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Economists Debate Impact of Possible War With Iraq

While U.S. officials debate the pros and cons of going to war against Iraq, economists are already looking beyond war to assess its impact. Analysts say that while it is difficult to predict the consequences of any attack on Iraq, uncertainty already is rattling world markets.

Economist James Placke of the Cambridge Energy Research Associates says the effect of a war in Iraq would depend on how long it lasts, and whether Iraq's oil facilities were damaged or destroyed. "When offensive military operations begin in the Persian Gulf, three things happen. Oil prices go up, equity prices go down, and gold prices go up. Beyond that, the extent and duration of these movements are problematic," he says.

Mr. Placke says the possibility of political instability in Iraq and a disruption of oil output cannot be ruled out. In the 1991 Gulf War, Saddam Hussein set fire to Kuwait's oil fields when his troops were forced out of the country.

The Washington-based Center for Strategic and International Studies has issued a research paper describing best-case to worst-case scenarios, ranging from a quick and decisive conflict to a protracted war that fuels political unrest across the Middle East, and terrorist attacks beyond the region.

Economist Larry Meyer says the uncertainty has forced many U.S. firms to rethink their investment strategies in the region. "We believe that uncertainty is very much a factor, which is paralyzing business decisions and weighing on the economy," he says.

While the U.S. government would pay the price of waging a war, Mr. Meyer says other allies would probably help pay for a post-war recovery. But, he says, a prolonged U.S. occupation of Iraq would sharply increase the burden on the U.S. economy.

Closer to Iraq, the so-called front-line states - Turkey, Syria and Jordan - are feeling especially vulnerable. They expect to be hit the hardest, just as they were in the last Gulf War against Iraq.

Lucrative cross-border trade and oil flows would be cut. Foreign investment in the region would be disrupted, but the cost of caring for potentially thousands of refugees would soar.

Turkey and Jordan are seeking more U.S. aid and trade in return for their cooperation.

During a meeting with U.S. business executives, Jordan's ambassador to Washington, Karim Kawar, took a decidedly philosophical approach to the current crisis. We cannot remember a year that has passed in the Middle East, where there were no problems. So, this year is not any different. So, for this exact reason, life in the Middle East goes on, and this is why we need to focus on what matters the most," he said. "And, for us, what matters the most is the well-being of the people, which is closely tied to the economic situation, which we hope to improve."

Beirut Daily Star Editor Rami Khouri says Jordan and its neighbors would likely benefit from post-war recovery efforts in Iraq. "If there's a stable situation in Iraq, Jordan and Syria and all the neighbors will benefit in the long run, because there's going to be huge reconstruction requirements and contracts - transit trade. So, everybody in the region will benefit from the rebuilding of Iraq, and Jordan has very close ties historically and economically going back at least 30 years or so," he says.

But Mr. Khouri warns that a long-term U.S. presence in Iraq could provoke an anti-American backlash and violence that would undermine efforts to rebuild investor confidence, and stabilize the region's economy.