THE GULF'S BLACK
TREASURE Oil's toxic partner:
Guns By Hossein Askari
This is the 14th article in a special
series on oil and the Persian Gulf. For previous
articles, please see the foot of the page.
Needless to say, military expenditure
takes financial, economic and human resources away
from productive uses, are used in armed conflicts
and wars and these, in turn, exact an even heavier
toll on human and economic development.
Oil is intimately connected to military
expenditure and armed conflicts and wars in a
number of ways.There is evidence that oil revenues
and military expenditure are somewhat correlated,
providing a seemingly painless means of financing
the most
sophisticated weaponry
available; the acquisition of sophisticated
military hardware, in turn, encourages armed
conflict and causes significant human and physical
loss; and armed conflict, in part because of arms
depletion, encourages further military
expenditures.
Conflicts have developed
over oil and gas ownership. Foreigners have
meddled and have a military presence in the region
largely because of its oil and gas resources.
Military expenditures became significant
in the Persian Gulf after the first dramatic rise
in oil prices in 1973-1974 and have remained large
by any standard. Military expenditures took a
further jump with the Iran-Iraq War, especially in
Iraq, Saudi Arabia, and the United Arab Emirates.
Over the past 30 or so years, the Persian Gulf
could be classified on a number of dimensions as
the most militarized region in the world.
Although the broader Middle East and North
Africa region accounted for only 4.7% of the
word’s population, it was responsible for 7.1% of
global military expenditures in 2007; and over the
period 1988-2005 the region’s average annual
military expenditure as percentage of its GDP
stood at 6.1% while the global figure averaged at
3.0%. In 2007, Iran and Saudi Arabia were among
the top 15 military spenders in the world.
Average annual per capita military
expenditures (in constant 2005 US dollars) over
the period 1988-2005 were highest in Kuwait
($2,729), followed by the UAE ($1,300), Saudi
Arabia ($934), Bahrain ($527) and Iran ($66).
As percentage of gross domestic product,
Kuwait again averaged the highest (9.8%), followed
by Saudi Arabia (7.4%), the UAE (4.5%), Bahrain
(3.1%) and Iran (2.9%).
Moreover, during
the period of 1988-2005, annual Persian Gulf arms
imports per capita averaged $36 per year, ranging
from an annual average of $9 per capita for Iran
to $222 for the UAE. For the UAE this indicator
would increase by four- to fivefold (to about
$1,000 per capita) if only the nationals of the
UAE are included, as 80% of the UAE's population
are immigrant workers.
While some claim a
positive economic effect from military
expenditure, on balance, the negative effects on
economic performance are overwhelming. These
negative effects include: i. lower investment
in the civilian sector, ii. lower expenditures
on health and education, iii. higher civilian
unemployment, iv. allocative inefficiencies,
v. lower civilian research and development,
vi. higher budget deficit, vii. higher
public debt, viii. higher inflation rate,
ix. lower growth rate, x. more corruption,
xi. increased chance of armed conflict, and
thus xii. higher rate of destruction of human
life and physical capital.
Military
expenditures in the form of military imports, a
high component of military expenditures in the
Persian Gulf, have additional negative effects
through the balance of payments.
What have
been the fallouts of the three recent wars in the
Persian Gulf?
The estimated cost of the
Iran-Iraq War was $637 billion to Iran, $376
billion to Iraq, and $326 to other Persian Gulf
countries and the rest of the world, all in
constant 1988 US dollars. The global cost of the
Iran-Iraq War, based on our conservative
assumptions and methodology (while omitting a
number of significant costs due to the lack of
data), is almost $1.4 trillion in 1988 dollars.
The total cost of the war to Iran was
equivalent to almost 19 years of Iran's oil export
revenues. For Iraq, its burden represented 13
years of its pre-war oil revenues. Iran's
cumulative GDP between 1980 and 1988 was $739
billion in constant 1988 US dollars. Thus, the
total damage to Iran's economy during the war was
equal to about 77% of Iran's cumulative economic
output during the war years.
Iraq's
aggregate output between 1980 and 1988 was $363
billion in constant 1988 dollars and its total
war-related cost was equal to about 136% of its
cumulative economic output during the same period.
