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Global Policy

Global Policy

An American attack on Iraq could profoundly affect the American economy, because the United States would have to pay most of the cost and bear the brunt of any oil price shock or other market disruptions, government officials, diplomats and economists say.

Eleven years ago, the Persian Gulf war, fought to roll back Iraq's invasion of Kuwait, cost the United States and its allies $60 billion and helped set off an economic recession caused in part by a spike in oil prices. For that war, the allies picked up almost 80 percent of the bill. Today, however, as the Bush administration works on plans to overthrow Saddam Hussein, the United States is confronting the likelihood that this time around it would have to pick up the tab largely by itself, diplomats said.

Unless the economic outlook brightens, the government could well find itself spending heavily on the military even as the economy recovers falteringly from last year's recession. Senior administration officials said Mr. Bush and his top advisers had not begun to consider the cost of a war because they had yet to decide what kind of military operation might be necessary. Whatever choice is made, experts say, the costs are likely to be significant and therefore may ultimately influence the size, scale and tactics of any military operation.

Already, the federal budget deficit is expanding, meaning that the bill for a war would lead either to more red ink or to cutbacks in domestic programs. If consumer and investor confidence remains fragile, military action could have substantial psychological effects on the financial markets, retail spending, business investment, travel and other key elements of the economy, officials and experts said.

If oil supplies are disrupted, as they were during the 1991 gulf war, and prices rise sharply, the economic effects would be felt in the United States and around the world. All of that could present a complicated political problem for President Bush,...