U.S. escalation against Iran would carry high cost for global economy

By Jasmin Ramsey | Last updated: Dec 2, 2012 - 9:19:08 PM

Iranian demonstrators burn a caricature of U.S. President Barack Obama during an annual state-backed rally in front of the former US Embassy in Tehran, Iran. The rally marked the Nov. 4, 1979, storming of the building by militant students who held 52 Americans hostage for 444 days to protest U.S. failure to hand over the toppled shah Mohammad Reza Pahlavi to Iran for trial. Gen. Mohammad Reza Naqdi of the powerful Revolutionary Guard, not shown, addressed the rally saying the U.S. must annul the CIA, pull out its warships from the Persian Gulf and dismantle its military bases from 50 countries around the world if it wants to restore ties with Tehran. Photo: AP/Wide World photos

WASHINGTON (IPS) - The world economy would bear substantial costs if the United States took steps to significantly escalate the conflict with Iran over its controversial nuclear program, according to the findings of a Federation of American Scientists’ (FAS) special report released here.

Based on consultations with a group of nine bipartisan economic and national security experts, the findings showed the effects of U.S. escalatory action against Iran could range from $64 billion to $1.7 trillion in losses for the world economy over the initial three-month term.

The least likely scenario of de-escalation, which would require U.S. unilateral steps showing it was willing to make concessions to resolve the standoff, would result in an estimated global economic benefit of $60 billion.

“The study’s findings suggest that there are potential costs to any number of U.S.-led actions and, in general, the more severe the action, the greater the possible costs,” Mark Jansson, FAS’s special projects director, told IPS.

“That being said, even among experts, there is tremendous uncertainty about what might happen at the higher end of the escalation ladder,” added Mr. Jansson, the second author of the report after Charles P. Blair, an FAS senior fellow on state and non-state threats.

The six plausible scenarios of U.S.-led actions against Iran included isolation and a Gulf blockade, which would include U.S. moves to “curtail any exports of refined oil products, natural gas, energy equipment and services,” the banning of the Iranian energy sector worldwide (incurring an estimated global economic cost of $325 billion), and a comprehensive bombing campaign that would also target Iran’s ability to retaliate—incurring an estimated global economic cost of $1.082 trillion.

The report is explicit in not endorsing any particular policy recommendation, although others are not so reticent.

United Against a Nuclear Iran (UANI) and the neoconservative Foundation for Defense of Democracies (FDD) are leading hardline Washington-based advocacy groups arguing for sweeping economic measures against Iran.

“The White House must build on this momentum, intensifying economic warfare in an effort to shake the Islamic Republic to its core,” wrote FDD executive director Mark Dubowitz in June.

Paul Sullivan, an economics professor specializing in Middle East security at Georgetown University, told IPS that, “The fact that the hardest core of the neoconservative ‘strategists’ have not thought through the costs of escalating conflict with Iran is proof of their group intellectual inadequacy.

“The main effects to the U.S. if there is escalation is through the price of oil and increased military and other national security costs,” said Prof. Sullivan, who evaluated the scenarios as an expert but could not comment on the specific figures due to Chatham House Rules.

“If there is an attack on Iran, with the expected counterattacks the price of oil could quite easily go to $250. This could push the U.S. right back into a recession,” he said. The report was released Nov. 16.

As tensions rise over the decades-long dispute over Iran’s controversial nuclear program, analysts are increasingly examining a range of costs associated with escalating the so-far cold conflict between the U.S. and Iran.

The Iran Project Report released in September showed that the cost of Iranian retaliation would be “felt over the longer term” by the U.S. and could result in a regional war.

“In addition to the financial costs of conducting military attacks against Iran, which would be significant … there would likely be near-term costs associated with Iranian retaliation, through both direct and surrogate asymmetrical attacks,” according to the report, which was endorsed by a long list of high-level, bipartisan national security advisers.

The Iran Project report’s findings support the notion that greater escalatory action will result in greater costs—shown in financial terms by the FAS findings: “A dynamic of escalation, action, and counteraction could produce serious unintended consequences that would significantly increase all of these costs and lead, potentially, to all-out regional war,” notes the report.

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