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Is The Iraq War Causing The Recession?

iraq-oil.jpgWith so many bad economic dominoes falling into place creating a perfect storm of problems for the American economy, ranging from sharply higher energy prices, inflation, an economic and real estate slowdown and a sinking American dollar, you cannot help but blame the failed 'war for oil' in Iraq as being the cornerstone that helped to trigger this latest downfall for the American economy.

The last time that the American economy faced such a number of similar problems was the lagging stagflation results of the Vietnam War in the 1970's, when our economy slowed the dollar lost buying power as the government needed to print more and currency to pay for the massive war costs.

The oil company proponents for the 2003 Iraq War had hoped for easier access to 225 billion barrels of suspected undiscovered oil in Iraq, which is considered to be perhaps the largest supply of oil in the world, and a 98 year supply for the U.S. at current consumption levels.


Instead the American occupation of Iraq quickly fell into a battle with insurgents and then a protracted battle with rival Shiite and Sunni militia groups and Al Qaeda radicals that made any real large scale development of new oil assets in Iraq far too dangerous and expensive for oil exploration.

And at a current total cost of $498,185,370,000 dollars, or $275 million per day, or $4100 per American family in taxes, Iraq has been a budget busting disaster for the U.S. resulting in a higher national debt, deficit spending and increased bond sales to Chinese, Japanese and South Korean banks to help bail out the budget mess for the U.S.

Just like the 1980's Soviet invasion of Afghanistan which only helped to create the financial and internal political collapse of the old Soviet Union by 1991 because of the enormous costs both economic and personally for this endless war, Iraq is causing serious challenges for the American economy.

Not only did the Iraq War fail to deliver more oil and cheaper oil as the oil industry had once hoped, but the huge costs of the war and all the budget busting costs of the war have only resulted in the American dollar falling like a rock against world currencies. For example, the dollar has lost 12% of it's value against the Euro in just the last 12 months. And since the price of oil is determined in dollars in the world markets, it has only helped to spur more demand for oil overseas especially in the booming economy in China, creating a tighter world supply of oil and sharply driving up oil prices for the American consumer.

Iraq once produced 2.6 million barrels of oil a day before the 2003 Iraq War. But since the war, production has often slowed down to around 1.9 million barrels a day, taking 600,000 barrels a day off the world market, creating a tighter world supply of oil at a time just when demand for oil is increasing.

The American political discussion of the run-up to the 2003 war really needed to also include a serious discussion about the serious impact on the American economy where the costs of the reconstruction of Iraq and continued American policing efforts there certainly failed to be fully paid for by the oil economy of Iraq as Bush had once claimed that it would.

Everytime that Americans buy more expensive gas or oil to heat their homes, or pay for more inflation at the grocery store, the high cost of the Bush failed war for cheap oil in Iraq really hits home. If Americans like the current economy, then a McCain election would be like a third Bush term with a continued strong U.S. role in Iraq and all the economic problems that that brings home to the average American household.

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Comments (7)


"Is The Iraq War Causing The Recession?"

Yes. Plus spending. Plus signature loans taken out by President Sonny Drysdale. Plus his selling the nations plumbing for scrap to Wo Fat. All interlocked by necessity to the Iraq fiasco. Wars always cause recession.

Why else were there so many time-outs and naps taken during the Hundred Years War, captive king or no captive king. The taxed shopkeepers had to conserve thus the merchant bankers had to call in loans from Edward, Richard, and Henry IV. And those were in the good years, before that French hussy showed up to really spoil things.

It's why victorious Britannica in 1945 (realm of the pig farmer and home of the beef) had to live on imported Spam and a thing called snoek for the next 10 years.


Mad Dog:

Heh, I like the Hundred Years' War and 1945 analogies. In fact, Britain very quickly became not so victorious after defeats in Israel, Cyprus, Egypt, Aden and elsewhere. The Suez Crisis alone, when triple-teaming by Egypt with the USA and USSR defeated the British and French, practically destroyed the British Empire. And of course, since the UK was basically living off Spam and snoek as you say, there wasn't a thing the Brits could do about it.

Actually from a historical perspective, the British getting embroiled in that massacre called World War I was if anything the big mistake. The UK could have sat that disaster out while the Continentals pummeled each other, or otherwise just done like in the 7 Years' War maybe and launched naval/colonial operations-- or, at the very least, have pushed an armistice and negotiate peace around 1915 or 1916 or so, which all sides wanted. Status quo ante.

But the British stupidly pushed the war onward desperately seeking a knockout punch-- and they knocked themselves out. The Brits had far more to lose and less to gain than anyone else, but by pushing the war further, they bankrupted themselves (as we are doing in Iraq and Afghanistan, and probably soon Kosovo), lost millions of their best and brightest young Britons as casualties, and helped to launch the Bolsheviks and the Fascists who would do further damage and destroy the British Imperial-led order.

In fact, right after WWI the British were defeated and kicked out of Ireland, and lost in Afghanistan in 1919. The one "gain" was in the Ottoman Imperial territories which were a disaster for the Brits, as they included-- drumroll-- Iraq.

