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Iraq War Effect on US Economy

The ongoing US-led aggression in Iraq started in March 2003 upon the initiation of US President Bush, together with then UK Prime Minister Tony Blair, Spain PM Jose Maria Aznar and other domestic and foreign supporters. The Iraq Invasion was launched behind the rationale presented by Bush and his allies that Iraq possessed weapons of mass destructions (WMDs) – both biological and nuclear – that shall post a threat against US security and as well as world security (Bush).

Another justification for the war is the 9/11 incident, wherein Iraq was suspected to be the hiding place of the terrorists responsible for the suicidal attacks, the Al Qaeda. Though the Iraqis claimed that they have stopped developing WMDs since 1991, and there were no evidences found that such weapons were developed and kept under the Iraqi territories, the US and their allies still pushed on the aggression.

And even though they weren’t able to establish a concrete proof on the presence of relationship between the Al Qaeda and the Iraq government, the war still broke out and until now, it has continued to savage the Iraqi territory and strip them off their economic and political opportunities outside the influence and impositions of US and their allies (Intelligence and Analysis on Iraq…). And consequently, the ignition of war in Iraq, quickly escalated as a “war against terrorism” and eventually, the US proclaimed several opponents aside from Iraq – North Korea and Afghanistan – naming them the “Axis of Evil.

” This aggression in Iraq has most likely anticipated to have effects on the US economy. Historically, every recession that has been experienced by the majority of nations were directly or indirectly attributed to oil politics, terrorism and occurrence of wars (Nordhaus, 73). The invasion of Iraq, will eventually lead to the increase in the price of oil and such increase shall greatly affect the US economy.

And Iraq, being the fifth largest source of oil imports for the US, any disruption in the supply of oil resources coming from Iraq will cause major increase in the oil prices (Gongloff). In addition, analysts fear the possibility of the war being used by Hussein’s administration to manipulate oil reserves and increase crude prices at the highest possible by sabotaging oil lines coming from Saudi Arabia, Kuwait and United Arab Emirates. And if this happens, oil prices are expected to soar to as high as $50 per barrel (Gongloff).

Moreover, aside from the oil-market costs of war, it is also anticipated to have a broader economic impact which is associated with business cycle, and its effect on the economy of defense and government spending as well as its psychological effect in consumer spending pattern (Nordhaus, 73). On the lighter side, wartime serves as an avenue for economic expansion. Wartime booms are comprised of the increased military and defense expenditure, which are translated as a type of government spending, (Nordhaus, 74) thus increasing the Gross Domestic Product of US, and GDP, being an integral gauge of economic prosperity for them.

However, on the down side, the war is also anticipated to have a great effect in the consumer’s spending pattern. As seen during the previous wars that America has gone through, consumers exemplified what they called the “CNN Effect”, wherein consumers were more likely to stay at home watching and monitoring the events of the war, thus keeping them out of the malls and other commercial areas making consumer spending less.

This in turn shall become detrimental to the US economy since consumer spending is viewed as to comprise two-thirds of the their total economy (Gongloff). These psychoeconomic reactions to the war can drive stock prices down, create a decline in exchange rate of the dollar thus increasing inflation which can at times be associated with decline in asset prices, and push consumer sentiments higher. These consumer sentiments in return shall depress investments and decrease the consumer spending patterns locally and nationally (Nordhaus, 79).

Though, at the end of the war, where Americans have long expected them to prevail, invasion of the Iraqi territory shall also mean invasion of their rich natural resources. Thus, if the US comes triumphant off the war, they shall be able to control the large oil reserves of the Iraqi territory, which then would seem profitable for their economy. The Iraq oil reserves on the idea of being put under the regulation of the US and the UN, it is perceived that world oil prices shall go down and become more regulated than the usual.

Moreover, the aftermath of the war shall open an opportunity to the US for a higher government spending rate in terms of the restructuring and assistance that shall be rendered to the war devastated areas. But more so, even though the occurrence of war might open up possibilities and opportunities to US economy, nevertheless, war economy is still detrimental to every society. Ruining establishments accumulated for decades of years in just a few seconds and high spending in military ammunitions are only few of physical loss in a warfare.

The most important economic loss in any aggression is the loss of human capital which is always essential to the growth of an economy and society, which unfortunately, have been overlooked and underestimated at the course of war.

Works Cited

Bush, George. Speech (President Bush Outlines Iraqi Threat). 7 October 2002. Gongloff, Mark.. “Iraq Attack Would Hit Economy. ” 3 September 2002. CNN Money. 20 November 2007

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