Sun, 02 Feb 2003
On the economic consequences of war
Extremely long detailed survey on the possible economic impact of
a western invasion of Iraq, by Dr Vincent Cable. Cable is a Liberal
Democrat Member of Parliament, Shadow Secretary of State for Trade
and Industry, and was formerly Chief Economist for Shell and director
of the International Economics Programme at Chatham House. The
survey is long and exhaustive; let's just skip to his conclusions:
Those in Washington and London planning an invasion of Iraq probably
envisage a scenario much like 1991: a quick, successful campaign which
leads at most to a very short oil shock and only limited extra spending.
The longer the war goes on, however, the greater the risk of a more
serious shock and greater costs. These would widen the US twin deficits
on fiscal and current accounts and probably precipitate a sharp fall in
the dollar and painful adjustment, including a recession. This downturn
would be transmitted to the rest of the world, including Britain.
There is a plausible scenario in which a successful war, and the prospect
of very low oil prices in the wake of rapidly expanding Iraqi production,
brings about a weakening or even collapse of the Saudi regime and a
threat to its production. This would then bring us back to something
like the conditions in 1979-80, with the consequence of a world recession.
(His arguments sound plausible to me; and the former Chief
Economist for Shell is probably someone worth listening to when he talks
about the economic effects of changes in oil pricing resulting from war.
Anyone want to pick any holes in this reasoning?)
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