Where, of course, the USA and UK still are mired today. (And in Afghanistan!)

IOW, Britain stupidly got involved in and stayed in a war with little in the way of national interest, lots to lose and little to gain with WWI, and thus destroyed the British Empire effectively as their soldiers fell at the Somme and their country sank into debt. While the USA now sinks into the quagmire of Iraq, ironically itself a country patched together by the British after WWI (and where the British were kicked out of), and where we have little in the way of national interest.

Mad Dog:

In a further irony, a number of my old friends and colleagues in the US tech industry, have been emigrating to Euro countries-- especially to Germany with its own tech powerhouse, or to the Netherlands and Belgium. (Nobody to the UK, Canada or Australia-- with their own debt problems looming, they're if anything miniature versions of the USA these days.)

They get a salary in Euros, send their children to excellent schools without bankrupting themselves on private schools, and have strong infrastructure and transportation. Yes, taxes are higher, but you get something excellent for the taxes. The only hassle in fact is learning German, Dutch or French, which isn't tough for someone surrounded by the language every day.

Plus, they don't have to worry about paying off our $10 trillion plus national debt when the bill comes due. Seems like a nice tradeoff.

"And at a current total cost of $498,185,370,000 dollars, or $275 million per day, or $4100 per American family in taxes, Iraq has been a budget busting disaster for the U.S. resulting in a higher national debt, deficit spending and increased bond sales to Chinese, Japanese and South Korean banks to help bail out the budget mess for the U.S."

I need some help with those numbers, Paul. Maybe a link? Here's one if you are still looking.


BTW, ever wonder why those foreign governments always buy our bonds? And now our private equity? They're not stupid, and they're certainly not in the business of "bailing out" the "budget mess for the U.S".

What are they up to?

Peter F.:

...Iraq once produced 2.6 million barrels of oil a day before the 2003 Iraq War. But since the war, production has often slowed down to around 1.9 million barrels a day, taking 600,000 barrels a day off the world market,...

Um, no. Per the BBC (Dec 14, 2007):

"Iraqi oil exceeds pre-war output"

Iraqi oil production is above the levels seen before the US-led invasion of the country in 2003, according to the International Energy Agency (IEA).

"The IEA said Iraqi crude production is now running at 2.3 million barrels per day, compared with 1.9 million barrels at the start of this year."

"It puts the rise down to the improving security situation in Iraq, especially in the north of the country."

Second, it's an attempt at distortion to say that "production has often slowed down to around 1.9 million barrels a day, taking 600,000 barrels a day off the world market". It's actually a tad absurd to say 600,000 BBL are coming off the market because you're making the false assumption that production levels are constant and never vary. That's simply not true. In other words, if, say, the U.S. produced 13 million BBL yesterday, but only 12.5 million BBL today, then that's 500,000 off the market. It's not indicative of a decline in production; it's simply a variance in production. Now if that continued over the long haul then, yes, it's an issue. But that's not the case. In the end, you've made a meaningless point.

Not only did the Iraq War fail to deliver more oil and cheaper oil as the oil industry had once hoped....

First, where was it recorded that the oil companies "hoped" for this cheap oil scenario? This seems to be an assumption on your part, and not proven fact. Moreover, it doesn't make economic sense. Why would the oil companies want to flood the market with cheap oil? That reduces profits and profit margins; hardly in the interest of an oil company. (Even if it is a 'war for oil' then THIS (what's happening now) is the kind of war the oil companies would want: one that drives up demand due to a reduced supply.) However, that's not the case since Iraq production is back at pre-war levels, then supply really isn't the issue. Even if, say, Iraq up and went peaceful today, it would do little to lessen demand--and I don't know where you get your info about Iraq having 225 billion BBL of undiscovered oil--but even if has this quantum reserve it would do little to affect supply due to Iraq's limited (even pre-war GW 1) oil production capabilities.

I'll give you that the wars are hitting Americans in the pocketbook. High oil prices are contributing inflation, for sure. To the nth degree that you assert? I remain skeptical about that--especially given the random connections you attempt to make between various economic conditions and other market factors not addressed in your post (i.e. China's and India's oil demands, cheap labor, etc.).

I deeply appreciate all of the thought provoking commentary here as witnessed by the nature of the comments generated by my feature. Even if some of these comments do not really agree with my own conclusions, they have brought more information into the discussion of the problems with the U.S. economy, declining dollar, higher national debt, rising oil prices and the continued lagging problems from the budget busting Iraq War.

By the way, HughS. My figures on the Iraq War spending are from www.costofwar.com and are subject to change by the second as Iraq War spending clicks away more dollars every second. But I sincerely appreciate your thoughts here as well, and you are most welcome to comment any time you wish on any of my commentary features. I appreciate the link you offered as well. Thank You.

David Cramer:

Hooson's analysis is correct with the exception of implying that a president from the Democratic Party would change the situation. Both Clinton and Obama have promised to continue spending more on military expenditures than all other countries combined and bringing only "combat" troops home will not end the occupation of Iraq.


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Editors: Lee Ward, Larkin, Paul S Hooson, and Steve Crickmore

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