Iraq war

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  1. Iraq War
    1. Cost of War (Economic cost to USA)
    2. How the US pays for the war?  More borrowing (weaker balance sheet)
    3. Does War spending stimulate an economy?  NO!
    4. War led to expensive Oil 
    5. How much oil does Iraq have?
    6. How much is that oil worth?
    7. Did the US go to war with Iraq "because of oil"?
    8. Would an end to the war lead to cheaper oil prices? 
    9. What would be the impact of this additional oil?
      1. Impact on Green Business models:
  2. Links to KookyPlan pages

 

 

 

 

Iraq War

 

 

The war in Iraq has led to many unforeseen consequences such as High Oil Prices, and a weakening of the US dollar.  It has led to massive US budget deficits and a loss of US reputation in the world.   The war is obviously a terrible thing in and of itself.  This is not the location to discuss the war itself, but we seek to allow users to use KookyPlan space to discuss the (sometimes strange) connections between global events and everyday business challenges (and opportunities).  Primarily, this space is set up for investors and entrepreneurs to discuss the impact that major events have on their operating environment.   Please feel free to contribute, but keep the comments in line with our overall objectives:

 

 

Cost of War (Economic cost to USA)

 

Before the war, White House economic adviser Lawrence Lindsay estimated the cost at $100 to $200 billion. So the White House got rid of him and "re-estimated" the cost at $50 to $60 billion. It's now over $500 billion (see actual cost here).  But, this only includes the upfront costs, which are mostly handled by "emergency" appropriations. (Iraq funding is apparently still an emergency five years after the war began.) These costs, according to the Washington Post, are now running at $12 billion a month -- $16 billion if you include Afghanistan. By the time you add in the costs hidden in the defense budget, the money we'll have to spend to help future veterans, and money to refurbish a military whose equipment and materiel have been greatly depleted, the total tab to the federal government will almost surely exceed $1.5 trillion.  The Washington Post article then goes on to estimate the true cost of the Iraq War (to the US only) to be over $3.0 trillion dollars.  While this number may be hotly debated, the sheer magnitude gives you something to think about (since it even exceeds the maximum total value of all Iraqi oil...see calculations below)

 

Iraq is not only the second longest war in U.S. history (after Vietnam), it is also the second most costly -- surpassed only by World War II.

 

 

 

How the US pays for the war?  More borrowing (weaker balance sheet)

 

President Bush tried to sell the American people on the idea that we could have a war with little or no economic sacrifice. Even after the United States went to war, Bush and Congress cut taxes, especially on the rich -- even though the United States already had a massive deficit. So the war had to be funded by more borrowing. By the end of the Bush administration, the cost of the wars in Iraq and Afghanistan, plus the cumulative interest on the increased borrowing used to fund them, will have added about $1 trillion to the national debt.

 

 

 

 

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Does War spending stimulate an economy?  NO!

 

Clearly this myth can now be laid to rest!.  Just look at what has happened to the wealth of the US since the Iraq war began (currency diving, economy slow, infrastructure investments ignored),   Economists used to think that wars were good for the economy, a notion born out of memories of how the massive spending of World War II helped bring the United States and the world out of the Great Depression. But we now know far better ways to stimulate an economy -- ways that quickly improve citizens' well-being and lay the foundations for future growth. But money spent paying Nepalese workers in Iraq (or even Iraqi ones) doesn't stimulate the U.S. economy the way that money spent at home would -- and it certainly doesn't provide the basis for long-term growth the way investments in research, education or infrastructure would.

 

 

War led to expensive Oil 

 

Before the war, oil was approximately $30 dollars a barrel.  Now, its over $130.  One of the main factors for this jump has been the war.  The Washington post put it this way: " This war has been particularly hard on the economy because it led to a spike in oil prices. Before the 2003 invasion, oil cost less than $25 a barrel, and futures markets expected it to remain around there. (Yes, China and India were growing by leaps and bounds, but cheap supplies from the Middle East were expected to meet their demands.) The war changed that equation, and oil prices recently topped $100 per barrel."  Well said!

 

 

How much oil does Iraq have?

 

Nobody really knows for sure, but estimates are that Iraq has huge reserves, perhaps much more than previously thought.

