RIYADH, 11 March 2003 — Arab economies stand to suffer around $110 billion in direct losses during the remainder of the current year if the United States wages war on Iraq, a leading Saudi economist said yesterday.
The biggest chunk of the losses would be borne by the ailing Iraqi economy shedding around $20 billion and the six Gulf Cooperation Council states $68 billion.
The remainder would be incurred by other Arab countries, especially those bordering Iraq.
“A US war on Iraq could lead to direct losses on Arab economies estimated at around 15 percent of their total Gross Domestic Product (GDP), or $110 billion,” Ihsan Bu-Hulaiga said.
These losses will hit various sectors but the main victim will be the private sector, said Bu-Hulaiga, who is a member of the Shoura Council.
Arab countries were also expected to increase military and security spending because of the potential war. Other added spending includes refugees, damage to infrastructure and stoppage or slowdown of production and tourism revenues.
Bu-Hulaiga, who heads the Joatha Investment Center in Riyadh, said he based his estimates on the cost of previous wars and the expected impact on Arab economies of uncertainty that has hung over the region for several months.
The pain would be compounded by increased public spending on emergency matters and a drop in projected revenues because of loss in production, delaying strategic decisions and a decrease in foreign investments, he said.
“A significant portion of the cost will result from delaying major projects. The wait-and-see attitude and uncertainty are increasing risks and hurting private businesses,” Bu-Hulaiga added.
The losses will also involve incurred additional costs in maintaining high liquidity levels by the states and commercial banks for anticipated cash withdrawals.
Various vital sectors of Arab markets are expected to be hit by recession as consumers will shun buying durable goods. Bu-Hulaiga said the oil-dependent GCC economies were not expected to achieve targeted growth of three percent for 2003 if the war breaks out. But if oil prices remain strong, they would earn some $47 billion extra from oil in 2003 if the average price stays around $35 a barrel. The estimates do not include spending on military hardware, he added.
While most of the Arab world is dreading a war because of the potential for economic and social upheaval, many Kuwaitis feel that with Saddam gone, Iraq and Kuwait could restore their once-deep economic ties: Iraq used to export dates and water to Kuwait, while the emirate’s large port served as a transit point for imports headed to Iraq.
Kuwait, with its 2.1 million people, could use its northern neighbor of 26 million people to diversify its oil-based economy, strengthen its industries and perhaps reclaim its role as a regional trading hub, analysts and traders said.
