The real cost of regime change Australian Financial Review 7 November 2002. In this piece from three months ago, I prognosticate a bit, estimate the costs of a war and look at some of the more dangerous postwar options

The big danger is that the US will seek to use Iraqi resources to offset the costs of the invasion, thereby turning a war of liberation into an old-fashioned war of conquest. Lawrence Lindsey, economic advisor to President Bush has argued that a conquered Iraq could be induced to expand oil production and drive down the world price. The resulting savings in import bills would, he suggests, more than offset the cost of the war.

New York Times columnist William Safire has voiced a more extreme scenario circulating within the administration. A ‘democratic’ Iraqi government would, he asserts, repudiate Iraqi debts to, and contracts with, countries such as France and Russia that had failed to back the US with sufficient vigour and instead contract on favourable terms with the US and its allies.

Leaving aside the dangerous political implications, the economic consequences of these proposed policies would be disastrous. An expansion of Iraqi oil production would take years to organise. In the interim, OPEC would have every incentive to drive the price of oil to $40 a barrel and beyond.

The idea of debt repudiation is even worse. The US is not only the world’s financial centre, but the world biggest debtor nation, with gross obligations running into the trillions. The suggestion that a US-controlled government should repudiate debts to score political points casts doubt on the credit of all debtors, not least the US itself. If a US invasion goes ahead, and this suggestion has not been scotched, holders of US government debt would be well advised to get out before the market as a whole wakes up to the economic implications of unilateral pre-emption.