|The economic impact of an Iraq war on India
The entire overt international effort, and hope, of avoiding the threatened US attack on Iraq continues to rest on the UN arms inspections and the Security Council. The countries in and outside the Council who oppose war have allowed themselves to believe that if the UN inspectors are given sufficient time, the disarming of Iraq of its weapons of mass destruction (WMD) will be proven, one way or another, and the world can then go back to status quo ante on the Iraq issue.
For close to 10 years, the now disbanded UNSCOM could not, or was not allowed to, come to a definitive conclusion on the disarmament of Iraq. Successive American administrations, and the Saddam Hussein regime had their own private agendas, which did not include the removal of sanctions and the misery of the Iraqi people, or the destruction and neutralisation of the WMD. In July 1998, after a clear IAEA report that Iraq does not possess nuclear weapons, a serious proposal mooted by Russia with the backing of several other Council members to "close" the nuclear file was rejected by the US. Subsequently, in the winter of 1998, Saddam thwarted the comprehensive review by the Security Council with a view to ending sanctions through unreasonable demands, prevarication and non-cooperation with the UN. The 1998 US bombing of Iraq followed, destroying any chances of a diplomatic solution.
I recall this important snippet of recent history to demonstrate that the disarmament of Iraq or the removal of sanctions cannot be achieved by a few inspectors in a few months, with constant non-cooperation of Iraq and political pressure from USA. In the absence of any serious effort by countries opposing war to remove Saddam diplomatically, military action by the most hawkish US Administration to date is inevitable.
The chief economic advisor to President Bush, Mr. Lawrence Lindsay, believes that war with Iraq will cost the US somewhere between $100-200 million; others believe it may run into trillions. The cost to each country affected by a war will be a different story. The World Health Organisation estimates that the war will directly and indirectly take the lives of over half a million people or more, most of whom will be undernourished and deprived Iraqi children and women.
Anthony Cordesman of the Washington-based Centre for Strategic and International Studies has set out three possible war scenarios. Under the first, the war will be over in 4-6 weeks, Saudi Arabia will increase oil production and there will be little damage to the region and little disruption in oil supplies. This "benign case" has 40%-60% probability.
Under the second scenario, war is extended beyond six weeks, and may even continue for 12 weeks; Iraq succeeds in causing damage to the other regional oil facilities and the Saudis offer only passive cooperation on oil production. This intermediate scenario is given a 30%-40% probability. In this case, the price of oil rises to $40 per barrel and remains above $30 till the end of 2004.
The worst case scenario, which has only a 10% probability, fighting lasts for six months, Iraq attacks allied forces and Israel with chemical or biological weapons, causes significant damage to oil production facilities in the region and the war leaves lingering effects on the regions oil economy. The oil price will then hit $80 per barrel and settle down to $35 by the end of 2004.
Swift and successful war will have virtually no negative impact on the world economy except in the very short period of the war. A simulation exercise concludes that the benign scenario will have a favourable impact on both the US and the rest of the world GDP from the third quarter of 2003. The intermediate scenario brings the US GDP growth rate to zero in the first half of the year. It will obviously have a substantially negative impact on the rest of the world. I consider the worst case scenario too theoretical to simulate here.
No Indian lives in any substantial numbers will be lost as a result of a war. Some
opponents of war in India have pointed to the terrible dislocation and migration of Indian
workers in Kuwait and the Gulf during the 1991 Gulf War to project an even greater
disaster this time around. The chances of an Iraqi counter-attack on Kuwait or Saudi
Arabia are slim. Despite the understandable bravado of the Iraqi regime that they will
fight to the last man, it is a nation highly weakened by sanctions and its military forces
have outdated weapons and low morale. I do not expect any significant dislocation of over
three million Indian workers in the Gulf or any material reduction in the inflow of
remittances from there.
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