War, post-war scenarios may cost about $200b

Within a month of the Iraqi invasion of Kuwait in August 1990, the first Bush administration launched what became known as "Operation Tin Cup" - a frenzied round of diplomacy aimed at getting U.S. allies to help pay for war with Iraq. As a result, the bill to American taxpayers for the Gulf War was about $7 billion, a fraction of its cost.

Although it is difficult to predict how much Americans will pay for a new war with Iraq, one fact seems indisputable: It will be many times more than the cost of the last war, if only because other countries are much more reluctant to share the burden.

Informal estimates by congressional staff and Washington think tanks of the costs of an invasion of Iraq and a postwar occupation of the country have been in the range of $100 billion to $200 billion.

If the fighting is protracted, and Iraqi President Saddam Hussain blows up Iraqi oilfields, most economists believe the indirect costs of the war could be much greater, reverberating through the U.S. economy for many years.

The 1991 Gulf War led to a brief spike in oil prices and a fall in consumer confidence that helped tip the country into a recession that cost President George H.W. Bush his chances of re-election.

Despite the high economic and political stakes, there has been no equivalent of Operation Tin Cup this time around, and the current Bush administration has refused to engage in public debate about the likely costs of a new war.

"If we can plan a war, we should also be planning a way to pay for the war," said Rep. John M. Spratt Jr., South Carolina, the ranking Democrat on the House Budget Committee.

"Last time, we were able to slough the costs off on other countries. This time, we will have to absorb most of these costs ourselves. Someone ought to be asking questions about the impact on the budget."

A White House official, speaking on condition of not being identified, said it would be premature to talk about the costs of a war with Iraq because President Bush has not decided on the use of military force.

He added that unofficial estimates of the cost of war had to be weighed against the "potentially incalculable" political, diplomatic and economic costs of permitting Saddam to develop and spread weapons of mass destruction.

Using different methodologies, the nonpartisan Congressional Budget Office and staff for the Democrat minority on the House Budget Committee have concluded that a short, decisive war involving the deployment of 250,000 U.S. troops could cost between $44 billion and $60 billion.

This is significantly less than the cost of the 1991 war, which came to nearly $80 billion in 2002, reflecting the fewer numbers of troops involved. A protracted war, by contrast, could cost upward of $100 billion.

The direct military costs of a new war will likely be less than in 1991 under most scenarios, but the postwar occupation costs will be considerably greater, most experts believe.

In Kuwait, most U.S. troops were able to pack up and go home in a few weeks. In Iraq, a large international military presence will be required for many years to provide security for a post-Saddam government and avert a civil war between ethnic factions, which include Kurds in the north, Sunnis in the centre and Shiites in the south.

"It's a no-brainer that this is going to cost us more than the last time," said Michael O'Hanlon, a military economist at the Brookings Institution.

"In addition to the nominal price tag for the operation, you will need a large stabilisation force in there for a number of years. Anything else will not be strategically viable."

Extrapolating from similar peacekeeping operations in Bosnia and Kosovo, O'Hanlon estimates that the United States is likely to initially spend between $15 billion and $20 billion a year for its share of a multinational stabilisation force for Iraq.

Depending on how long the stabilisation force remains in Iraq, the cost to the American taxpayer could be between $50 billion and $100 billion. His calculations are based on an assumption that U.S. allies will pick up two-thirds of the cost of the stabilisation force.

Adding the costs of a stabilisation force to the costs of an invasion brings the total to between $100 billion and $200 billion. This is in line with an upper bracket estimate by White House economics adviser Lawrence Lindsey in an interview with the Wall Street Journal in September.

The White House subsequently distanced the administration from Lindsey's comments, saying they were not based on any official study.

If the war costs between $100 billion and $200 billion, it would still be relatively inexpensive in historical terms. Because of the growth in the U.S. economy, wars are getting cheaper, at least to the American consumer.

In a $10 trillion economy, the cost of a second Gulf War would be between one per cent and two per cent of the nation's annual gross domestic product, compared with 12 per cent for the Vietnam War, 15 per cent for the Korean War and 130 per cent for World War II.

Measured against a federal budget of about $2 trillion a year, the cost of the war would be proportionately larger: between five per cent and 10 per cent.

In 1991, U.S. taxpayers paid about 12 per cent of the military costs of the Gulf War, with the remainder of the burden being shared among such countries as Saudi Arabia, Kuwait, Germany and Japan. This time around, none of these countries is expected to contribute significantly.

Iraq could be expected to assume major responsibility for the long-term costs of its economic reconstruction out of increased oil revenue. But the country has been devastated by two decades of war and economic sanctions and cannot pay for a U.S.-led invasion and military occupation.

The generosity of the allies was "exhausted" by the first attack on Iraq, said Chas Freeman, a former U.S. ambassador to Riyadh.

He added that the Saudi government would find it politically impossible to pick up a substantial portion of the costs of a new Gulf War even if it had the money because the Saudi public is "now 100 per cent against an attack on Iraq."

Freeman says the U.S. government grossly underestimated the costs of the 1991 war by excluding various services provided free by the Saudis.

These included the costs of housing and repatriating Kuwaiti refugees, the provision of free fuel, transport and lodging to coalition forces, and a major environmental cleanup. In a future conflict, many of these costs will be borne directly by the United States.

The most uncertain cost of the war, economists agree, is the impact on the broader U.S. economy. Such costs are very difficult to quantify.

William Nordhaus, a professor of economics at Yale University, estimates the indirect cost of the 1991 conflict with Iraq at about $500 billion, many times larger than the official military price tag.

Depending on what happens in a future conflict, the macroeconomic impact of the war could be between zero and $1 trillion, according to his estimates.