Attack on Iraq could harm U.S. economy

America would bear most of war's cost, say analysts, who fear slow recovery

July 30, 2002|By NEW YORK TIMES NEWS SERVICE

WASHINGTON - An attack on Iraq could profoundly affect the U.S. economy because the United States would have to pay most of the cost and bear the brunt of any oil price shock or other market disruption, government officials, diplomats and economists say.

Eleven years ago, the Persian Gulf war, fought to roll back Iraq's invasion of Kuwait, cost the United States and its allies $60 billion and helped precipitate an economic recession caused in part by a spike in oil prices.

The allies picked up almost 80 percent of the bill for that war. Now, however, as the Bush administration works on plans to overthrow Saddam Hussein, the United States is confronting the likelihood that this time around it would have to pick up the tab largely by itself.

Unless the economic outlook brightens, the government could well find itself spending billions of dollars a month even as the economy recovers falteringly from last year's recession.

The federal budget deficit is expanding, meaning that the bill for a war would lead either to more red ink or to cutbacks in domestic programs. New federal initiatives, such as prescription drug coverage, might have to be curtailed or eliminated, some congressmen said.

If consumer and investor confidence remain fragile, military action could have substantial effects on the financial markets, retail spending, business investment, travel and other key elements of the economy, officials and analysts said.

If oil supplies are disrupted, as they were during the gulf war, and prices rise sharply, the economic effects would be felt in the United States and around the world.

All of that could present a complicated problem for President Bush, both in the congressional midterm elections in November and as he manages a war and looks ahead to his re-election campaign in 2004.

"I think a good case can be made that voters will want to understand the case for a war or any kind of extended military action better than they do now because the economic considerations are considerable," said Kim N. Wallace, a political analyst for Lehman Brothers in Washington.

Senior administration officials said Bush and his advisers have not begun to consider the cost of war because they have not decided what kind of military operation might be necessary.

But whatever choice is made, experts say, the costs are likely to be significant and might influence the size, scale and tactics of any eventual military operation.

Saudi Arabia, Kuwait and Japan shared with the United States the cost of the 1991 war. But today none of those countries has offered to assist with financing a military campaign. In fact, each has signaled that it is not eager to be asked, diplomats say.

"Just open a map," said a member of the Kuwaiti royal family in close consultation with Washington. "Afghanistan is in turmoil, the Middle East is in flames, and you want to open a third front in the region?

"That would truly turn into a war of civilizations," he added.

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