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Last Updated:  Tuesday, 4 March, 2003, 13:52 GMT
Q&A: The cost of war
As a war with Iraq looks increasingly likely, BBC News Online examines the potential cost to the UK economy

Do we have any real idea how much a war with Iraq will cost?

The short answer is no.

Chancellor Gordon Brown has already almost doubled his provision, to �1.75bn.

But economists are a lot more gloomy. The International Institute for Strategic Studies (IISS) has suggested �3.5bn is a more likely price tag.

But that's just for the actual conflict, which they are estimating will last a maximum of six weeks.

That's before the cost of getting the country back into shape.

You mean there'll be more to pay once it's over?

Absolutely. The cost of a short conflict is relatively easy to absorb.

Jonathan Loynes, an economist at Capital Economics, says the government's own forecast error for its budget is �10bn, meaning the war itself could be absorbed relatively easily.

What's less easy to quantify is putting some sort of US regime in place to keep the peace and the cost of restructuring Iraq.

The IISS estimates this could double the cost of the conflict itself.

Why should we have to pay for that?

It's unlikely that the UK would have to absorb all these costs.

The US would probably be the main fund for stabilising Iraq, but the IISS has estimated that this could cost over $60bn in total, when taking into account a peace keeping force and the price of rebuilding any infrastructure.

Even paying a small proportion of these costs will severely increase the UK's war spend.

The projections are based on a six-week conflict. What happens if it continues much longer?

Once all the troops are out there, the cost depends very much on the type of fighting.

If it is urban ground warfare, the costs in human terms will be much greater than the financial implications.

But Mark Stoker, a defence economist at IISS, says even basic logistics such as water supply can vastly push up running costs.

Why are the costs so much higher than in the last Gulf war of 1990 to 1991?

In the previous conflict, 90% of the UK's costs were met by allied countries that didn't send troops.

This will not be the case this time.

Mr Stoker suggests the US may donate something towards the UK's funds, but warns that it is unlikely we would ever find out about this.

Where are we going to get the money from?

Essentially, from nowhere. The UK Government will just add the cost to its public sector debt.

There is a chance that longer term, however, spending in other areas such as the public sector will be cut.

Won't we be better off, because of all those lucrative oilfields?

In the long term, western allies may have some control of the oil reserves.

But this depends on them not being destroyed during the conflict, deliberately or otherwise.

After the conflict in Kuwait, for example, it took two years to restore oil supplies.

If the US and UK do gain some control of Iraq's oil assets, it will be a very long time before they are properly converted.

Mr Stoker estimates this could take up to five years, during which time the prices would remain unsteady.

Isn't there any good news? Surely the economy will benefit from the end to speculation about when or if a war is happening?

In the short term, yes.

"There's every chance we'll see a knee-jerk reaction in world financial markets with the clearing away of uncertainty," Mark Stoker says.

However, it is not just the threat of a war with Iraq that has been holding up the UK economy.

It has been struggling since the bursting of the equity bubble in the late 1990s.

"The global economy has been weak for the past two or three years," says Capital Economics' Mr Loynes, which he describes as the "hangover" from the 1990s.

And he suggests that far from masking those economic difficulties, the Iraqi conflict has exacerbated them.

Capital Economics are forecasting a 1.8% growth in the UK economy this year, taking the war into account, and 2.25% growth next year.

But Mr Loynes says there remain "other big questions to be resolved" such as the possible end to the housing boom and a slowdown in consumer spending.

The answer?

"I think the bank [of England] should stand ready to cut interest rates again."


SEE ALSO:
Britain boosts war chest
12 Feb 03 |  Business
Brown offers war 'blank cheque'
04 Mar 03 |  Politics


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