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Another Gulf War Threatens to Throw the World Into a Recession
Aired on Tuesday, August 27, 2002 by the Canadian Broadcasting Company
Another Gulf War Threatens to Throw the World Into a Recession
by Miriam Pemberton

Especially since September 11th military and security spending has soared in the western world. And now there's the possibility of a war against Iraq. Miriam Pemberton is a research fellow at the Institute of Policy Studies in Washington. It specializes in peace and security issues. On Commentary she says another Gulf War threatens to throw the world into a recession.

Apart from all the other reasons to be nervous about a U.S. invasion of Iraq, are the potential shocks it might deliver to an already shaky world economy. During the buildup to the last Gulf War - between the time Iraq invaded Kuwait and the U.S.-led troops crossed the Iraq border to retaliate - oil prices nearly doubled, and stayed there for over a year. Last week traders on the U.S. futures market saw the specter of a repeat of this "war premium", and added a dollar to the price of each barrel.

The industrialized world has already begun feeling the war on terrorism in its bottom lines. Fortune magazine has estimated the price tag for businesses in the U.S. alone at $150 billion a year to cover the increased costs of things like transportation, more insurance coverage, and security technology and personnel. The same effects have been felt in Canada and the rest of the western world.

The point is these costs are not adding to economic productivity and future oil prices hikes will only make that worse.

One branch of American business isn't feeling any pain. Defense stocks have been soaring. President Bush has been making a lot of noise about fiscal restraint, but as the Vice Chair of Boeing said recently "the purse is now open" to the defense industry. The shock to the American psyche delivered on September 11 has eliminated all the pressure for "hard choices" on U.S. military spending, including for an Iraq invasion.

The last Gulf war cost $80 billion. Eighty percent of that was borne by America's allies but few countries are signing up to help this time and no one expects the bill to come in as low as 80 billion.

Massive military increases, combined with massive tax cuts, have already begun to balloon the U.S. budget deficit, just as they did during the Reagan years. This is hardly what a weak economy needs. The increases in the cost of borrowing to finance the defect will put pressure on long-term interest rates, and crowd out private-sector borrowing. The consumer spending that has been buoyed by extremely low rates for home mortgages and new cars is likely to dry up fast. It all portends recession. Further retreat by Americans from foreign investment will spread these recessionary pressures around the globe.

Most industrialized countries have supported the U.S. fight against al Qaeda but now they're scratching their heads over what an invasion of Iraq has to do with it. Testimony a couple of weeks ago before the U.S. Senate Foreign Relations Committee emphasized that this invasion wont be easy and it won't be quick. The world is looking at a protracted U.S. military presence in Iraq that will last years, not months. And if there's a war the world could be facing the collateral damage of a destabilized Middle East. All good reasons to worry.

For Commentary, I'm Miriam Pemberton in Washington.
CBC Radio 8/27/02


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