Collapsus annoncé

Collapsus annoncé

24 janvier 2003 — Un des débats qui accompagne la crise irakienne est celui du sort de l’économie mondiale si cette crise aboutit à la guerre. Des thèses radicalement différentes s’affrontent.

Ci-dessous, le groupe Power and Interest News Report (PINR) propose une analyse de cette prospective économique. L’analyse est pessimiste puisque le pronostic est bien qu’une très forte crise écon,omique mondiale est possible, sinon probable.

Invasion of Iraq may collapse global economy

PINR, January 22, 2003 — In the next few weeks, the struggling global economy may be put to the test if Washington chooses to invade Iraq. There are many risks involved in bombing Baghdad, the most important being a spike in oil prices. With oil prices already over $30.00 a barrel, increased pressure has been put on the global economy as more money is spent on importing oil. Should the United States attack Iraq, there is a real possibility that Middle East oil shipments will be disrupted. U.S. oil inventories are already running low due to the nearly two-month long PDVSA oil strike in Venezuela. While it takes only one week for Venezuelan oil exports to reach the United States, it takes four to five weeks for them to arrive from the Middle East.

During an American attack on Iraq, an errant bomb could destroy or

interfere with oil operations, halting Iraq's 1-2 million barrels per

day (bpd) in exports. Compounding the American threat, Iraqi leader

Saddam Hussein could opt to damage his own oilfields, by ordering

troops to light them on fire, as was done to Kuwait in 1991.

In order to prevent a spike in oil prices, any reduction in Iraqi oil

exports will need to be compensated by an increase in oil exports from

OPEC nations and non-OPEC nations alike. However, most OPEC nations are already producing at capacity, such as Indonesia and Qatar; the biggest oil producers outside of OPEC — Russia, Norway and Mexico — cannot increase their output since their pumps are already running at full capacity.

This likely scenario has worried economists; it could result in oil

prices as high as $40.00 a barrel, possibly causing extensive damage

to the global economy. However, the Bush administration believes that the end result of the invasion will be economic growth rather than

economic recession. The fate of the economy will rest on how fast the

United States can get oil flowing again after the war; once oil

production has stabilized again, the United States will likely be able

to increase capacity by updating Iraq's oil infrastructure. While

before the Gulf War Iraq was exporting 3.5 million barrels per day, it

is predicted that Iraq may be able to increase production up to 5

million bpd with U.S. assistance. Larry Lindsey, former top economic

adviser to President Bush, supported this prediction in a statement

last fall: "When there is regime change in Iraq, you could add three

million to five million barrels [per day] of production to world

supply. The successful prosecution of the war would be good for the

economy." Indeed, this scenario would provide a boon to the global

economy by increasing oil supply, dropping prices down to $15 to $20 a barrel.

But successful "regime change" might not be as easy as it seems.

Iraq's oil infrastructure is already in bad shape and the prediction

is that it will take 5 to 10 years for Iraqi oil output to reach such

levels, if at all; in addition, there is no guarantee that the new

Iraqi government will be willing to export such an inflated amount of

oil. However, any new administration will most likely be installed

and protected by U.S. troops, thus reducing the government's actual

independence from Washington.

The other most dangerous scenario is whether an invasion by Washington will heighten tensions in the Middle East in such a way that militant groups will attack oil interests when the U.S. and global economy are most vulnerable. Indeed, if militants inside Saudi Arabia attempted to sabotage major oil facilities within the country, limiting exports, oil prices would skyrocket since other nations would not be able to supplement the amount of oil Saudi Arabia exports.

This would possibly send oil prices to over $50 a barrel, or cause

prices to become static at $40.00 a barrel for many months. Indeed,

Gary Hufbauer, of the Institute for International Economics, stated in

the Baltimore Sun last October that a sustained rise in oil prices at

a level of $45 or $50 a barrel could "turn [the economies of] the

United States and Japan into a recession."

Should the two largest global economies -- the United States and

Japan -- enter a recession, or even suffer further economic setback

due to increased oil prices, it would greatly add to the misery of

other suffering states and impact emerging market economies.

South American states, for instance, have had difficulty accessing

global capital markets due to the economic uncertainty in Brazil --

which has been flirting with economic disaster -- and the recent

economic meltdown of Argentina. Paraguay and Uruguay too have been hit by their neighbors' economic troubles, with the former suffering from low tax revenues and a stagnant economy. If the global economy were to deteriorate, it could create a scenario where Argentina would have to default on its debts to the International Monetary Fund (IMF). If Argentina were to default, and other countries soon followed, it would compromise the Fund's own financial position and economic assistance to needy economies would falter, further spiraling the world economy toward a grave future.

Along with South America, Asia will also be pushed into economic

disaster should oil prices spike for a prolonged period. In addition

to putting Japan into recession, South Korea, fraught with its own

economic woes due to a rapid increase in real estate prices and

unemployment, is also vulnerable. Seoul cannot rely on domestic

spending to stimulate its economy due to ballooning household debt, a

situation that increased oil prices would only exacerbate.

Singapore, too, is walking on the edge of economic demise. Narrowly

missing a double-dip recession this last year, weak demand for the

city-state's key electronics exports and manufactured goods led to

further job losses, ballooning its unemployment level to a 15-year

high.

Therefore, these concerns will be carefully weighed by the Bush

administration as they consider whether or not to invade Iraq. With

the global economy in such a precarious position, Washington will be

hedging its bets; a war will either provide great economic gains, or

colossal economic ruin.

[The Power and Interest News Report (PINR) is an analysis-based publication that seeks to, as objectively as possible, provide insight into various conflicts, regions and points of interest around the

inform rather than persuade.]