Diane Francis, Financial Post
Published: Thursday, November 22, 2007
What is the real cost of things? Freakonomics author Stephen Dubner cited a study this week that estimates a pack of cigarettes actually costs US$222. The amount includes the economic cost of a reduced lifespan.

So what is the real cost of the Iraq war in terms of oil import prices? My rough estimate is that the real cost of oil from the Middle East for Americans may total US$300 a barrel or more.

But no one has made the calculation. What is known is that the White House has asked for US$804-billion so far to pay for Iraq. But a recent report by Democrats points out hidden costs. They estimate they are US$1-trillion or roughly $20,000 for every family of four.

But that may be light, too. If you divide the US$1-trillion by my estimate based on recent figures of roughly 43.2 billion barrels imported from the Middle East for the past five years, the straight-up oil price added cost is US$23 a barrel. That is per barrel for all five years.

But how many billions more have been spent keeping the U.S. fleet in place to keep oil flowing from the region, including from Iran? What's the cost of the Qatar operations?

September figures show the U.S. is importing 2.4 million barrels daily from Saudi Arabia, Iraq, Kuwait and Oman out of a total import of roughly 12 million daily.

Middle Eastern oil should be free to America. If you add up all hidden costs, these countries should be giving the oil to America. Military costs are only part of the equation.

There are interest payments on the money borrowed to pay for the war. Some experts told Reuters that both "Iraq and Afghanistan could cost taxpayers a total of US$2.4-trillion by 2017 when counting the huge interest costs because combat is being financed with borrowed money."

The war has also cost the American economy in other ways.

The Center for Economic and Policy Research in Washington blamed the war for the loss of 500,000 jobs costing US$60-billion a year in GDP growth. Add to that the foregone GDP due to the call-up of tens of thousands of reservists to fight in the war. Future military costs are also unknown. So far 4,000 have died and another 30,000 have been wounded.

CNN quoted the Center's Greg Bruno as saying that "costs associated with treating the military wounded are skyrocketing, putting historic strains on the Veterans Administration. The Congressional Budget Office estimates the agency's medical expenditures could top US$9-billion by 2017, with an additional US$4-billion in survivors' benefits."

A Harvard expert calculated that taxpayers will have to pay $700-billion in lifetime benefits to all personnel as a result of the war.

Still another hidden cost is the fact that the war has increased the price of oil and interest rates, say experts. The two will crimp economic growth.

As the Dallas Morning News wrote last week: "The crippling of Iraq's oil production since the start of the war amounts to one of the biggest disruptions in world oil supplies since World War II, according to statistics compiled by the U.S. Department of Energy." Iraqi supply disruption alone has added up to US$5 a barrel, Democrats estimate.

All in, the true cost is anyone's guess but for Americans paying the tab, the real cost of Middle East oil could be US$300 a barrel or more.

http://www.financialpost.com/dianefrancis

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