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Experts: Greatest Threat Posed by Nuclear Iran May be Economic

December 18, 2012 2:12 pm 0 comments

Natanz Nuclear Facility. Photo: Hamed Saber.

Top foreign policy experts writing in today’s Wall Street Journal highlighted the threat posed by a nuclear Iran to global financial markets. The article was written by Charles Robb, Dennis Ross and Michael Makovsky who  led a Bipartisan Policy Center task force that examined the energy-related costs of inaction against Iran. They concluded that “A nuclear Iran would raise the likelihood of instability, nuclear proliferation, terrorism and war.”

To quantify this price impact, the task force “identified five scenarios that an Iran with nuclear weapons would make more likely: domestic instability in Saudi Arabia, the destruction of Saudi energy facilities, an Iran-Saudi nuclear exchange, an Iran-Israel nuclear exchange, and the lapse of sanctions against Iran.”

The task force concluded that even if none of these risks came to pass, the very specter would cause the following disruptions:

– Oil prices could rise by 10% to 25% in the first year (or $11 to $27 more per barrel). As instability and tensions remain high, so will prices, even rising as much as 30% to 50% ($30 to $55 per barrel) within three years.

– Consequently, gasoline prices could jump 10% to 20% in the first year. Within three years, the cost of gas could rise more than 30% (or more than $1.40 per gallon). Such sustained price increases would have a pronounced negative impact on the U.S. economy.

– U.S. gross domestic product could fall by about 0.6% in the first year—costing the economy some $90 billion—and by up to 2.5% (or $360 billion) by the third year. This is enough, at current growth rates, to send the country into recession.

– The unemployment rate could also rise by 0.3 percentage points in the first year and by nearly 1% two years later, resulting in some 1.5 million more Americans becoming jobless.

The authors do note that “such analysis, no matter how carefully done, involves as much art as science” but they conclude that policymakers “must not dwell exclusively on the potential short-term impacts of economic pressure or military action” for  “the economic costs of a nuclear Iran may be no less real and far more enduring.”

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