Economic Impact of a U.S.-Iran Conflict

November 16, 2012

            On November 16, a new report by the Federation of American Scientists estimated that a full-scale U.S. invasion of Iran could cost $1.7 trillion. The report on the potential impact of a conflict featured six different scenarios for the global economy. In one scenario, additional U.S. sanctions on transactions with Iran's central bank could cost the global economy $64 billion. But resolving the standoff could also add $60 billion to the global economy. The following are excerpts from the report, with a link to the full text at the end.

            These costs represent estimates of net impacts on the global economy and average out the gains and losses to individual national economies. Extreme caution should thus be exercised in attempting to extrapolate these findings to particular countries or sectors.
1. Increasing Pressure: The United States opts to impose a new round of sanctions that penalize any foreign banks – public and private – that conduct transactions with any business with the Central Bank of Iran.

   ·Average estimated global economic costs: Approximately US$64 billion.

2. Isolation and Persian Gulf Blockade: Among other actions, the United States moves to curtail any exports of refined oil products, natural gas, energy equipment, and services from Iran. Investments in Iran’s energy sector are banned worldwide.
   ·Average estimated global economic costs: Approximately US$325 billion.
3. Surgical Strikes: The U.S. leads a limited air and Special Forces campaign of “surgical
strikes” on nuclear facilities and military installations that are of acute concern.
   ·Average estimated global economic costs: Approximately US$713 billion.
4. Comprehensive Bombing Campaign: The United States leads an ambitious air campaign that targets not only the nuclear facilities of concern but also seeks to limit Iran’s ability to retaliate by targeting its other military assets.
   ·Average estimated global economic costs: Approximately US$1.2 trillion.
5. Full-Scale Invasion: The United States resolves to invade, occupy, and disarm Iran.
   ·Average estimated global economic costs: Approximately US$1.7 trillion.
6. De-Escalation: The president experiments with a new approach to resolving the standoff with Iran by unilaterally taking steps to show that the United States is willing to make
   ·Average estimated global economic benefit: Approximately US$60 billion.
            Broadly speaking, a full-scale military invasion is not only more costly to execute than a blockade or even a limited bombing campaign, it is also more likely to trigger a larger number of potentially cost-bearing effects and to drive up  their respective costs in dollar terms. Yet it also clear that, as probable costs generally increase commensurately with the assumed severity of action, so does uncertainty about potential outcomes and the degree of their impact in economic terms. For example, whereas the high-end and low-end estimates of the aggregate global economic costs for imposing a blockade are separated by several hundred billion dollars, the high-end and low-end estimates of costs resulting from a full-scale military invasion are separated by over two trillion dollars.
Click here for the full report.