[Nasional-e] Iraq and the economy

[Ambon]

 Iraq and the economy
  Post The Washington Post Saturday, September 21, 2002

The showdown with Iraq is prompting understandable worries about its effects
on the economy. The possibility of disruption to oil shipments from the Gulf
has pushed energy prices up, with Saddam Hussein's promise to allow in
weapons inspectors undoing only part of the "fear premium." Lawrence
Lindsey, President George W. Bush's economic adviser, has suggested that a
war might cost between $100 billion and $200 billion - this at a time when
the federal budget is already overloaded. To people who oppose the war, it
is tempting to cite these economic strains as additional reasons to avoid
it. But this would be to miss a larger point. The real economic questions
raised by the administration's foreign policy concern the longer term, not
the one-time shock to oil prices or the budget.
.
The size of these shocks is in any case disputed. A war would presumably
halt oil shipments from Iraq, but sanctions have restricted these to an
average last year of about 2.4 million barrels a day; Saudi Arabia, which
maintains spare capacity of some 3 million barrels, could make up that
shortfall single-handedly. Sheikh Ahmed Zaki Yamani, a former Saudi oil
minister, has suggested that a war might provoke Saddam Hussein to attack
the oil fields in his country or Kuwait, sending prices up from their
current level of about $30 per barrel to the $100 level. But it's unlikely
that the Iraqi dictator has the ability to cause more than pockets of damage
to the oil infrastructure of his neighbors. Even in the extraordinary event
that he knocked out three-quarters of the Middle East's output,
industrialized countries have enough oil in their strategic reserves to make
good that size shortfall for 30 days, and to replace a smaller shortfall for
months - buying time to repair the damaged infrastructure.
.
The fiscal shock from war could turn out to be significant, but it should
not tip the scales in the debate over the war's advisability. For one thing,
Lindsey's guesstimates are at the high end; the Pentagon has come up with
lower numbers. For another, the cost might be shared by U.S. allies,
provided that the Bush administration sticks to its course of building its
case against Iraq in the court of world opinion. Most important, the
economic logic of an Iraq conflict depends on the larger question of whether
Saddam Hussein poses a security threat. If you see no threat, then obviously
the war makes no sense from any point of view. But if you think the Iraqi
dictator might one day unleash weapons of mass destruction on American or
allied targets, removing him at the cost even of $200 billion is well
worthwhile.
.
The administration has therefore been right to play down the economic side
of the Iraq decision. But it has failed to face up to the economic
consequences of its longer-term struggle against terrorism. The burden of a
bigger defense budget, an ambitious homeland security agenda and expanded
commitments in areas such as intelligence and foreign aid imposes a clear
strain on the budget; unlike the one-time cost of fighting an Iraq war, it
represents new expenses that stretch out indefinitely. The administration
ought to accept that this burden requires rethinking its promised but not
yet implemented tax cuts. Instead it pretends that the nation can afford to
fight terrorism and cut taxes at the same time; it is even proposing a new
wave of cuts on top of the huge package it secured from Congress last year.
The attacks of last September have forced a re-examination of assumptions
about security and foreign affairs. The rethinking now needs to extend to
the nation's long-term finances.