These are staggering costs.
In
contrast to the Iran-Iraq War, the First Gulf War
did not have a profound long-term impact on oil
prices. However, inevitable exclusion of the
environmental costs of the war from our
calculation makes our cost estimation an
underestimate of the burden on Persian Gulf
countries. The cost of this war to Iraq was $269
billion, $533 billion to the allies and $34
billion for the rest of the world.
The
global cost, based on our conservative assumptions
and calculation, is at least $783 billion in
constant 1991 dollars, far above the initial
estimations and highly significant, by any
standard, for a 210-day military conflict.
Iraq would have needed almost 18 years of
its pre-war oil revenues to pay for the total
damage inflicted on its economy. On the other side
of the conflict, Kuwait suffered at least $130
billion in budgetary and macroeconomic losses
during the invasion and occupation by Iraq. Kuwait
also needed 13 years of its pre-war oil revenues
to cover the budgetary and macroeconomic damage to
its economy.
When president George W Bush
made his famous "Mission Accomplished" speech on
May 1, 2003, aboard a US aircraft carrier, he
probably never imagined that US combat and support
operations expenses alone in Iraq would exceed $1
trillion by 2015.
In our calculations, we
did not include some key budgetary and
macroeconomic costs of the war such as costs to
Iraq associated with the loss of life, injuries,
and displaced people, environmental costs to Iraq
and its neighbors, and various types of budgetary
and macroeconomic costs to other allies.
In spite of omissions that lead to an
underestimate, our final figures are still
staggering. The total cost inflicted on the direct
belligerents, neighbors, and the rest of the world
is estimated at $2,509 billion, $140 billion, and
$531 billion, respectively. These bring the global
cost of the Iraq War, after adjustments to avoid
double counting, to almost $3.2 trillion in 2011
dollars.
The Iraq War inflicted severe
budgetary pain on the United States, perhaps for
the first time since the Vietnam War that a
conflict has brought such hurt. More than half of
the total estimate for the global cost of the war
was and will be incurred by the United States - a
figure exceeding $1.7 trillion. Moreover, the
human cost for the United States has been
unmatched since the Vietnam War.
The
deficit spending, coupled with the spending on the
wars in Iraq and Afghanistan, has raised the ratio
of debt to GDP by about 10%. At the same time, the
human cost of the war for Iraq from fatalities,
injuries, and displaced population has already
exceeded hundreds of billions of dollars according
to very rough and conservative estimates.
Apart from the total losses to the direct
belligerents, the most profound effect of the
three wars on the region may be in the composition
of government expenditures towards higher military
expenditures.
In all of the countries -
except in Iran, where the quality of data,
especially for military spending, is highly
disputable - the share of military expenditure in
total government expenditures is either higher
than or equal to the share of public education and
health care combined during the 1990s and 2000s.
Also, military expenditures are the only
expenditure category where all Persian Gulf
countries "outclass" other developing countries,
OECD countries, and the global average. Add to
these facts and figures:
The recent $60 billion arms sales contract
announced between Saudi Arabia and the United
States;
The UAE's $7.1 billion contract to purchase 80
of the most advanced F-16 fighters in the last
decade;
The recent $35-$40 billion contract with the
United States to purchase and upgrade the UAE's
anti-missile defense systems;
Oman's $12 billion and
Kuwait's $7 billion contracts with the United
States to buy new warplanes;
Washington's reported agreement to sell
bunker-busting bombs to the UAE and even
New arms and upgrading of F-16s for Bahrain (a
country caught in internal turmoil).
These
are breathtaking set of numbers.
These are
staggering costs that all Middle Easterners must
be made aware of, costs that are a testament to
the folly of their leaders and the duplicity of
the powerful nations.The question that must be
answered is simple. Would these wars have occurred
if leaders and countries knew the global price of
their aggressive actions and believed that they
would have to pay for them in full - that is, full
reparations for victim countries and leaders and
their cronies forfeiting their ill-gotten wealth,
being subject to arrest and trial by the
International Criminal Court?
In short,
the region needs a long period of peace to develop
institutions and implement policies to achieve
political reform and sustained economic
prosperity.
NEXT: Islamic
management of oil reserves and revenues
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