- The Washington Times - Monday, September 30, 2002

Investors and economic leaders from around the world said yesterday that talk of a U.S.-led war with Iraq is hurting the global economy, and a lengthy conflict would make matters worse.
On ABC's "This Week" yesterday, billionaire financier and philanthropist George Soros said a short and decisive victory by the United States could provide a small economic boost and send oil prices to as low as $18 a barrel. But a longer conflict could push oil prices above $40, and send stock markets and national economies tumbling around the world.
Meanwhile, officials from the Group of Eight industrialized nations meeting over the weekend in Washington to discuss the global economy said anticipation of war in Iraq is raising oil prices, causing stock markets to decline and frightening people and businesses away from spending.
"There is a widespread perception in the financial community that fear of war is weighing heavily on capital markets," said Antonio Fazio, governor of the Bank of Italy. "War upsets markets a great deal, because it creates uncertainty."
Talk of war has pushed up oil prices more than 50 percent this year, and the Standard and Poor's 500 Index has fallen nearly 30 percent, dragging down other market indexes around the world. The Organization for Economic Cooperation and Development has estimated that a 50 percent rise in oil prices would knock about three-tenths of 1 percentage point off U.S. growth and push inflation up four-tenths of a percentage point.
In Europe, the consequences would be even greater because countries there import more oil. The OECD estimated a 50 percent increase in oil prices would cause growth in Europe to slide about four-tenths of a percentage point and inflation to accelerate by six-tenths of a percentage point.
Federal Reserve Chairman Alan Greenspan, speaking in London last week, said economic models do not indicate a link between oil price increases and recessions. But, he said, oil prices have tripled on four occasions over the last 30 years, contributing to a global recession each time. This included Iraq's 1990 invasion of Kuwait and when oil producers cut output in 1999.
The economic situation in Europe was underscored by the release of a survey of 7,000 German companies that showed business confidence there had sunk to an eight-month low. German Finance Minister Hand Eichel called war in Iraq "one of the greatest uncertainties we have" and said "everything must be done to avoid" economic damage.
Some Middle Eastern nations said they feared a war in Iraq would hurt them economically. Iranian Economy and Finance Minister Tahmasb Mazaheri, in Washington for meetings of the World Bank and International Monetary Fund, said an attack on Iraq would send millions of refugees across the border, scaring off investors and dragging down the economy.
"If it is done and the two sides cannot control themselves and cannot solve the problem by the political negotiation through the U.N. resolution, both we and some other countries in the region and countries in the other regions will suffer from some effects of the war," Mr. Mazaheri said.
Meanwhile, the airline industry sees little reason for optimism. Appearing on "This Week," Delta Airlines Chief Executive Officer Leo Mullins said he feared a U.S.-led war with Iraq would affect the airline industry in the same way as the Gulf war 1991, when international flights dropped 10 percent and domestic flights fell 5 percent.
"All of those will have very significant consequences if that pattern is repeated," Mr. Mullins said. "We are somewhat on the ropes in this industry."
Mr. Mullins said the U.S. government should reimburse airlines for the costs of security upgrades since September 11, which he says are responsible for 40 percent to 50 percent of airlines' losses.

This article is based in part on wire service reports.


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