Total cost of Iraq war hinges on oil question

NEW YORK - “It’s all about the oil!”

Remember that claim in the run-up to the Iraq war five years ago? In retrospect, “blood for oil,” the siren cry of the prewar left, ranks right up there with Vice President Dick Cheney’s assertion that American forces would be “greeted as liberators” in terms of analytical folly.

Yet, in at least one respect, the Iraq war really is all about oil. The debate raging among economists and academics today over the actual cost American taxpayers ultimately will bear pivots on the oil question.

Specifically, how much of the current record price of a barrel of oil can be attributed to the war? Depending on how that question is answered, the Iraq war can be portrayed either as a relatively inexpensive episode in historical terms, or a conflict of ruinous proportions.

The debate over cost comes with a lot of complications and caveats, as well as accusations of political bias. But on some things, both sides agree. For instance, most projections assume that American troops will remain in Iraq for at least another decade.

They also agree on the easiest figure to peg: the actual budgetary outlay by the U.S. government so far. The Congressional Budget Office (CBO) reported last fall that $368 billion already had been spent on the Iraq war plus another $45 billion in benefits for the wounded and survivors of those killed in action.

Dueling projections
But the two camps diverge quickly on the topic of future spending. Simply put, here’s how the debate breaks down:

On one side are economists, backed by those in the nonpartisan CBO and not surprisingly favored by the White House, who believe the war will cost $1.7 trillion through 2017.

On the other side are economists, led by Nobel laureate and Clinton administration adviser Joseph Stiglitz, who calculate that the real figure is more like $3 trillion and that in some scenarios it could be considerably more.

Stiglitz, co-author with Harvard economist Linda Bilmes of "The Three Trillion Dollar Conflict: The True Cost of the Iraq War," says projections below $2 trillion are not taking into account a number of collateral issues. One cost, known as “resetting” the U.S. military, for instance, will take a decade at least to sort out — replacing the huge amount of equipment and talent worn out or lost in the fighting.

Another large burden recognized by economists on both sides of the debate but not much discussed is homeland security. Iraq was fought on the theory that “the best defense is a good offense,” says Robert Hormats, vice chairman of Goldman Sachs International and author of "Paying for Liberty: The Price of America’s Wars." Because of the Iraq war, he said, the United States has failed to take many needed defensive measures, such as strengthening port security and hardening nuclear plants.

Over a barrel
But the largest difference between the two camps remains the impact of oil. When the United States led its invasion of Iraq in 2003, the price of a barrel of oil was around $25. Five years later, the price of a barrel of oil is well over $100.

“We believe, and I believe experts will agree, that the war is one of the factors contributing to the increase in the price of oil,” says Stiglitz. “And the increase in the price of oil is one of the factors contributing to the weakening of the economy."

Few would argue with that assumption. But how to judge the impact of rising oil prices over the next 10 years is highly contentious. How important was the loss of Iraqi production in 2003 compared with the steep rise in demand for oil from fast-growing economies in China and India? Or OPEC’s unwillingness to significantly increase output or capacity? What about America’s  unwillingness to seriously address its inefficient consumption habits?

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