Business news : What the world needs now is a war
www.dailytelegraph.co.uk By George Trefgarne, Economics Editor (Filed: 03/03/2003)
On the floor of the Baghdad stock exchange, they are frantically bidding up shares in expectation of Saddam Hussein's removal.
The exchange is only 10 years old, but the betting is that Saddam will soon be history and the Iraqi economy will start to boom. Hotel stocks are in special demand: they could be fully booked for the first time in a decade.
The Baghdad brokers may be novices, but my hunch is they are on to something. As every day goes by, there is a growing economic case to get rid of Saddam. The costs of not having a war now exceed the likely costs of having one.
Indeed, this is one of the principal arguments for an invasion. After all, economic advantage always used to be one of the main motives behind British foreign policy. This is not to negate the importance of human rights or the risk of lives being lost, merely an unsentimental assessment of what is in our legitimate interest.
The world economy is on a precipice and the uncertainty created by the prolonged Iraqi crisis is in danger of tipping it over the edge. A downturn correcting the imbalances left by the 1990s boom was inevitable. But Saddam is contriving to turn this into a recession through his policy of prevarication.
Whatever else is in his armoury, he has fired a weapon of wealth destruction.
Yet The Daily Telegraph's Defence Editor, Sir John Keegan, believes a war is likely to be short. Iraq's conscript army and the Republican Guard are no match for American and British forces.
The most obvious damage caused by Saddam's continued grip on power is disruption to the world oil supply. Last week, light crude touched $40 a barrel in New York, the same level as at the time of the last Gulf war.
The Iraqi crisis has unfortunately coincided with a strike in Venezuela and a severe winter in the north-eastern United States. Traders are stockpiling crude in the expectation that Iraq will only drip oil on to the market over the next few months. Petrol could soon be 80p a litre. As a rule of thumb, every time the oil price rises by $10, it takes half a per cent off world economic growth.
But if and when we attack, Iraq's oil fields must obviously be seized. According to various newspaper reports, special forces have already been detailed to do so. It would be irresponsible not to. According to BP, about two thirds of the world's energy comes from oil and gas. Unless we want to turn the lights off and stay at home shivering, seizing Iraq's "oil weapon" is a prudent priority.
Naturally, France does not share our embarrassment over these things. Reports on the Energy Intelligence wire service say Total-Fina, which is part-owned by the French state, has been in secret negotiations with Baghdad about taking over the West Qurna field from Russia's Lukoil. (Stitching up the Russians in this manner could be a huge blunder from Saddam.)
But if Iraq's oil is secured and the taps fully turned on for the first time since the 1980s, the oil price will plunge. This will give the world economy an instant boost. Defeating Iraq will block the economic wellspring of Arab power and help dry up the millions of dollars that have found their way into the hands of so many terrorist organisations and despots.
It will also weaken Opec's ability to rig the oil price and loosen our dependency on Saudi Arabia.
It's not just oil. Like a desert saboteur pouring sand into a well, Saddam is jamming up the world economy by introducing friction into the system. Everywhere the appetite for risk and innovation is disappearing, to be replaced by despondency and fear. Consumer confidence has fallen to its lowest since 1998, as has business confidence.
According to a survey last week from the research group Martin Hamblin GfK, British consumers say it is the worst environment in which to make a major purchase since the early 1990s. Manufacturing investment has fallen to its lowest since records began in 1965.
By pulling in their horns, individuals and companies are merely behaving rationally. Saddam is cocking a snook at international institutions and undermining the authority of the West. He is subtly jeopardising the foundation on which all economic activity is built - security and the safety of property rights.
Each grain of sand that Saddam sprinkles into the system makes our prosperity more fragile, and people can sense this. If Saddam succeeds in putting off an invasion altogether, every other two-bit gangster will know they can attack the economic order of the West and its citizens with impunity.
In these circumstances, it is hardly surprising that stock markets are in such a lamentable state and the FTSE 100 index is now at half its peak. The market is saying that the outlook for trade, travel, investment and consumer demand is deteriorating.
However, imagine if Keegan and those cheeky Iraqi stockbrokers are right and there is a quick victory. The risks sanding up the economy will be blown away and confidence will slowly return. The oil price will fall. The authority of the West will be safeguarded.
If what happened in the last Gulf war is a guide - when the stock market rose once the shooting started - shares will start to recover. Indeed, there are those who say the rise could be euphoric.
It pains me to say it, but what this economy needs is a war.