Roundup: Possible War Against Iraq Raises Uncertainties on US Economy

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Last updated at: (Beijing Time) Monday, October 21, 2002

Roundup: Possible War Against Iraq Raises Uncertainties on US Economy

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When the United States is making preparations both in words and in deeds for a military strike against Iraq, concerns about what another Gulf War would cause on the US economy are also growing in the nation.

The last Gulf crisis followed by a Gulf war led by the United States against the same enemy in 1991 resulted in the sharp increase of oil prices worldwide, helping tip the US economy into recession.

What impact would another Gulf war have on the US economy some 12 years later when the economic recovery is limping forward? Would there be another recession?

The typical short answer analysts gave has been: It depends.

The difficulty to predict the impact is that no one can be surehow such a war would progress and there are so many "ifs" waiting to be seen, they said.

There is no doubt that another Gulf war will push oil prices up.However, how much the prices would go up and how the increase would change the US economy are question marks.

There have been many assumptions by US economic analysts in recent days.

The key ones were that an attack against Iraq late this year orearly next year would drive up the cost of oil for US refiners by 15 dollars a barrel, to more than 40 dollars in the first quarter.The US economy would contract at a 0.7 percent annual rate in the first three months of next year, instead of growing at the 2.8 percent rate predicted by many economists. The increase would resume in the second quarter at an annual rate of 1.5 percent, much lower than the rate of 3.8 percent forecast at present.

Some analysts assumed that the war against Iraq would push oil prices up to 35 dollars a barrel and it also could bring "a fairly considerable hit" to the US economy because each 10-dollarincrease per barrel of crude oil costs US consumers about 120 billion dollars a year.

The most optimistic assumption is that the war would result in little increase in oil prices, at around 30 dollars a barrel, if the war would be limited within the border of Iraq.

At present, the planning of war against Iraq has already done some harm to the US economy, some economists said.

Oil prices have kept rising in the past several months because a possible US military action against Iraq has caused concerns on the future oil market, just as oil prices jumped up sharply whenever a crisis or a war occurred in the Gulf in the past 30 years. Some analysts said that there are five dollars of "war premium" in the current oil prices which were about 50 percent higher than early this year.

Another question is how a war in Iraq would affect US government spending at a time when a huge US budget deficit returned in the fiscal year of 2002, which ended on Sept. 30, for the first time in five years.

Unlike the Gulf War some 12 years ago when US allies covered most of the cost of the conflict, this time the US government would have to pay almost all of the money for the war itself. It would most likely lead to a higher budget deficit in fiscal 2003.

Even if the United States would win a war in the Gulf and disarm the current Iraqi government, it would face many difficulties in the future.

A recent study by the US army's Center of Military History hasfound that the US military would have to commit 100,000 peacekeeping troops in Iraq if it were to occupy and reconstruct the country on the scale that occurred in Japan and Germany after World War II. It would become a heavy budgetary burden for the US government.

Some analysts predicted that in the short term, it is unlikely that a war against Iraq would push the US economy into another recession.

However, in the longer term, financing a continued US military presence in Iraq, helping rebuild the country, and providing assistance to a new government could be costly while contributing little if any benefit to the US economic growth, according to a recent article in The Washington Post.

Source: Xinhua News Agency

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