War Optimists May Face Pricey Surprise

Even before the bombs have fallen on Baghdad, Capitol Hill is projecting victory for the U.S., emphasizing that any campaign against Iraq would likely be short and snappy, with minimal impact on the U.S. economy. But some people just aren't convinced.

While there is little doubt that the U.S. ultimately would prevail in a military conflict, some analysts say the confrontation could be much more protracted and costly than many people currently expect.

"Unlike Kuwait, where it was over [within six weeks] and the market just surged, this is going to drag on a lot longer, and it will be negative for the economy," said Ted Davis, senior vice president of the Financial Management Group at Texas-based Frost National Bank.

Despite the obvious military superiority of the U.S., analysts say Iraq could defend itself with urban warfare, or use chemical or biological weapons, which would seriously undermine the U.S. advantage. And with little global support for a war, the U.S. could well end up carrying most of the financial burden.

William Nordhaus, a professor of economics at Yale University, said that in a worst-case scenario, the cost of a war could add up to as much as $1.9 trillion.

That's much higher than the $200 billion estimate provided by former economic adviser Lawrence Lindsey, and about 30 times as much as the Congressional Budget Office and House Budget Committee are projecting.

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Both groups have said they envision about 30 to 60 days of combat followed by about 10 weeks of post-victory troop presence for a total cost of between $44 billion and $60 billion. Still, those costs don't take into account the potential impact on oil prices or dent to consumer confidence.

Since Iraq supplies around 9% of U.S. oil, any disruption could cause prices to spike, particularly if other Arab countries decide to sympathize with Iraq and cut production. This would seriously damage businesses that are reliant on fuel and would essentially act as a tax on consumers.

If the consumer started to pull back on spending, either because of higher energy costs or fear of traveling or worries about further economic weakness, the main engine of growth would be gone. And with expected GDP growth of just 1.5% in the fourth quarter, some analysts say it wouldn't take much to send the economy back into recession.