Iraq war to carry a high tab
It may run as high as $100 billion, although some analysts see an economic upside.
Within weeks of Iraq's invasion of Kuwait in 1990, oil nearly doubled in price to $40 a barrel a spike that eventually settled down but was a factor, some economists hold, in the US slipping into recession.Skip to next paragraph
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Now as the US debates the merits of a war to bring down Iraqi President Saddam Hussein, officials and economists are beginning to ponder the impact of another conflict on the US and world economies.
On one point, economists and political observers tend to agree: Unlike in the Gulf War, this time around the US would be largely alone in picking up the tab to the tune of as much as $100 billion for military preparation and the war itself. "The US is not finding much keen support for this war, so it would almost certainly have to be funded by the US on its own," says Mark Stoker, a defense economist at the Institute for Strategic Studies in London.
But experts differ on what impact a war would have on the world's oil market. Some economists are warning a war that stopped Iraqi oil production and threatened disruption of neighboring producers could send oil prices higher than a Texas gusher and sink a fragile global economy.
But others say that the world's oil market is very different from a decade ago. For one thing, the world now has 6 million barrels a day of excess production capacity. And several OPEC countries Venezuela, Algeria, Nigeria, to name a few as well as new non-OPEC producers, are waiting for an excuse to up production.
This leads some to insist that the world could avoid a war-caused downturn provided there's enough advanced planning, and President Hussein cooperates by falling quickly before damaging neighbors' oil fields.
"If we plan right, any run-up in oil prices should be short-lived, and we should be able to keep down the impact on the world economy," says Larry Goldstein, president of the Petroleum Industry Research Foundation in New York.
These appraisals of economic impact have coincided with an intensifying political debate over the wisdom of an imminent war. Last week, Brent Scowcroft, a key member of the elder President Bush's administration, urged current officials to hold off on an attack. Several other prominent Republicans chimed in, prompting George W. Bush to defend his Iraq policy over the weekend. The president said he would use the "latest intelligence" in deciding how to oust Hussein.
Indeed, the administration's war strategy is still in the planning stages. And many aspects of the potential conflict's economic impact have yet to be addressed.
Of course, the US government would like the luxury of planning how others could finance a war. A decade ago, Kuwait, Saudi Arabia, and Japan paid most of the Gulf War's cost: The two Arab countries saw the US acting on their behalf, and Japan dependent on imported oil supported reestablishing order in the Middle East.
But so far, the US has neither Arab nor Western partners openly backing it. Many foreign officials, in fact, have privately criticized the US administration's talk of war as evidence of a Bush family vendetta against the Iraqi despot.
Economists like Mr. Stoker say that a war would unavoidably add to the government's growing red ink unless Mr. Bush overlooked another of his father's political mistakes and opted to raise taxes. "If you consider the Gulf War cost about $60 billion, then you can figure this one at $80 [billion] to $100 billion," Stoker says.
But Mr. Goldstein of the Petroleum Industry says that although this time the US doesn't have a "visible coalition" to help pick up the war tab, he believes some countries could be persuaded to help the war effort substantially "behind the scenes." "The Saudis aren't going to allow US soldiers on their soil to take part in the fight, but there are other important things they can do," he says, noting that Saudi Arabia has jet-fuel and diesel-fuel stocks that could be "quietly" pipelined to fuel the US war machine.
Other experts that say the Bush administration is already looking for actions it can take at home to avoid a repeat of the Gulf War-recession pattern. They say the US, for example, has been filling the Strategic Petroleum Reserve with up to 150,000 barrels of oil a day since early this year. If millions of barrels of reserve oil are then released daily in an emergency, the Bush administration may be able to avoid at least one key mistake that some economists say the first Bush presidency made: not releasing oil reserves early and generously enough.
But Goldstein throws cold water on such speculation, saying the petroleum reserve is a "nonissue" in part because could take more than three years to fill, he says.
Although some influential proattack policymakers insist Hussein could be toppled with minimal disruption to the global economy, some economists say the potential for unpleasant surprises is already causing a certain nervousness. Those jitters are already reflected in some spurts in energy futures, they note.
Events such as casualty-heavy urban fighting, a failure to take out Hussein, or a desperate Hussein successfully sending missiles or biological weapons into Israel or Saudi Arabia would almost certainly drag down the world economy. On the other hand, some experts go so far as to predict a positive economic impact from taking out Hussein. They say that removing Iraq from rogue-state status and returning it to full participation in the global energy market could actually bring oil prices down.
Such a scenario leaves London's Stoker expecting a war with Iraq would most likely have less impact than other worrisome factors in the US. "The American economy is in a lot of deep water, with rising deficits and debt," he says. "That will have far more significance in the coming months than any war with Iraq."