November 21, 2012

Study Predicts Stunning Costs for Diplomatic Failure with Iran

FAS StudyWashington, DC – A new study by the Federation of American Scientists estimates that escalating conflict with Iran would impose stunning costs to the global economy. A war with Iran, according to the study, could cost up to $1.8 trillion in the first three months, while new sanctions that Congress is considering passing before year’s end would set the economy back $64 billion. At the same time, the study finds that a deal that ratcheted down sanctions and military tensions would benefit the global economy by adding $60 billion.

The study, which aggregated the estimates of eight experts in the field, examined six different scenarios and limited their estimates to the first three months after the scenario began. The scenarios were: an escalation of sanctions ($64 billion), further isolation and a blockade of the Persian Gulf ($325 billion), surgical strikes ($713 billion), a comprehensive bombing campaign ($1.2 trillion), and a full-scale ground invasion ($1.7 trillion). The last scenario assesses the economic benefits of the de-escalation of sanctions and the pulling back of military assets in the Persian Gulf, which the study said would provide gains of $60 billion for the global economy.

In each case, the panel discussed and agreed on a list of possible effects. Each participant then estimated the probability of a these costs and their possible monetary value in the three months following the scenario. These estimates were then aggregated. The study is careful to point out that their results are meant to be a starting point for more detailed studies.

The results raise two significant points. The first is the sheer size of even the median costs of actions currently being considered in Congress. Again, increasing sanctions would cost $63 billion, and a comprehensive bombing campaign would total over $1 trillion. And these numbers are for the first three months of the actions. The second point is that the vast majority of these costs were due to financial shock and increases in the price of oil, not direct military and damage costs.

The costs created by uncertainty in the financial markets are especially worrying. This variable had the widest range in estimated costs, but that range comes with a caveat from James Bartis, an analyst at the RAND Corporation and one of the experts that contributed to the study. During the study, he said, “those in the room who were most familiar with financial markets were pushing towards the higher levels.”

The data also shows that military escalation causes large surges in estimated costs. Oil prices, for instance “increase significantly with the onset of kinetic action in the ‘surgical strikes’ scenario from the estimated effect in the event of a Persian Gulf blockade.” 

When combined with other studies that focus on the results of military strikes against Iran, the day after scenarios for military action are beginning to look pretty clear. Together, these studies estimate that a comprehensive bombing campaign would cost over $1 trillion to the global economy over the first three months, would kill 85,000 Iranians, and would only delay Iran’s ability to develop a nuclear weapon by 3-4 years. A diplomatic solution that convinces Iran to abandon nuclear ambitions, on the other hand, represents the only plausible road to keeping Iran from eventually producing a nuclear weapon, according to Dennis Blair, former Director of National Intelligence, as well as producing substantial economic benefits to the global economy.




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