions, Israel has been pushing hard during the multilateral Middle East peace talks for an end to the boycott as a confidence-building measure. But the emirate’s easing of the restrictions appeared to be less an accommodation of Israel than an expression of gratitude to the United States, where U.S. law prohibits American companies from observing the Arab boycott.

But since the liberation of their emirate after seven months of brutal occupation, many Kuwaitis have expressed newfound sympathy for the Israelis. Much of this feeling is a result of the role that the 200,000 Palestinians who used to live in Kuwait played in supporting the Iraqi occupation force. Another reason is that the enemy remains on Kuwait’s doorstep.

“At one level, they don’t like the Israelis for what they’ve done to the Palestinians and the way they’ve humiliated the Arabs through the years,” said one senior diplomat in Kuwait. “But they admire the Israelis, and they know that if they have an enemy in Iraq, there’s one other country that’ll help them.”

Times staff writer Michael Parks, in Jerusalem, contributed to this report.