War with Iran? Revisiting the Potentially Staggering Costs to the Global Economy

The Senate passage of Resolution 65 on May 22, 2013, some argue, draws the United States closer to military action against Iran. In October 2012, amid concerns that surprisingly little research addressed the potential broad outcomes of possible U.S.-led actions against Iran, researchers at the Federation of American Scientists (FAS) assembled nine renowned subject matter experts (SMEs) to investigate one underexplored question that now, eight months later, looms larger than ever: What are the potential effects on the global economy of U.S. actions against Iran? Collectively representing expertise in national security, economics, energy markets, and finance, the SMEs gathered for a one-day elicitation workshop to consider the global economic impacts of six hypothetical scenarios involving U.S.-led actions.

The elicitation revealed the rough effects of U.S. action against Iran on the global economy – measured only in the first three months of actualization – to range from total losses of approximately $60 billion on one end of the scale to more than $2 trillion to the world economy on the other end.

The results of the elicitation were compiled into the FAS report written by Charles P. Blair and Mark Jansson, “Sanctions, Military Strikes, and Other Potential Actions Against Iran.”

Summarized below are three of the six scenarios along with the associated estimated range of costs to the world economy in the first three months of U.S. action alone.

Scenario: Comprehensive Bombing Campaign (upper bounds of estimated costs to global economy: $1.7 trillion)

The president, not wanting to leave the job half-done and fearing that a more limited strike may not achieve all of its objectives or at too high a price should Iran retaliate, opts for a more thorough mission. The United States leads an ambitious air campaign that targets not only the nuclear facilities of concern but also seeks to limit Iran’s ability to retaliate by targeting its other military assets, including its air defenses, radar and aerial command and control facilities, and much of Iran’s direct retaliatory capabilities. These would include its main military bases, the main facilities of the Iranian Revolutionary Guard Corps (IRGC), and the Iranian Navy, Army, and Air Force. The United States seeks to ensure that the Strait of Hormuz remains open by targeting Iranian capabilities that may threaten it.

Scenario 4 Comprehensive Bombing Campaign

Scenario: Isolation and Persian Gulf Blockade – no military action (upper bounds of estimated costs to global economy: $550 billion)

Iran’s economy is reeling yet diplomatic agreement remains elusive. The United States, concerned that the Iranian regime has gone into survival mode, enacts what can be referred to as a “total cutoff” policy. The United States moves to curtail any exports of refined oil products, natural gas, energy equipment, and services. Investments in Iran’s energy sector are banned worldwide. Official trade credit guarantees are banned, as is international lending to Iran and investment in Iranian bonds. Insurance and reinsurance for all shipping going to and from Iran is prohibited. Substantial U.S. military assets are deployed to the Persian Gulf to block unauthorized shipments to and from Iran as well as to protect shipments of oil and other products through the Strait of Hormuz.

Scenario 2 Isolation and Persian Gulf Blockade

Scenario: Full-Scale Invasion (upper bounds of estimated costs to global economy: $2.8 trillion)

The United States resolves to invade, occupy, and disarm Iran. It carries out all of the above missions and goes “all in” to impose a more permanent solution by disarming the regime. Although the purpose of the mission is not explicitly regime change, the United States determines that the threat posed by Iran to Israel, neighboring states, and to freedom of shipping in the Strait of Hormuz cannot be tolerated any longer. It imposes a naval blockade and a no-fly zone as it systematically takes down Iran’s military bases and destroys its installations one by one. Large numbers of ground troops will be committed to the mission to get the job done.

Scenario 5 Full-Scale Invasion

Note: All opinions expressed here and in the report, as well as its findings, are those of the authors alone and do not necessarily reflect the views of the Federation of American Scientists or any of the participants in the elicitation that served as the centerpiece of this study.

9 thoughts on “War with Iran? Revisiting the Potentially Staggering Costs to the Global Economy

