Economic consequences of war spelt out
The Commission warned that oil prices could rise as high as $70 a barrel if the war was to drag out for half a year - up 100% from their current levels. (Photo: Notat) EUOBSERVER / BRUSSELS - A surge in oil prices and diminished consumer confidence are the biggest economic dangers to the eurozone economy in the event of a war in Iraq according to the European Commission.
In an extension of its usual quarterly assessment of economic performance, the Commission, set out a number of scenarios, based on past crises, which could occur if military action takes place.
The Commission warned that oil prices could rise as high as $70 a barrel if the war was to drag out for half a year - up 100% from their current price.
Such a rise in oil prices would have a substantial knock-on effect across the economy.
On the basis of past oil shocks evidence suggests that an oil price increase "pushes up inflation, weighs on real income and profitability and depresses consumption" according to the report.
"Past experience shows that major geopolitical crises can weigh heavily on confidence, especially for households." Klaus Regling, Director General of Economic Affairs told journalists.
Household confidence is already low. "[It] has been falling significantly to levels not seen since 1996." Added Mr Regling.
"Stagnation or recession cannot be excluded."
Written by Andrew Beatty Edited by Honor Mahony