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The Cost of War in Iraq: A Checklist

What are the likely long-term costs for the war in Iraq?

March 24, 2003

What are the likely long-term costs for the war in Iraq?

During the many months leading up to the invasion of Iraq, the Bush administration avoided the question of paying for the war. Donald Rumsfeld, the U.S. Secretary of Defense, claimed that estimating the cost of the war was too difficult.

On March 6, 2003, during his evening news conference, President Bush was asked why — if the Defense Department has costed out various scenarios for the war against Iraq — the Administration could not present some of them to the American people? The President said the administration would ask Congress for supplemental funding in the event of war — which, in fact, it did.

Part I: Government costs

Part II: Costs and benefits

An Internet reader

In other words, after the war was initiated and it became too late to influence planning or to change course, the Administration presented Congress with a bill.

It's a bit hard to believe that the Administration could not have been more forthcoming. The U.S. Constitution, after all, requires that spending be sought from Congress — and the numbers made public. Doing so in a timely fashion — that is, before additional costs materialize — seems logical enough.

In fact, Article I, Section 9, Clause 7 of the Constitution states: "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time."

Nor is it necessary, as the administration currently claims, to always be precise in estimating future costs. Members of Congress would certainly be open to rough estimates and ranges.

They understand that budget estimates change all the time — that is the nature of budgeting. It is not an exact science. Even so, just like in ordinary households, it is wise to draw up a budget before running up bills.

Could it be that the administration did not want to be pinned down to numbers that could change?

More likely administration officials did not want to introduce another place to debate the wisdom of going to war — especially as the budget for the next fiscal year was still being settled.

That would have required owning up to the American people that a combination of tax cuts and major defense increases were going to play havoc with the U.S. budget deficit.

And, of course, budget officials had the example of (now ex-) Bush economic adviser Lawrence Lindsey to ponder. He was sharply criticized within the administration for suggesting that the war against Iraq would cost between $100 and $200 billion.

U.S. Defense Secretary Rumsfeld suggested that such a costing exercise is not useful — and simply too hard. "The problem we have," he said, "is that anyone who tries to go to a single point answer has to have made a series of judgments about a set of six to eight variables."

"And he has to,” Mr. Rumsfeld continued, “in his mind, decide, well, this is how that variable is going to be decided — and therefore, I can come to a single point answer. I’m not deft enough to take six or eight working variables…."

Before the shooting started, Deputy Defense Secretary Wolfowitz told the House Budget Committee that various scenarios would result in a costs which would "range from $10 billion to $100 billion." Of course, it is not at all clear why the start of the war would suddenly make it possible to provide accurate budget estimates. But, in any event, that is what happened.

But the Bush administration never had a monopoly on budget expertise. While they delayed, other analysts — in the private and public sector — came up with their own numbers. In many cases, these estimates are substantially higher than the administration's figures.

While admittedly a highly uncertain undertaking, making a rough outline of likely costs seems a prudent step. It can help the consumer (in this case, the U.S. taxpayer) understand how big the bill will be — when the administration finally gets around to presenting it.

Here's a checklist of likely costs, using estimates from a variety of sources. The first part covers costs likely to be incurred by the U.S. government — and, perhaps, key allies like the UK — and paid for out of defense and international affairs budgets.

The second part covers the indirect costs and benefits to the economy — and the government’s budget — from going to war.

Incidentally, one might think that its nearly $400 billion annual budget should allow the U.S. Defense Department to cover the costs of war against Iraq.

But the defense budget only pays for "readiness." That is a military concept that captures the degree to which the U.S. military is properly prepared to provide for the national defense.

As soon as the first bomb is dropped, the level of readiness falls — because there are fewer bombs available in the stockpile. Additional spending is then required to restore readiness to its original level.

$50-to-$95 billion (for a "short war")

Studies by the Congressional Budget Office (CBO) and staff of the House and Senate Budget Committees all suggest that the United States could fight a "short war" against Iraq for about $50 billion.

CBO estimates that sending troops and equipment to Iraq would cost $14 billion. The bill for the first month of combat would be about $10 billion — and $8 billion per month thereafter. And then, another $9 billion would be needed to bring the troops home after the end of hostilities.

The U.S. Defense Department, however, has been reported to estimate a $60-to-$95 billion price tag. Officials at the Office of Management and Budget are said to be pushing for a cheaper estimate.

Obviously, if war drags on for any reason beyond a few months, costs will start to add up beyond these numbers.