  1. Here are SOME consequences of an attack on Iran that most western folks know, but still pretend to ignore. a) The American, European, Chinese, Indian, man on the street will pay $15 for a gallon of gasoline. No end in sight for lowering in prices. Releasing strategic reserves wont help. Chaos/hyperinflation all over the world. Job losses and bad news of a collapsed economy abound particularly Europe. High possibility of civil disobedience in many countries and an American Spring due to job losses. President of the United States will be overthrown. Several political assassinations. Alternatively the President who is already Commander in Chief will seize power and declare himself as a military dictator. b) A million Osama bin Ladens will spawn from Iran, Iraq, Libya, Sudan, Egypt, Pakistan, Afghanistan, India, Bangladesh, Saudi and other countries and the Americans will spend the rest of their careers defending themselves/ fighting against these guys which will be futile. They will teach a million catastrophic lessons to the “international community”. Hormuz will permanently get closed by these terrorists, and US will give up guarding Hormuz, like America leaving Afghanistan, unable to fight against Taliban. Oil tankers wont be available ’cause most insurance companies will stop extending insurance. c) The people of Egypt will force close the Suez canal to show solidarity with Iran. (the “western allies” will not be able to force open the Suez. America too will be on tenterhooks because China will have expansion program in the Pacific. California has to be defended). Europe will choke due to the Suez closure. Taking a cue from a closed Suez canal, Russia (near monopoly supplier) will hike the price of natural gas exports to Europe by 10 times. They have done this to Ukraine earlier, though the earlier sale price was relatively small. Russia will force Azerbaijan to shut the Baku Tiblisi Ceyhan pipeline which also supplies oil/gas to Europe. Europe will be dead. Russia will invade Europe. d) Iran’s retaliation will be terrible. SOME of the things Iran could do are here. Besides inflicting destruction on refineries, loading terminals and storage tanks including LNG, of rival countries in the ME, it could shoot down hundreds of enemy countries’ passenger civilian airliners in the ME. And this on a long term basis. Even today daily there are over 30 American passenger airliners passing over its airspace. And America has already set the ball rolling in 1988. e) Regarding viability & sustainability of Israel, the reader may judge. Because everything will be blamed on Israel f) Your guess too on the effect of all this on the American economy.

    So therefore any talk of war with Iran is A BIG BIG UNASHAMED BLUFF, BOGUS, HUMBUG. It is only promoted by armchair journalists, fraudsters, conmasters, some politicians. Not by the western military. There will be no war with Iran even in the future. Even if Iran develops the bombs. Iran might already have the bombs – from next door Pakistan. Which is why there THERE IS NO ATTACK EVEN TODAY, EVEN IN THIS MINUTE, RIGHT NOW. The world is too much entwined / interdependent in trade and technology. International supply chain disruptions are not tolerable, and big business will fail. Smaller countries like Iran are not afraid of “world powers” anymore. “The west” will learn to live with a nuclear Iran. Lastly, even if by the remotest chance if Israel defies the world and launches an attack, It will be the United States, which will bomb Israeli military infrastructure (yes Israeli) moments before the strike, because this will be the safest way to avoid a world war. Besides, American influence in the world today has reduced to a great extent.

  2. War by balance sheet – how silly. I think the high end estimate massively understates the collective impact of such a conflict. These will be cascading flow on effects into many other areas/sectors in terms of massive social dislocation caused by interruptions to the supply of the basis necessities of life – rising oil and food prices. Putting all of this dislocation back together again may not be that easy.

    The idea that the US will not attack Iran should not be totally counted out given the hubris of the US Administration and some of the loons on the right of US politics. These are people who seem very happy to spill other peoples blood. However, I think it is much more likely that if a conflict does arise it will not be from a planned action but more likely through an unexpected and unplanned event or sequence of events.

    If a conflict does occur Iran is not going to fight a conventional war and has clearly and openly stated this as they know they cannot win a conventional conflict. It will fight asymmetrically so as to cost an attacker the most in terms of men, materials and economics. The Iranians have set up their forces and command structures to fight this way. They have also invested in heavily weapons that will tend to even the playing field. This is in terms of layers of missiles and ‘swarm’ tactics – masses of smaller entities attack and overwhelm a larger more complex asset – for instance high speed missile boats against a missile destroyer.

    The only way for the US to fully subdue Iran is to put boots on the ground and invade. The US is not going to invade Iran as it would probably require over a million men in the field (conscription??) and would exceed all the previous military misadventures put together. If boots are put on the ground casualties will rise rapidly as Iran will firstly, fight a costly and protracted guerrilla war and secondly, fight in the cities. These tactics would quickly negate advantages in technology. Also much of Iran’s population and cities are to the North – across a hostile landscape.

    Finally, there is a cost that cannot be easily calculated on a ‘balance sheet’ but it is potentially massive. If the US was deluded enough to attack Iran’s nuclear facilities sustained bombing would release nuclear debris into the environment on a scale never experienced in human history. This would probably poison much of the Middle East. It would make the Japanese nuclear melt down seem a minor problem by comparison.

    1. Nexus789. Thank you for your comment. I reply only to remind you and other readers that the costs were based on an explicit parameter: they only considered the *first three months* of the given scenario.

      Sincerely,

      Charles Blair

  3. Vinay Prasad

    Barbara Tuchman wrote a great book called “The Guns of August”. Most Europeans also thought the great empires of Europe would never go to war again because of the economic cost of any such conflict. Yet in 1914, the assassination of Archduke Franz Ferdinand in Sarajevo, heir to the throne of The Austro-Hungarian Empire, at the hands of Serbian nationalist proved the catalyst that sent the “Great Powers” to war. Tuchman’s book is an excellent look at the misconceptions and bungling that led Europe to war; conflicting national goals, inter-locking mutual defense alliances and the very thought that any war would be short and yet decisive. In 1914, mobilization meant war. Once one nation began that mobilization everyone had to respond; it was like a snow ball going downhill that eventually became an avalanche.

