Impending Iraq War Hurting U.S. Economy

ByABC News
January 27, 2003, 3:53 PM

Jan. 27 -- Whether you look at the falling stock market, the sharp rise in the price of oil, or the nose-dive in consumer confidence, just the prospect of war with Iraq is hurting the American economy.

The specter of war has injected a paralyzing dose of uncertainty into the economy. Businesses have put spending and hiring on hold. Investors are afraid to buy stocks. Consumers are buying less and saving more.

Most economists assume that once war breaks out and it is clear U.S. forces are overwhelming Iraq the uncertainty would ease and the economy would improve. But they know that's a risky assumption.

"The only thing you can be sure of in a war is that there'll be surprises. There will be unintended consequences. If they adversely affect oil, then they will adversely affect the American economy," said economist Robert Hormats.

Oil Disruption Will Cost Consumers

Twenty percent of the oil imported by the United States comes from the Middle East, and any disruption of that supply would come at a great cost to consumers and businesses.

Iraq could burn its own oil fields or damage oil fields in Saudi Arabia and Kuwait, two critical American suppliers.

If the United States secures the region's oil fields, analysts say oil prices should fall dramatically.

Stock traders will also be fixated on oil and expect a dramatic rebound in stock prices if the war goes well.

"The quicker the U.S. succeeds in overwhelming the Iraqis without damage to oil facilities in the region, the quicker we'll see a big improvement in the stock market," Hormats said.

Consumer spending is also likely to be disrupted by the outbreak of war.

But just as consumers quickly returned to normal spending habits in the aftermath of the Sept.11 attacks, economists expect a similar reaction this time.

If the U.S. military occupies Iraq for years to come, most economists say those costs alone would not be enough to make a dent in the $10 trillion American economy. But they do worry about rising deficits, especially now that the president has proposed a $670 billion tax cut.