War with Iraq may hit US economy hard, say officials

A US attack on Iraq could profoundly affect the American economy, it was reported yesterday.

The US would have to pay most of the cost of an attack and bear the brunt of any oil price hikes, it was claimed.

The Gulf war 11 years ago cost Washington and its allies almost $65 billion and helped trigger an economic recession caused in part by a spike in oil prices.

For that war, the allies paid for nearly 80% of the operation. But this time the White House is realising it will probably have to pick up the bill largely by itself, diplomats told the New York Times.

Senior administration officials said President George Bush and his top aides had not started considering the cost of a war because they had yet to decide what kind of military operation might be needed. But whatever choice is made, experts said, the costs are likely to be significant potentially leading to a bigger budget deficit or cutbacks in domestic spending.

If consumer and investor confidence remains fragile, Military action could have substantial psychological effects on the financial markets, retail spending, business investment, travel and other key elements of the economy, officials and experts told the newspaper. And if oil supplies are disrupted as they were in 1991 and prices rise sharply, the economic effects would be felt in the US and around the world.

This could present a complex political problem for Bush, both in the Congressional mid-term elections in November and as he manages a war and looks ahead to his re-election campaign in 2004.

Lehman Brothers political analyst Kim Wallace said: "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."

Saudi Arabia, Kuwait and Japan divided the cost of the 1991 war against Iraq with the United States but have not offered to help with financing a new military campaign. In fact, each nation has signalled it is not eager to be asked, diplomats told the paper.

"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 civilisations."