$6 to 26 billion

Prior to the actual outbreak of the war, there was talk of a "coalition of the wanting" or "coalition of the billing" — rather than the phrase “coalition of the willing,” which the Bush Administration prefers. Either way, entering into an alliance with the United States nowadays seems to hinge on promises of assistance. Countries that may benefit include:

    1. Turkey: Zero for now. But the administration was discussing $6 billion in grants and several more billions in loan guarantees in return for use of Turkish bases before the Turkish Parliament voted against getting involved.

    2. Middle Eastern allies: The Bush administration is likely to provide more economic and military aid to other allies such as Israel, Jordan and Egypt, in return for their cooperation in pursuing the war.

    3. Angola, Guinea, and Cameroon: Before the UN Security Council vote was scuttled, there was much talk about pledges of assistance to key voting nations. The administration may now be discussing "sweeteners" for countries that join the anti-Iraq coalition.

$10-$30 billion

Pre-positioning of food and medicines, in anticipation of refugee crisis, is being done by the U.S. government in coordination with the UN and NGOs in the relief community.

A 60-person "DART" (= disaster assistance response team) is being dispatched to work in Kuwait, Turkey, Jordan and Qatar. The pre-positioned supplies include such items as 3 million humanitarian daily rations, stockpiled blankets, water containers and medicines.

Representatives of the leading U.S. and UK refugee and humanitarian NGOs , however, suggest that not enough is being done to prepare for massive food programs and hundreds of thousands of refugees and displaced people.

    1. Food: Many Iraqis now rely on rationed food from the oil-for-food program in order to survive. Extra rations were issued in recent months. Nonetheless, food could be urgently needed once the invasion starts — if Iraqi distribution networks are disrupted.

    2. Refugee assistance: Estimates of the number of refugees range from 500,000 to 2 million. The UN High Commissioner on Refugees (UNHCR) is reported to be planning on 900,000. There are also likely to be large numbers of internally displaced people.

    3. Threats to health and environment: Brookings Institution defense analyst Michael O'Hanlon breaks down likely casualties this way:

    U.S. troop losses: 100-5,000 (number of wounded three or four times larger)

    Iraqi troop losses: 2,000-50,000

    Civilian deaths: could be tens of thousands

    A major concern is that Iraqi leaders will use weapons of mass destruction against the Iraqi people or others. Humanitarian organizations lack the skills and equipment to handle the challenge of decontaminating large numbers of people, should chemical or biological weapons be used.

    There is an additional fear that Iraqi oil wells are being rigged with explosives and will be torched — similar to how Kuwaiti oilfields were burned a decade ago. In a worst case scenario, the military might have to deal with major environmental and health disasters.

    4. Military role in humanitarian aid: The Administration is counting on UN and private relief agencies to do most of the relief work. However, if these agencies cannot shoulder the burden of a potentially massive crisis, the U.S. military may be expected to do relief work. While admittedly well organized and fast-moving, use of the military for this type of work can also be incredibly expensive.

$12-to-48 billion/year

The administration says that reconstruction planning has been going on for months across all relevant agencies. CBO estimates that a U.S. occupation of Iraq would cost the United States between $1 and $4 billion per month — depending on how many Americans are involved relative to participants from other countries.

A task force of the Council on Foreign Relations estimates the cost at $20 billion per year for several years. Here are some key costs related to occupation and reconstruction:

    1. Military Occupation: General Shinseki — the Army Chief of Staff — suggested that as many as 200,000 troops would be needed. Deputy Secretary Wolfowitz called this estimate, "way off the mark." But some experts think Shinseki is in the ballpark. Whatever the initial number, it is likely to decrease over time — with perhaps 50,000 U.S. troops staying into a second year.

      a. U.S. and allied troops: This includes all the extraordinary costs of transporting them to and from and supporting them during their stay in Iraq — including building U.S. military bases.

      b. Iraqi troops: The United States may need to pay the salaries and see to their welfare.

      c. Weapons of mass destruction: It will almost certainly be necessary to spend a considerable sum on discovering and destroying Iraqi stockpiles of biological, chemical and nuclear materials — since that is the stated primary reason for the war.

    2. Reconstruction: President Bush has said that "rebuilding Iraq will require a sustained commitment from many nations, including our own." The keywords here are "many nations" and "sustained."

    In Afghanistan and Kosovo, the United States has expected other countries to take the lead in reconstruction — after U.S. troops played the lead role in the military assault.

