Analysis: The Profits and Pitfalls of War in Iraq

Summary

Though it is too early to predict the exact economic effects of a war against Iraq, it is clear that the ramp-up to hostilities will send oil prices soaring. That, in and of itself, will have a dramatic effect on the global recession.

Analysis

While the global energy picture has changed much since 1990, one thing is certain: Once it becomes apparent that Washington will settle for nothing less than the ouster of Iraqi leader Saddam Hussein, oil prices will spike.

During Desert Shield, Brent crude shot up more than $20 from its levels on Aug. 1, 1990 — the day before Iraq invaded Kuwait. And in February 2002, just before the Bush administration commenced its warmongering against Iraq and suicide bombings began to surge in the Middle East, Brent prices were clustered around the $20 mark. A return to $40 per barrel is highly likely considering Washington's steady march back toward the Middle East.

High energy prices affect different economic players in different ways. OPEC states — excluding Iraq, of course — will be among the biggest winners in the near term. Nearly all OPEC members have monochromatic economies that would wither and die without oil. Such economies, like other extraction-based economies, are unstable and inefficient. For example, the Energy Intelligence Group estimates that the bureaucracy of Saudi Arabia is so bloated that the country falls into deficit whenever oil prices dip below $25 per barrel — even though Saudi oil is among the cheapest in the world to bring to market.