Staggering cost of Mideast war

Christopher Flavin

October 03, 1990|By Christopher Flavin

IT IS DOUBTFUL American policymakers fully comprehend the scale of the risk involved in a war with Iraq. It is not just thousands of lives that are at stake but the world economy as well.

Worldwide gasoline rationing could be among the first direct results of a full-scale conflict. Further along in the crisis the casualties could include the financial collapse of developing countries, outright failure of the economic reforms in Eastern Europe and a severe shock to the world banking system.

The basis for this pessimism is a realistic appraisal of a war's effect on oil markets.

If some hostile words from Saddam Hussein could send prices soaring toward $40 a barrel last week, imagine what a few well-paced rockets in the Saudi oil fields could do. Prices as high as $60 to $80 a barrel are likely and could go even higher, depending on the scale of the war.

Already, oil costs about $37 a barrel, more than double the level of three months ago. During the Iranian revolution of 1979 it took 14 months for oil prices to double. Given a continuing shortage of light crude oil, prices may continue rising as the winter heating season approaches.

The problem, of course, is that Saudi Arabia's oil fields are now pumping more than 7 million barrels of oil each day -- one-third of the oil traded on the world market. These fields are right in the middle of the area of conflict.

Iraq has some of its most battle-ready armored divisions and an array of short- and medium-range missiles within a few hundred miles of much of the Saudi oil infrastructure, including wells, pumps, refineries and tanker terminals. Other major oil exporters such as Qatar and the United Arab Emirates are only a short distance farther south.

Pentagon assurances notwithstanding, such installations are hard to defend, even with air superiority. Granted, we might manage to prevent widespread destruction. But any sort of attack, particularly one involving chemically armed missiles, could frighten off Saudi Arabia's 30,000 expatriate oil-field workers, causing production to plummet. Cleaning up the oil fields so workers could return after a war would take months.

Even full use of the world's strategic oil reserves could not make up for the losses that would result from a major disruption of Saudi supplies. Moreover, these reserves are limited and could be exhausted in six months if they had to be used at their maximum rate.

Not even at the start of World War II was the world economy on the line the way it is now. Today, national economices are more intertwined and everyone is far more dependent on oil.

The developing countries and Eastern European nations face the most serious financial risks. With many nations already barely able to meet debt service obligations, they are in no shape to pay doubled oil import bills. A series of defaults could cascade through the world banking system.

A short conflict with a clear victory by the United States is one scenario for avoiding such a cataclysm. But while U.S. military planners are hopeful of such a result, President Bush would be wise not to count on it.

Iraq's military has already had a month and a half to prepare for war, dispersing planes and missiles and hardening defenses. The 430,000 troops and 3,500 tanks in southern Iraq and Kuwait have moved into fortified positions from which they would be hard to dislodge.

Iraq's military leaders have experience with bloody wars of attrition, and they would have the incomparable advantage of fighting for and on their homeland. The United States faces the uncomfortable reality that the oil fields and installations it seeks to protect could be among the first casualties of war.

These facts are not easy for the president or other Western leaders to contemplate. It wasn't just a ruthless Iraqi dictator who got us into this spot. A failed energy policy, short-sighted attempts to play Middle Eastern politics and a series of 11th-hour diplomatic blunders played major roles as well.

These errors can neither be reversed nor expiated by a military strike. The enormous stakes demand we exhaust all diplomatic options before taking irreversible military steps.

Christopher Flavin is vice president for research at Worldwatch Institute, a policy research organization.

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