    Following these and other crises, Americans have shown a propensity to lose interest quickly after U.S. troops leave. Or, as President Bush vowed, "We will remain in Iraq as long as necessary — and not a day more." The following areas might need reconstruction:

      a. Infrastructure: This includes rebuilding schools and houses, providing water, power and sanitation, repairing roads, railroads — and, possibly, damaged oilfields and pipelines.

      b. Economic system: Iraq will almost certainly need assistance to rebuild a modern system of taxation and budgeting, to stabilize its currency and to resolve debt and reparations obligations.

      c. Political system: Money will be required to pay the salaries of the Iraqi civil service, to create a functioning judiciary — and to take other steps to help Iraq move from dictatorship to democracy.

      d. Security: In order for the military to depart, some degree of stability will have to be restored to the country. Peacekeepers and civilian police will be needed, particularly to prevent outbreaks of ethnic conflict.

      e. Diplomacy: the United States will want to restaff its embassy and aid mission in Baghdad.

    1. Homeland Security requirements: Most commentators fear that the Administration has under-budgeted for the costs of protecting Americans in the United States from the threat of terrorist attack. While some key al Qaeda terrorists have recently been captured, there is a concern that the outbreak of war will lead to reprisals.

    2. Veteran's benefits: War also has a longer-term budget impact on veterans spending. In particular, it increases the number of veterans with disabilities — and increases the cost of veterans eligible for education benefits. In 1991, the first Bush Administration estimated that the long-term cost of Desert Storm on benefit programs, such as veterans education, was $3 to $4 billion over many years.

    3. Interest on government debt: The administration has certainly not proposed raising taxes to finance war with Iraq. It will therefore be required to pay for the war by borrowing. The additional interest payments over the coming years are an additional expense that must be reckoned with.

    1. Oil prices: A short and successful war might actually result in lower oil prices — should Iraqi oil production increase. Most experts, however, predict oil prices will rise in the short term. Some economists predict a 90% spike in oil prices at the start of the war. Despite the initial decline, prices are likely to stay high — if the war continues for any length of time. The lower economic growth is a cost paid by the entire U.S. economy — and the lower tax collections are a cost to the federal government.

    2. Unsettled financial markets: Already, much economic activity is "on hold", while investors and business people take a wait-and-see attitude to the war. While the onset of war will not surprise investors, continuing uncertainty about the outcome can lead to higher prices.

    A swift victory might actually have a positive effect on the U.S. economy. Columnist Robert Novak thinks this may be motivating the Bush team. "Military victory is anticipated inside the Bush Administration as the tonic that will prompt corporation officers and private investors to unleash the American economy’s dormant power," he writes.

    "Although it is impolitic to say so, the fact that the United States will be sitting on a new major oil supply will stimulate the domestic economy."

Up to $60 billion

    1. Iraqi oil: Deputy Defense Secretary Wolfowitz claims that Iraqi oil exports could raise between $15-20 billion per year. Unfortunately, the rest of the Iraqi economy is already in shambles. Defense expert Gordon Adams predicts that oil revenues are unlikely to cover all post-war costs. He argues that they will instead be needed to modernize the infrastructure used to produce and export the oil and to repair the electricity network.

    2. Tin cup: During the first Gulf War, other countries paid the lion's share of the cost of the war, covering 80% of that war's $61 billion price tag — the equivalent of $80 billion in today's dollars. This time around, the extent other countries can be expected to chip-in is questionable. Even those countries that oppose the decision to go to war, however, may chip in to help cover some of the costs of reconstruction.

    3. Friendlier neighborhood: Other small savings would come from shutting down the UN peacekeeping mission along the Iraq-Kuwait border — and discontinuing the no-fly zones in northern and southern Iraq. With a new, less-threatening government in Baghdad, these peacekeeping missions would no longer be necessary. These savings, unfortunately, are “peanuts” compared to the cost of running an occupation.

In defending the administration's failure to estimate the cost of the approaching war, President Bush suggested that the costs of a terrorist attack on the United States — or the benefits from a successful war against Iraq — should also be considered. But they are obviously difficult to measure. "How do you measure the benefit of freedom in Iraq?" he asked.

Indeed, such an intangible benefit is hard to measure precisely. But by the same token, one must also ask: What is it worth to have healthy and functioning alliances?

A NATO organization that brings together former enemies — and helps preserve peace in Europe? A United Nations that pursues a spectrum of U.S. interests?

As Celeste Johnson Ward, the Center for Strategic and International Studies analyst, notes, the upper limit on potential war costs can be "as expansive as one's assumptions and time frames." Given the very, very rough ranges we have used above, the original estimate of $100-to-200 billion — provided by Larry Lindsay, the President’s former economic adviser and coach — does not seem unrealistic at all. His flaw may have been to speak the truth.

Where does all of that leave us? President Bush has also said that "the price of doing nothing exceeds the price of taking action if we have to."

He may also believe that no cost is too high to bring down Saddam Hussein. The American people have the right to make that judgment for themselves — after all, they will end up footing the bill.