How Bush Got Iraq War Cost Wrong
by Martin Sieff - 26 January 2005
President George W. Bush is spending the political capital of his decisive re-election just as he said he would. But he is being forced to spend it where he least expected -- to fund the soaring, ongoing costs of the endless war in Iraq with no end in sight.
On Wednesday Bush took to the forum of a news conference, a format he clearly loathes and avoids more than any other president in modern U.S. history, to make the case for an additional $80 billion to fund the war over the next fiscal year alone. By the White House's own estimates, that will boost the soaring annual federal budget deficit for 2005 to $427 billion, the greatest in U.S. history.
It was not supposed to be this way. The liberation of Iraq was to have been the war that paid for itself in spades and gave U.S. corporations the inside track on the greatest energy bonanza of the 21st century. Instead, it has become a fiscal nightmare, a monetary Vietnam that already accounts for around 15 percent of the annual U.S. budget deficit, a figure likely to only grow remorselessly into the unforeseeable future.
One of the most comprehensive analyses of the war's costs was published in December by Anthony Cordesman of the Center for Strategic and International Studies. He projected the cost of the war to the end of 2004 at $128 billion plus unfunded future equipment replacement, upgrades and major maintenance of $5 billion to $10 billion. By the end of 2005, Cordesman concluded, that figure would soar to $212 billion to $232 billion, again without including equipment maintenance, upgrades and replacements. By the end of 2007, even assuming the war does not spread or get dramatically worse than it currently is, Cordesman projected its cost at $308 billion to $328 billion.
How did it get so bad? In financial terms it should have been a sure thing. The Energy Information Administration records that Iraq is believed to have the second-largest reserves of high-quality, easily accessible oil in the world -- more than 112 billion barrels.
In the run up to the 2003 U.S.-led conquest of Iraq to topple its dictator Saddam Hussein, conferences and studies commissioned by hawkish conservative think tanks in Washington debated and prepared models for privatization of the Iraqi oil industry with, of course, major U.S. participation.
A Heritage Foundation study by Ariel Cohen and Gerald O'Driscoll argued, "The Bush administration should provide leadership and guidance for the future Iraqi government ... (including) a massive, orderly and transparent privatization of state-owned enterprises, especially the restructuring and privatization of the oil sector." Commented John B. Judis in The New Republic on Jan. 20, 2003, "The study has been well-received by administration neo-conservatives."
Neo-conservative pundits with equal faith and fervor argued that Iraqi oil revenues would finance the country's own reconstruction after the war and that they could even be used to offset some U.S. military operating costs, surely a cheap price to pay for liberating the Iraqi people from Saddam's terrible yoke. But it hasn't worked out that way.
The cost of the war itself rapidly exceeded previous public projections from the office of the secretary of defense. At an April 16, 2004, news conference, then-Pentagon comptroller Dov Zakheim acknowledged that the cost of the war to that point came to $10 billion-$12 billion. But the cost of returning troops to base would be another $5 billion-$7 billion, plus another $9 billion for the 3 1/2 weeks of combat operations, bringing the total cost at that point to between $24 billion-$28 billion. Since then the continued cost of occupying Iraq and of the continued pacification and counter-guerrilla operations mounted there has been widely estimated at around $1 billion a week.
Combining these two figures -- the Pentagon's own admitted costs of the war and the generally accepted cost of occupation operations, the costofwar.com Web site has estimated the cost of the war for the fiscal year after it took place at $76 billion. Far from being a windfall to the U.S. economy, the Iraq war has already proven itself to be a ball and chain around the economy's neck.
What happened to the vast oil-production bonanza that was going to flow from Iraq? It hasn't happened, and quite possibly never will. No one doubts the oil is there. But what the war planners and energy strategists never factored into their considerations was that, far from welcoming the U.S. Army and Marines as their liberators, the Iraqis -- Sunni and Shiite alike -- might resent any continued U.S. military occupation and very quickly make it too hot to handle, which is exactly what has happened.
The Pentagon hawks and their favorite energy strategists also turned out to have no strategy for rebuilding Iraq or maintaining security in the oil fields and pipelines running from them.
First, they assumed an almost bloodless march to Baghdad instead of three weeks of high-speed and utterly successful, but still heavy, fighting. Collateral damage to oil facilities was considerably greater than anticipated.
Second, and far more important, the grand strategy, insofar as there was one, anticipated an orderly takeover of occupation duties by an undersized U.S. military force that could rapidly be half evacuated. This plan ignored the warnings of Army Chief of Staff Gen. Eric Shinseki that hundreds of thousands of U.S. troops would be needed to ensure security in Iraq, including the security necessary to rebuild and operate the country's oil industry. Deputy Defense Secretary Paul Wolfowitz even hung Shinseki out to dry publicly for making this estimate. But since then he has had to swallow crow.
So far, no significant amounts of Iraqi oil have been produced for world markets since the war ended. Therefore Iraqi oil exports, which were running at 2.6 million to 2.8 million barrels per day before the war began in March, have now further dropped.
Further, U.S. planners never anticipated the rapid emergence of a nationwide guerrilla war against the U.S. occupation, which is resulting in about one U.S. soldier killed per day. And as part of this guerrilla war, sabotage operations against oil pipelines are already widespread. Even with 140,000 U.S. troops in Iraq, they are spread far too thinly to aggressively fight the guerrilla war, lock down Iraq's borders with Iran and Syria and protect the oil facilities and pipelines at the same time. Furthermore, the troops currently deployed are not trained in police tactics.
In the meantime, the supposed "macro-economic" benefit of "liberating" Iraqi oil for the world market not only has not happened, precisely the opposite has occurred. Iraq is now in a far worse position to export either crude or refined oil to the world markets. As a result, the continuing effect of the war has been to strengthen the market position of the three leading global producers, Saudi Arabia, Russia and Iran, while keeping global energy prices relatively high and thereby adding a further burden to the U.S. annual balance-of trade-deficit, already by far the largest of any country in world history.
And even if Iraqi oil finally starts to flow under optimum conditions, the total amount of revenue realistically projected from it would do no more than balance the already horrendous costs of the U.S. occupation.
John Cassidy made the relevant calculations in the July 14 issue of The New Yorker. He wrote: "Assuming that oil prices hover around twenty-five dollars a barrel, which is in the middle of OPEC's target range (twenty-two to twenty-eight dollars a barrel), a resurgent Iraqi oil industry producing six million barrels of oil a day for export would generate about fifty-five billion dollars a year in revenues."
But the cost to the United States of occupying Iraq is already running at between $52 billion to $78 billion a year on the U.S. government's own projections. And even if none of that $55 billion went to offset the costs of U.S. occupation, divided among the 30 million people of Iraq, it comes to, as Cassidy wrote, "about five dollars per person per day -- enough to place Iraq above the World Bank's global poverty line of two dollars a day, but not by very much."
Thus, the escalating woes of Iraq and the soaring costs of the war have boosted the Organization of Petroleum Exporting Countries and imposed huge additional budgetary strains on the United States at the worst possible time -- precisely the opposite outcome from the confident predictions the war's champions so loudly and repeatedly made.
No wonder the president felt the need to brave a press conference Wednesday to try and convince Congress and the U.S. people to give him that extra $80 billion.
Martin Sieff is a UPI Senior News Analyst
- World Peace Herald (26 January 2005)