The Economic Costs of an Unjust War

Editor's Note: Foreign Policy In Focus's Peace and Security Editor delivered this testimony before Congress on September 13, 2002.

I want to begin with two caveats. The first is that if attacking Iraq clearly fell into the category of a just war, we should of course spend whatever it would take to wage it. Providing for the common defense is our government's first mandate. But by my reckoning our government has not remotely made the case that this would in fact be a just war. I'll just mention quickly a couple of reasons, which the president's speech yesterday at the UN did not change.

Most fundamental is of course the fact that Iraq has not attacked us, and there is no credible evidence that it is collaborating with al Qaeda, which has. The administration's attempts to establish such a linkage have not been convincing. A couple of weeks ago Secretary Rumsfeld announced a few sightings of suspected al Qaeda members in Iraq. Well, this was northern Iraq, which is under the protection of U.S. warplanes from the Iraqi government. And if the presence of suspected al Qaeda members were reason enough to attack, we should be bombing Germany, and ourselves. Second, in addition to distracting from the pursuit of al Qaeda, an attack on Iraq shows real promise as a recruiting tool for more terrorists. An excessive, intrusive response by the world's superpower in the Middle East helps them make their case for resistance by any available means.

In the absence of a clear case for starting this war, then, we need to consider the ways in which starting it might conflict with our government's second mandate, which is to promote the general welfare. To the extent that an attack would have the effect of weakening an already shaky economy, it would undermine the welfare of all of us. So as we debate this profoundly serious question, the issue of the economic cost of going to war needs to be included in our deliberations.

My second caveat is that no one can say for sure what these costs will be. Wars never go according to war plans. And in this case the complex and far-reaching repercussions of -- to pick one thing out of a hat -- a destabilized Middle East, can be partially predicted but not foreseen. So mostly we are groping for the best calculus of risks. But I will try to distinguish between what we know for sure at this point and what is likely enough that it should worry us.

One thing we know is that fears that the U.S. might go ahead with an attack on Iraq have already begun to affect oil prices. Oil is already trading close to an 18-month high of $30 a barrel. Ten months ago, the price was half that. So the war fever premium has already been high. And every time a U.S. official comes out and says something that suggests an attack is actually imminent, or even is in fact likely to happen at all, oil prices spike. Vice President Cheney made the first of two such speeches on August 26th, for example, and by the end of the day, the price of each barrel sold on the U.S. market had jumped sixty-five cents.

Following the last U.S. invasion of Iraq, oil prices doubled, and stayed high for the better part of a year. A repeat would create ripple effects throughout our economy. Estimates by Wall Street analysts indicate that a ten dollar per barrel rise in oil prices -- half the amount of the last Gulf War effect -- would over a year's time reduce U.S. GDP growth by about half a percent, and add nearly one percent to inflation.

The economic drag from these oil price shocks is being felt most strongly across the transportation sectors that grease our economy's wheels, and is adding friction to these wheels, an effect that is of course being passed on to consumers. In the airline sector alone, the nine major U.S. carriers have lost $7.3 billion in the past year, and one of them has been propelled into bankruptcy. This is despite the bailout package passed after 9/11 totaling $5 billion in direct federal aid and $10 billion in loan guarantees. Most analysts expect that a U.S. attack on Iraq could send the price of oil beyond $50 a barrel. In that event, we will probably be bailing out all our airlines.