$200 Billion Cost for Gulf War II?

Washington Post

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 Persian Gulf War was about $7 billion, a fraction of its cost.

Although it is difficult to predict how much Americans would 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 Hussein blows up his country’s oil fields, 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 reelection. Despite the high economic and political stakes, there has been no equivalent of Operation Tin Cup this time around, and the current 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. (S.C.), 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 Hussein 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 dollars, 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-Hussein government and avert a civil war between ethnic factions, which include Kurds in the north, Sunnis in the center 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 stabilization 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 stabilization force for Iraq. Depending on how long the stabilization 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 stabilization force.

Adding the costs of a stabilization 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 B. 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 1 percent and 2 percent of the nation’s annual gross domestic product, compared with 12 percent for the Vietnam War, 15 percent for the Korean War and 130 percent 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 5 percent and 10 percent.

“You have to ask yourself where would that money come from,” said Spratt, who represents the pay-as-you-go philosophy in Congress. “While the costs of the war are clearly not beyond our means, they are beyond our budget. Remember, this all comes at a time when we are losing control over the budget.”

In 1991, U.S. taxpayers paid about 12 percent 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 who helped raise $16.8 billion from the Saudis to pay for Desert Storm. 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 percent 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 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.

“I was surprised to discover that the nonmilitary costs are likely to be much larger than the military costs,” he said.

A recent conference by the Washington-based Center for Strategic and International Studies considered three scenarios for a war with Iraq. The benign scenario, the probability of which was estimated at 40 percent to 60 percent, envisaged a decisive victory for allied forces in four to six weeks and no disruption in oil supplies. Under this scenario, oil prices would likely come down in the aftermath of the war, boosting the U.S. economy.

A worst-case scenario (5 percent to 10 percent probability) envisaged fighting for three to six months, massive political unrest in the Middle East, terrorist attacks against the United States and large-scale damage to Iraqi oil facilities.

An intermediate scenario (30 percent to 40 percent probability) included limited damage to oil facilities, major urban warfare and fighting for up to three months. The intermediate and worst-case scenarios would have “serious adverse effects” on the U.S. economy, according to Laurence H. Meyer, a former Federal Reserve Bank governor now with the Center for Strategic and International Studies. The worst-case scenario would likely lead to a global recession.

Nordhaus said U.S. wars have almost always gone over budget. The Civil War was 13 times more expensive than the worst-case forecast of Abraham Lincoln’s treasury secretary. Similarly, in early 1966, the Pentagon underestimated the likely cost of the Vietnam War by about 90 percent.

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