    That is why the “Iranian Crisis” is so important. No matter how reason is implied, one event may well provide the catalyst that releases the “dogs of war” with tragic consequences for all. I do not share your opinion that such a war can not happen.

    Frank Shuler

    USA

    1. Frank Shuler, although I consider the people who believe that it is all a bluff to be wrong, I also think you are not making an appropriate analogy when you relate this to Europe leading into WW1. The fact is that it was a very different situation. In 1914 the UK had pulled ahead in a massive arm’s race between them and Germany, though the arm’s race was lost however for the Germans the UK had made a decision that they would use the next opportunity to go to war against the Germans. The Germans had noted around the same time that Russia was beginning to modernize their large military, after the Russo-Japanese War massive moves had been made to improve it and the Russians were expected to produce the best military in the world that decade. The Germans considered this unacceptable so they knew, like the UK, that they had to go to war with Russia in that decade if they hoped to win. France and Germany during this period were as antagonistic as during any other period in their history and war was also expected there. Then when you factor in the new nations that had been created in the balkans you could see that conflict there was on the horizon.

      Iran is simply not the same, if they provoke the US they will have no allies to turn to, the Europeans at least felt relatively comfortable in their alliances, Iran knows that they are screwed if it comes to a war, much like the DPRK the are making a bid for power by drawing attention to themselves and they hope that they reach a compromise before the pressure leads to actual war.

      1. William Bell

        Not comparing the situation in Iran today to Europe in 1914. I only mused that the “Great Thrones” of Europe thought a general war on the continent impossible due to the economic catastrophe it would bring to all; while the generals knew such a war was an ineffability. It just took one spark. Today, Iran is such a situation “waiting on a spark”.

        Frank Shuler

        USA

  4. i have to agree with Frank. In addition look at what general Smedley Butler said about WWI, that the USA involvement was partly due to English and French arguments that they could hardly pay back the billions they had borrowed if the Germans took over.

    The conspiracy theory that has the best ring to it in the current round of conflicts is Qatar is looking to use Syria to pipe natural gas to Turkey and thus displace Russia as the sole provider of natural gas to Europe. But doesn’t this have e same ring to as how the US used Kuwait to bait the Iraqis into invading them, devaluing oil prices right at the point when the Iraqis owed Kuwait and the US tens of billions for the spyware that the US simultaneously encouraged both Iraq and Iran to fight…..arming them both!

    Thus ba k to the subject, Qatar it has been argued is funding the Syrian conflict. On the opposing side are, obviously, the Russians who just this week seem to be actively preparing to defend Syria with not only S-300 SAMs but also with technical advice on the use of these systems ie russians manning the SAM sites. Side by side are the Iranians who are apparently providing special forces and training to Syria.

    I would dare say that any conflict involving Syria would involve Russia, Iran and Israel. On this basis, and considering Iraq cost over $1 trillion in direct costs the upper estimates in the article are in fact should be relabled as the lower estimates.

    Conflict with either Iran or Syria will result in conflict with Russia, best case scenario with the Russians playing Syria as a proxy or worse case with it being made public. The Russians via state media have already said as much in terms of their support for Iran and Syria.

    A conflict with Russia, with a powerful Iranian military coupled with the wounded Syrian forcess is hardly going to cost a few hundred billion.

    I would argue that the US is ill equipped and financially incapable of waging a massive regional / possible global conflict. If i was the US I’d continue to do it on the sly like they’ve been doing for the past 50 years. Destablising countries from within, paying religious fanatics to wage war on their behalf, using small countries to as proxies. Works pretty darn well. Only one country with the balls to keep trading oil in euros and they, the Iranians, if you read the writing on the wall don’t have much time left.

  5. I would agree to an extent with chugs rodriguez that America may choose to “continue to do it on the sly, as they have been doing it for the past 50 years”. Why ? Because it is MASSIVELY PROFITABLE TO DO SO. A proxy war will demand billions of dollars worth of orders for the American arms manufacturing companies. European too. Thousands of jobs will be created. The more the destruction on oil and gas infrastructure in the region means more bigger contracts for the halliburtons, the bechtels the foster wheelers. It will be a gold mine.

    Yes it will make business sense for America. But most important factor to keep in mind is that the muslim world will become extremely radicalised more than ever before. This will have unpredictable consequences. WW I and II were not against muslims. The Iran war will be. Though Iran may not have countries to come to its side and defend. But radicalization will make things worse. Which is why there will be no war. It should have taken place several years ago. Not now.

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