Fiscal Times: The Collapse of Iraq Could Impact America

Tuesday, 17 Jun 2014 07:20 AM

By Michael Kling

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Civil war in Iraq could hurt the United States in several ways.

In fact, The Fiscal Times lists five ways the collapse of Iraq could hurt the United States.

First, an Islamist state would pose a grave security threat to the United States and other Western nations. The Al Qaeda-linked Islamic State of Iraq and Syria (ISIS) has already seized much of the northern part of the country and is moving toward Baghdad.

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ISIS could use Iraq and Syria as a springboard for terrorist attacks abroad, just as al Qaeda used Taliban-controlled Afghanistan as a base for its 9/11 attacks.

Second, the turmoil could derail the U.S. economic recovery if Iraqi oil production plummets. Oil prices might skyrocket, which would then kill the recovery and even cause a recession.

Third, the crisis, a U.S. foreign policy debacle, might damage American prestige. The United States spent enormous sums in Iraq. The Obama administration pulled out of the country in 2011, apparently thinking Iraqi Prime Minister Nuri al-Maliki could handle the situation. Turns out it was wrong. If Iraq collapses, "it would arguably be one of the worst foreign policy disasters in the history of the country," The Times notes.

Fourth, the conflict might damage military morale. More than 4,400 Americans died fighting in Iraq and almost 32,000 were injured, many seriously, The Times reports, citing Pentagon figures. One in five soldiers has post-traumatic stress disorder. American veterans could become dejected and angry if they believe their efforts were done for nothing.

Finally, the war might frighten financial markets, sending stocks tumbling, especially if the war spreads. Shiite Muslim Iran may enter the war to oppose the Sunni ISIS, and the conflict could cause a humanitarian crisis, as huge numbers of refugees attempt to flee the violence.

Other observers worry that the war could squash the economic recovery.

Iraq's oil minister has said oil wells are safe in the Shiite-dominated areas in the south, and Saudi Arabia officials said they could compensate for a drop in Iraqi production if needed, The Telegraph reports.

Still, many experts remain worried.

"The worst-case scenario is that we see production from Iraq slip down to levels in the last Gulf war, then oil could spike $20 a barrel very quickly," Ole Hansen, head of commodity strategy at Saxo Bank, tells The Telegraph.

"In that scenario, the entire economic recovery, which is still fragile, could stall, and we could even slip back into recession in some regions."

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