One of the curious developments in the aftermath of the Iraq war has been the fight over who will get contracts for the reconstruction of Iraq. It?s curious because, so far at least, the only money that has been put up to fund this reconstruction is $US2.3 billion included in the Bush?s $US73 billion war appropriation. This is a fair sum of money, but scarcely the stuff of an international incident. It?s important, then, to consider how much Iraqi reconstruction is likely to cost and where the money is going to come from.

One of the curious developments in the aftermath of the Iraq war has been the fight over who will get contracts for the reconstruction of Iraq. It?s curious because, so far at least, the only money that has been put up to fund this reconstruction is $US2.3 billion included in the Bush?s $US73 billion war appropriation. This is a fair sum of money, but scarcely the stuff of an international incident. It?s important, then, to consider how much Iraqi reconstruction is likely to cost and where the money is going to come from.

On the expenditure side, it?s worth considering two versions of reconstruction. The first would aim to leave Iraqis in the same economic position as they were before the recent war. The second would aim to restore the position prior to the commencement of hostilities between the US and Iraq in 1991.

Both versions would leave Iraq a lot worse off than before Saddam came to power. The first is the absolute minimum needed if there is to be any chance of a stable democratic government in postwar Iraq, but it is unlikely to be sufficient for this purpose. The second could be seen, and will be seen by most Iraqis, as the minimum required to justify the policy of the US and its allies towards Iraq, including two wars and a decade of sanctions.

Looking at the first objective, it?s necessary both to restore the damage done during the war and to compensate for the fact that economic activity, including oil production, has essentially ground to a halt. The loss of oil output is about 2.5 million barrels per day or, at current prices, approximately $US60 million per day. Assuming a loss of six months worth of output, this amounts to a bit over $US10 billion, and taking other lost production into account, the loss of output associated with the war is probably around $US15 billion.

Estimating the damage done during the war is virtually impossible, but a reasonable guess is around $500 per person or about $US10 billion. To get a feel for what this would buy, it might be worth considering what $US1 billion (a bit under $A 2 billion) will buy in terms of the kinds of infrastructure damaged or destroyed. In a developed country, this kind of investment is enough to buy one new power generation station (1500-2000 MW), 1000 km of 2-lane highway, five new hospitals (sufficient for a provincial city like Townsville, population 150 000), thirty medium-sized office buildings or 50 000 of the cheapest possible housing units (trailer homes in the US). For everything except housing, costs in Iraq are likely to be comparable since savings from cheap labour will be offset by the need to import lots of inputs and go through US contractors. Looking at the pictures of the damage done by bombing and looting, it?s clear that $US10 billion won?t go far at all.

In thinking about housing needs, it?s important to remember that, in addition to the destruction caused by the war, there are likely to be large numbers of refugees either returning voluntarily or being deported back to Iraq under ?border protection? policies like those of Australia.

Taking account of lost production and direct consequences of war, then, it seems likely that a minimal reconstruction program would cost around $US 25 billion.

The cost of undoing the damage of two wars and a decade of sanctions would be much greater, probably between $US100 billion and $US200 billion. Since there?s no serious prospect that this kind of money will be forthcoming, it?s not worth examining the estimates in detail.

Looking at where the money will come from, the obvious answer is oil. Unfortunately, it will be a long time before oil output returns to the prewar level. Eventually, output might exceed the prewar level, but then it is possible that any gain will be offset by falling oil prices.

A return to normal output would yield gross income of around $US 20 billion per year at current prices, but most of this money was already being spent under the ?food-for-oil? program and most of it be needed for the same purpose in future. About 25 per cent of the money was taken to pay interest on debts associated with reparations for the 1991 War. If these were forgiven, some additional money would become available. In addition, it appears that Saddam managed to cream off $1 billion to $2 billion per year. If this were returned to the Iraqi people in general, it would make a small but positive contribution.
Iraq had foreign exchange reserves which might total $US 10 billion, but much of this has been stolen or looted, and some is frozen in foreign banks. In addition, there is about $10 billion held in escrow by the UN as part of the food-for-oil program, but most of this has already been committed to contracts for future purchases (equipment from Russia is a big item).

Iraq?s debts greatly exceed its reserves and the US has already set a poor example by seizing $US 300 million to be used to pay for lawsuits by US citizens arising from the first Gulf War. It?s possible that substantial amounts of debt, especially that owing to recalcitrants like France and Russia will be repudiated under the newly-revived doctrine of ?odious debt? but even so, there won?t be much left over to pay for reconstruction.

The most generous source of foreign aid in circumstances like this has usually been the European Union. But while the Europeans might supply some food aid, they are unlikely to want to bail out a US occupation. Their attitude, rightly enough, is ?you broke it, you own it?.

So, if Iraq is going to be reconstructed, most of the costs will have to be paid by the Coalition of the Willing. If there is to be a reasonable chance of establishing a stable democratic government, it will be necessary to spend at least $US25 billion and probably $US50 billion. Australia?s share would probably be at least $A1 billion. This is a large sum of money, but Bush, Blair and Howard had no trouble finding the same amount to fight the war. Regardless of whether individual Australians supported or opposed the war, we are stuck with the obligations we have collectively assumed.

Looking at the experience of Afghanistan, it seems unlikely that even our minimal obligations will in fact be met. Despite promises of generous aid in the immediate aftermath of war, the Afghans have, to all intents and purposes, been abandoned. The central government of Hamid Karzai can?t even afford to pay salaries, let alone extend its authority to the provinces, which have reverted to warlord control. More than a year after the war ended, US contractors have yet to pave a single mile of road, and are now arguing that gravel is the best Afghans can expect. This neglect is already encouraging a resurgence of support for the Taliban.