What would be the cost of war with Iran?
Americans consume roughly 18.5 million barrels of oil daily, a mere $8 increase in the price per barrel would sap $1 billion per week from the U.S
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One of the greatest challenges that U.S. President Barack Obama will face in his second term is Iran’s pursuit of advanced nuclear technologies. While a nuclear Iran would damage America’s strategic position in the Middle East, action aimed at forestalling Iran’s nuclear progress also carries serious strategic and economic consequences. Armed with nuclear weapons, Iran would be better able to project influence, intimidate its regional neighbors, and protect itself. As a result, the United States’ allies in the region would need new security guarantees. But an increased American presence could provoke radical groups, while requiring defense resources that are needed to support U.S. interests in East and Southeast Asia.
Some of Obama’s conservative critics believe that he will allow Iran to develop an advanced nuclear program, provided that it stops short of actually building a bomb. But no American president would want their legacy to include allowing so unfriendly a regime as the one in Tehran to acquire such a dangerous weapon – even if doing so meant avoiding greater strategic costs.
Indeed, Obama has repeatedly avowed that he will stop Iran from acquiring nuclear-weapons capability, rather than allow the country to develop its nuclear program and then rely on deterrence, as has been done with other nuclear powers. But such tough rhetoric might create a dilemma for the American president.
If Iran continues on its path toward nuclear arms, war may well become inevitable, whether instigated by Israel or the United States, or provoked by Iran’s erratic foreign policy. Although the costs of a containment strategy would be significant, the costs of fighting a war would be higher.
Iran has threatened to seal the Strait of Hormuz – through which 20 percent of the world’s internationally traded oil passes – if it were to be attacked. While it would be difficult for Tehran to seal the strait for long, if it managed to do so at all, it could easily make passage unsafe with attacks by small boats, the planting of sea mines, and missiles launched from coastal mountains.
Furthermore, Iran would likely strike the pipelines in the Arabian peninsula that would otherwise allow oil to bypass the strait. And several strategically crucial oil-processing facilities are within range of Iranian missiles and special forces, including the Saudi oil-stabilization facility at Abqaiq, which processes 7 million barrels daily.
Such a response would immediately cause oil prices to spike – possibly to $200 per barrel in the short run. A protracted conflict could mean sustained prices of roughly $150 per barrel.
Given that Americans consume roughly 18.5 million barrels of oil daily, a mere $8 increase in the price per barrel would sap $1 billion per week from the U.S. economy, jeopardizing its already-fragile recovery. America has already financed two wars on credit, which has contributed to a significant fiscal deficit. Another war would eliminate what little hope there is of achieving debt stability without drastic – and harmful – spending cuts (or tax increases).
Surging oil prices would also threaten Europe and other major oil-importing countries, including China, India, Japan and South Korea, thereby lowering or reversing their economic growth. Iran’s own economy, which depends heavily on oil exports, would also suffer.
The conflict would likely drag on, given that the definition of victory in this scenario is ambiguous. Would America win by destroying Iran’s nuclear facilities, even if reconstruction began immediately? What if Iran incited unrest in its neighbors, jeopardizing U.S.-allied regimes in the region? Is a settlement with Iran’s leaders feasible, or is regime change crucial to an American victory? (And, in the latter case, would the United States follow its pattern of ousting a Middle Eastern government without a succession plan?)
Regardless of the goal, the end result would be more troops and ships in the region, more resources appropriated to fight new or revitalized terrorist organizations, and more arms for allied countries, many of which are themselves unstable. America’s stake in the Middle East would grow, undermining its attempts to free up assets for its professed “pivot” toward Asia, where it hopes to balance China’s growing influence.
Living with a nuclear Iran would require expensive countermeasures and create significant risks. But going to war to impede Iran’s nuclear ambitions, and containing the subsequent chaos – including oil-price spikes, increased regional volatility, and reduced American strategic flexibility – would be far more costly. If Obama stands behind his first-term declarations, the world will pay a very high price.
Geoffrey Kemp is director of the Regional Security Program at the Center for the National Interest.
John Allen Gay is a program assistant for the Regional Security Program at the Center for the National Interest. They are co-authors of the forthcoming book “War with Iran: Political, Military, and Economic Consequences.” This commentary was provided in partnership with the Carnegie Corporation.
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