As tensions in the Middle East have grown, many have considered the impacts of U.S.-led actions against Iran. Yet, the focus remains on the damage to Iranian military and nuclear infrastructures. Mr. Charles Blair, Senior Fellow on the State and Non-State Threats at the Federation of American Scientists (FAS) and the study’s director, and Mr. Mark Jansson, Special Projects Director at FAS, tackle a different question: how might U.S.-led action against Iran impact the global economy? FAS released a new report, Sanctions, Military Strikes, and Other Potential Actions Against Iran, at the Johns Hopkins School of Advanced International Studies (SAIS) in Washington, DC on November 16, 2012. The full report can be read here.
Experts participating at the report release include elicitation participant Dr. James Bartis, Senior Policy Researcher at RAND Corporation, Mr. Gary Ackerman, Director for Special Projects at the National Consortium for the Study of Terrorism and Responses to Terrorism (START), and Dr. David Jhirad, Director of the Energy, Resources, and Environment Program at SAIS.
The report is the culmination of an elicitation conducted at FAS, which involved a bipartisan group of experts in areas of national security, economics, energy markets, and financial markets. Elicitations are useful tools in situations “characterized by high levels of uncertainty and change, where there is an absence of sufficient empirical data.” Hence, the elicitation’s focus on Iran, a situation with no precedents in U.S. foreign policy, constant change in the political and economic climates, and uncertainty of how future actions could affect the situation.
Mr. Blair explained how the goal of this report is to start a conversation on a previously-unstudied question, which is odd given its importance in determining how the U.S. should proceed in Iran. Elicitation participants were given six scenarios to assess in terms of costs to the global economy (in U.S. dollars). These costs were limited to a 3-month period, a quarter for financial markets. This time frame is arbitrary though reasonable given the great uncertainty surrounding the situation in Iran. The six scenarios were:
- Increasing pressure with sanctions on Iran
- A blockade in the Persian Gulf
- Surgical strikes in Iran, attacking only nuclear infrastructure
- A comprehensive bombing campaign in Iran, attacking both military and nuclear infrastructure
- A full-scale invasion of Iran
- Unilateral good faith actions on the part of the U.S.
Mr. Jansson explained how compounded uncertainty accounts for the range in costs seen in each scenario. The elicitation participants described variables that would determine the costs. For example, in scenario one, the cost of increasing sanctions would reflect the impact on financial market losses, an increase in oil prices, and the costs of complying with the sanctions. The participants pointed to over 70 variables throughout the elicitation, indicating the enormous uncertainty of the U.S. taking action in Iran in terms of economic effects. With the full-scale invasion, the report estimated global economic costs equaling one trillion seven hundred billion dollars. That’s a lot of zeros.
Dr. Bartis remarked on his surprise at the great losses to the financial market. He mentioned that those with expertise in finance “pushed for the higher numbers” in assessing the cost in each scenario.
Interestingly, the report estimates a $60 billion benefit for scenario six, where the U.S. concedes by suspending sanctions and removing an air craft carrier from the Persian Gulf. Variables that were considered include a drop in oil prices and an increase in regional investments. However, the report indicates the participants’ skepticism that the U.S. will take these actions.
When “putting a price on war with Iran,” it seems the lesson is to proceed with enormous caution.
This report noted the great uncertainty when determining the global economic effects of potential U.S. actions against Iran. The authors explained that this report is an essential first step in beginning the conversation on potential policy decisions in Iran. The panelists concluded with hopes that others will build upon this report.
Co-authored by Stephanie Lee, Development Intern at the Federation of American Scientists