Global Policy Forum

By David Williams

Analysts say costs of fighting war in Iraq, follow-on costs for occupation may far exceed 1991 Gulf War.

The cost of fighting a protracted war in Iraq and occupying Baghdad may far exceed the 1990-91 Gulf War's 61-billion-dollar price on which many estimates are now based, analysts said. Many private-sector analysts touting a short-war scenario followed by a quick economic recovery failed to fully consider the threat of a longer Middle East conflict with a broader impact, analysts said.

"The objective of Desert Storm was to dislodge Iraq from Kuwait. This time, we want to eliminate Saddam altogether. This could involve an urban warfare and the use of weapons of mass destruction by Iraq," said Wells Fargo and Co. chief economist Sung Won Sohn. "Unlike the Gulf War, the fighting could last longer and involve more casualties. The costs could be considerably higher than the Gulf War, which cost the United States 61 billion dollars," he warned.

"A drawn-out war could cost as high as 650 billion dollars, a lot more, especially if we occupy Iraq in an effort to build democratic institutions. The impact on budget deficits and interest rates could be high." And the impact of a war in Iraq could last for an extended period, he said.

Analysts also said that the United States, with less international support than in the Gulf War, may have to foot the bill for most of the conflict's costs. "With limited support from other nations, the risk of terrorism here and abroad will be high even after the shooting war stops," Sohn said.

"Even if a quick and decisive war materializes, North Korea could fuel additional geopolitical tensions. Since North Korean leader Kim Jong-Il seems to be taking advantage of our preoccupation with Iraq, the degree of tension could compound." Yale economics professor William Nordhaus, author of a study, "War with Iraq: Costs, Consequences and Alternatives", stressed that the costs of a war in Iraq were highly uncertain.

The study noted an estimate by the Congressional Budget Office (CBO), which said prosecuting a war might cost six billion to nine billion dollars a month. Under the CBO assumptions, the price of a war would amount to 44 billion dollars if the United States deployed 250,000 troops in a combat lasting 30 days with 2.5 months of occupation. "The main point of what I was saying in the study is that there is an intrinsic and inescapable uncertainty, and it is really huge," the economist said.

The war had three key components, he estimated:

- Direct military costs of 50 billion to 140 billion dollars.

- Follow-on costs for occupation, peacekeeping, reconstruction, nation-building and humanitarian assistance of 100 billion to 600 billion dollars.

- Macroeconomic costs, including the oil markets, of up to 1.2 trillion dollars.

A survey of 37 analysts from the National Association of Business Economists (NABE) found they expected US economic growth to recover to a 3.5 percent pace in the second half of 2003 from a year-average of 2.7 percent once an Iraqi war was out of the way. But in general, private forecasts of the cost of war were far too narrow, Nordhaus said.

"If I had to say what is the most likely outcome, it is that it would be a relatively short war, it would be over in six weeks and the Americans would be sitting in Baghdad scratching their heads and working out what to do. This anxiety about going to war would be lifted," Nordhaus said. "I think that is a plausible scenario," he added. "But there is also a whole range of other scenarios under which it could go pretty badly."

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