US faces daunting threat to economy in event of Iraq war

An American military strike against Iraq could have such a negative effect on the US economy that the type of operation chosen by President George Bush and his advisers to oust Saddam Hussein could be influenced by its cost.

Almost every week, details of the latest plan being considered by the Pentagon to topple the Iraqi dictator are leaked to the press. But yesterday it was claimed that a big factor in the plan eventually selected would be its cost. This judgement is based on the likelihood that, unlike the Gulf War in 1991, the cost of any operation on Iraq would have to be borne largely by the US.

The cost of any operation has not yet been worked out because Mr Bush and his planners have not decided which option to pursue. Various plans call for a pre-emptive strike against Baghdad, a massive operation involving 250,000 US troops, or fomenting insurrection by Iraqi opposition groups.

But with the Bush administration committed to "regime change" within Iraq, increasing attention is being given to the cost and the possible effect on the US economy. In particular, officials are concerned about the possible effect on oil prices, which rose sharply in 1991 after disruption to supply.

"When weapons start going off in the Middle East, markets generally go down, gold prices go up and oil prices shoot to the moon," James Placke, a former US diplomat with experience in the Gulf, said. "And I expect this is the short-term pattern we can reasonably anticipate."

Saudi Arabia, Kuwait, Japan and the US divided the $60bn (£38bn) cost of the Gulf War. It is estimated the US would have to pay for 80 per cent of a new operation. Each of the three other countries that helped pay for the 1991 operation have indicated they do not wish to contribute this time.