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Man, was I wrong.

Back on March 19th I blogged a thought about the cost of war: According to past articles I've read about what this war is going to cost, both in military terms and oil infrastructure rebuilding terms, I can't figure how this war is going to cost us any less than $10B.

As you may know, Bush announced his "war budget" proposal last week, which totalled just under $75B. Rumsfeld also stated in the last week that the current "war operations" cost that we have already incurred is in the neighborhood of $30B. I had no idea when I wrote $10B that I would be off by an entire order of magnitude.

Will Iraq's Halliburton-enhanced oil production systems pump enough oil into our SUV's to justify the cost of the war? Read this BBC article from last January. Is my math correct on this? Iraq's high-end estimate of oil production is 6Mbbl/day. At $30/bbl, that's about $174M/day minus transportation and recovery costs, so let's estimate $40M/day in pure profit (that sounds like a healthy estimate--almost a 25% margin). Damn. If the war costs $100B, then the war will pay for itself in 6.8 years. And after the "war debt" is paid off, we'll continue to crank out millions of dollars a day until the oil runs out. Maybe the economics do make sense. Or does it make sense? Can you put a price on people's lives and international ill-will towards our country?

Although the cost of the war is a drop in the bucket compared to the nation's GDP, what many are still trying to grapple is what the cost of the war, fallout from oil prices, and reconstruction/peace-keeping costs will truely end up being. Here's a neat discussion of the topic on Yahoo! Finance: If you multiply the Bush Administration direct cost estimate by 10, however, it would still be less than 15% of (2002) GDP, which was the size of the Korean War's direct costs in relation to extant GDP. In the case of the war with Iraq, however, direct conflict costs could be dwarfed by macroeconomic effects from higher oil prices and the costs of occupation and peacekeeping.

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This page contains a single entry by Robert W. Rose published on April 2, 2003 12:00 AM.

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