Cost Of Iraq War
May Top $100 Billion
Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON -- President
Bush's chief economic adviser estimates that the U.S. may have to
spend between $100 billion and $200 billion to wage a war in Iraq,
but doubts that the hostilities would push the nation into recession
or a sustained period of inflation.
Lawrence Lindsey, head
of the White House's National Economic Council, projected the "upper
bound" of war costs at between 1% and 2% of U.S. gross domestic
product. With the U.S. GDP at about $10 trillion per year, that
translates into a one-time cost of $100 billion to $200 billion.
That is considerably higher than a preliminary, private Pentagon
estimate of about $50 billion.
In an interview in
his White House office, Mr. Lindsey dismissed the economic consequences
of such spending, saying it wouldn't have an appreciable effect
on interest rates or add much to the federal debt, which is already
about $3.6 trillion. "One year" of additional spending?
he said. "That's nothing."
At the same time, he
doubted that the additional spending would give the economy much
of a lift. "Government spending tends not to be that stimulative,"
he said. "Building weapons and expending them isn't the basis
of sustained economic growth."
have been unwilling to talk about the specific costs of a war, preferring
to discuss the removal of Mr. Hussein in foreign-policy or even
moral terms. Discussing the economics of the war could make it seem
as if the U.S. were going to war over oil. That could sap support
domestically and abroad, especially in the Mideast where critics
suspect the U.S. of wanting to seize Arab oil fields.
Mr. Lindsey, who didn't
provide a detailed analysis of the costs, drew an analogy between
the potential war expenditures with an investment in the removal
of a threat to the economy. "It's hard for me to see how we
have sustained economic growth in a world where terrorists with
weapons of mass destruction are running around," he said. If
you weigh the cost of the war against the removal of a "huge
drag on global economic growth for a foreseeable time in the future,
there's no comparison."
economists say that their main fear is that an Iraq war could lead
to a sustained spike in prices. The past four recessions have been
preceded by the price of oil jumping to higher than $30 a barrel,
according to BCA Research.com in Montreal. But the White House believes
that removing Iraqi oil from production during a war -- which would
likely lead to a short-term rise in prices -- would be insufficient
to tip the economy into recession. What is worrisome, economists
say, is if the war widens and another large Middle East supplier
stops selling to the U.S., either because of an Iraqi attack or
out of solidarity with Saddam Hussein's regime.
Mr. Lindsey said that
Mr. Hussein's ouster could actually ease the oil problem by increasing
supplies. Iraqi production has been constrained somewhat because
of its limited investment and political factors. "When there
is a regime change in Iraq, you could add three million to five
million barrels of production to world supply" each day, Mr.
Lindsey estimated. "The successful prosecution of the war would
be good for the economy."
Currently, Iraq produces
1.7 million barrels of oil daily, according to OPEC figures. Before
the Gulf War, Iraq produced around 3.5 million barrels a day.
Mr. Lindsey's cost
estimate is higher than the $50 billion number offered privately
by the Pentagon in its conversations with Congress. The difference
shows the pitfalls of predicting the cost of a military conflict
when nobody is sure how difficult or long it will be. Whatever the
bottom line, the war's costs would be significant enough to make
it harder for the Bush administration to climb out of the budget-deficit
hole it faces because of the economic slowdown and expense of the
war on terrorism.
Mr. Lindsey didn't
spell out the specifics of the spending and didn't make clear whether
he was including in his estimate the cost of rebuilding Iraq or
installing a new regime. His estimate is roughly in line with the
$58 billion cost of the Gulf War, which equaled about 1% of GDP
in 1991. During that war, U.S. allies paid $48 billion of the cost,
says William Hoagland, chief Republican staffer of the Senate Budget
This time it is far
from clear how much of the cost -- if any -- America's allies would
be willing to bear. Most European allies, apart from Britain, have
been trying to dissuade Mr. Bush from launching an attack, at least
without a United Nations resolution of approval. But if the U.S.
decides to invade, it may be able to get the allies to pick up some
of the tab if only to help their companies cash in on the bounty
from a post-Saddam Iraq.
Toppling Mr. Hussein
could be more expensive than the Persian Gulf War if the U.S. has
to keep a large number of troops in the country to stabilize it
once Mr. Hussein is removed from power. Despite the Bush administration's
aversion to nation-building, Gen. Tommy Franks, commander of U.S.
troops in the Middle East and Central Asia, recently said that the
U.S. troops in Afghanistan likely would remain for years to come.
The same is almost certain to be true in Iraq. Keeping the peace
among Iraq's fractious ethnic groups almost certainly will require
a long-term commitment of U.S. troops.
During the Gulf War,
the U.S. fielded 500,000 troops. A far smaller force is anticipated
in a new attack on Iraq. But the GOP's Mr. Hoagland said the costs
could be higher because of the expense of a new generation of smart
missiles and bombs. In addition, the nature of the assault this
time is expected to be different. During the Gulf War, U.S. troops
bombed from above and sent tank-led troops in for a lightning sweep
through the Iraqi desert. A new Iraq war could involve prolonged
fighting in Baghdad and other Iraqi cities -- even including house-to-house
The Gulf War started
with the Iraqi invasion of Kuwait in August 1990, which prompted
a brief recession. The U.S. started bombing Iraq on Jan. 16, 1991,
and called a halt to the ground offensive at the end of February.
With Iraq's invasion,
oil prices spiked and consumer confidence in the U.S. plunged. But
Mr. Lindsey said the chance of that happening again is "small."
U.S. diplomats have been trying to get assurances from Saudi Arabia,
Russia and other oil-producing states that they would make up for
any lost Iraqi oil production. In addition, Mr. Lindsey said that
the pumping equipment at the nation's Strategic Petroleum Reserve
has been improved so oil is easier to tap, if necessary. Both the
Bush and Clinton administrations, he said, wanted to "make
sure you can pump oil out quickly."
On Thursday, Federal
Reserve Chairman Alan Greenspan said he doubted a war would lead
to recession because of the reduced dependence of the U.S. economy
on oil. "I don't think that ... the effect of oil as it stands
at this particular stage, is large enough to impact the economy
unless the hostilities are prolonged," Mr. Greenspan told the
House Budget Committee. "If we go through a time frame such
as the Gulf War, it is unlikely to have a significant impact on
The U.S. economy also
has become less dependent on oil than it was in 1990, said Mark
Zandi, chief economist at Economy.com, an economic consulting group
in West Chester, Pa. A larger percentage of economic activity comes
from services, as compared with energy-intensive manufacturers,
he said. Many of those manufacturers also use more energy-efficient