 

According to Time magazine:  "a Colorado energy consultancy firm, IHS, stunned some of Iraq's politicians and oil engineers by declaring that the country's oil reserves were about 215 billion barrels — about double the estimates that have held for Iraq for years. That would make Iraq a giant oil power, second only to Saudi Arabia. If the estimates prove true, Iraq's potential would outstrip its other neighbor Iran, which sits atop about 136 billion barrels of oil. The IHS engineers examined 438 undrilled fields and used new technology to recalculate old reservoirs.

 

According to CNN:  "Iraq has a vast and untapped oil wealth, perhaps 100 billion barrels worth. That's enough, industry experts say, to boost world oil supplies and trigger a decline in prices."

 

A new book written by a team of experts provides a field-by-field detailed explication of the thesis that Iraqi oil reserves are substantially greater than previously thought. The proven reserves were officially put at 112 billion barrels in 2007 but the final figure could exceed 300 billion barrels. The proven reserves of the Kurdish region are expected to double within the next two years.

 

Iraq currently produces just over 2 mb/d, down from 2.5 mb/d prior to the U.S. invasion.  The authors believe it could boost production to 3.5 mb/d before the impact of a new oil law is felt.  They suggest that a 1980's-vintage plan to produce 6 mb/d could eventually become realized. source

 

How much is that oil worth?

 

Assuming that they have 200 billion barrels @ todays prices of approx $130 per barrel....the market value is approximately US$ 26,000 billion, ....or $26 trillion dollars worth of oil.   This is more or less the upward estimate of the nations oil wealth (unrealized).  

 

Did the US go to war with Iraq "because of oil"?

 

There were many reasons.

 

But, many people argue that the US just attacked Iraq because they wanted the oil supplier to be free from influence from a "mad-man" (Saddam Hussein).   Could this be true?   If that was the US motivation, then it was done by someone that wasnt very good with numbers.   Prior to the war, the best estimate was that Iraq had 100 billion barrels of oil, and the going market rate was around $30 per barrel, so the total maximum value of that oil was 3000 billion (or $3 trillion).  But, if you look at the more conservative estimates of the total war cost to the US, and your looking at $1.5 trillion, with the Washington Post estimating the total cost over $3 trillion dollars. 

 

 

 

Would an end to the war lead to cheaper oil prices? 

 

The only real source of oil globally that has any potential of suddenly coming onto world oil markets is Iraqi oil.  At this point, its still a long shot that this would happen (too much fighting still on the ground, and too much political instablity), but if you look at countries like Nigeria where there is rebel fighting in the Niger river delta, you can clearly see that total peace is not necessarily a requirement for oil extraction, and its likely that oil will flow more seriously out of Iraq well before a full and final peace is achieved. 

 

Yes, probably if the war were to start receding into memory, and if there could be stability (relative) in the region, there could be more oil produced in Iraq.  The estimates are that Iraq may have more oil than even Saudi Arabia, and much of it is in shallow fields, near to ports, and technically very easy to extract.  Politically, of course, this may not be the case, but if the region were to become relatively stable, then there is a massive potential for huge increases in oil supply globally coming out of Iraq.   Some analysts say that would only take months to a year to bring much of this supply into world markets due to the close proximity to the gulf, and how little investment would be needed (relatively speaking, compared to other oil fields such as "Tupi" off of Brazil, for example). 

 

What would be the impact of this additional oil?

 

Impact on Green Business models:

 

Interesting question:  what would be the effect on "green investments" if the war in Iraq were to suddenly be a success? (war ends, peace in region, and oil business ramps up to full capacity)  

 

High oil prices (partially caused by the Iraq War) have led investors to change their valuations of many Clean-tech investments and have raised billions of dollars to fund research and alternative energy business models.   As the US sought to reduce dependence on foreign oil sources, government incentives have led to massive investments in ethanol and other technologies.  Many green business models that we discuss today were not even considered back when oil was $30 a barrel.

 

If relative stability could be achieved in Iraq, then many experts believe that the massive oil fields could ramp up production quickly, and that oil prices may come down....which would be a big relief for nearly everyone:  except for those daring investors that have made big bets on alternative energy sources.   Interestingly, the big losers of stability in Iraq would be the "green energy" guys that have been pouring billions of dollars into investments in solar, wind, ethanol, biofuels, etc.   These are long-term bets that they are making in alternative energy, but if there were a sudden drop in oil prices, then many of their bets would suddenly fall flat.  

 

Would success in Iraq necessarily lead to failure of clean tech investments?  Add your comments here:

 

 

 

 

 

 

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