Table of contents
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TABLE OF CONTENTS 1
1 PREFACE 2
2 IRAQ’S OFFENSIVE AGAINST KUWAIT: REASONS, MEANS AND STRATEGY 4
2.1. Saddam Hussein’s reasons 4
2.2. Building up his military equipment 5
2.3. Paying his military equipment 9
2.4. His strategy 9
3 THE ALLIES’ MILITARY INTERVENTION IN THE GULF CRISIS 11
3.1. The composition of the Allies 11
3.2. The part of the USA in the intervention 13
3.2.1. Public reasons for the intervention 13
3.2.2. Safety reasons for the intervention 14
3.2.3. Political reasons for the intervention 15
3.2.4. Economic reasons for the US firms to support the intervention 15
3.2.5. Military reasons for the USA to intervene 15
3.2.6. Consequences of the intervention within the US 16
3.2.6.1. Convincing the US’ population of a ”good meaning” 17
4 THE ECONOMIC CONSEQUENCES 18
5 LITERATURE 29
Preface
During the war in the Gulf, a great variety of points of view and statements concerning the economic background of that war were brought forward. It now seems interesting to me to find out more about this topic and the people who spoke or wrote about it. I am also interested in the entire story about and around the war and because I missed a lot of information when it was a topical news, I saw the chance of getting really into the circumstances of the Gulf crisis and its background by writing this report.
In the course of time, the Middle East has developed to a melting pot of people and states with totally different religions and beliefs. Although there have been quite a number of conflicts in that area because of this fact in the past decades, for example the Iran - Iraq war and the crisises which concerned Israel, none of them required the rest of the world actively to take as much part in as the Gulf war in 1991 did.
This war, which took place from January until March 1991, was fought between Iraq and the Allies with the USA as their leader. Like a lot of other conflicts in the Gulf region before, this one has also been based on religious differences between the states concerned as it is going to be presented in the text, although the economic intentions behind the pious agitations have been obvious.
During the crisis, the argument was brought up that the whole thing was just ”[...] zur Durchsetzung der völkerrechtlichen Normen gegen den Despoten Saddam Hussein und für eine neue Weltordnung [...]. Dieses Argument war selbstgebastelt, um die Tatsache zu verdrängen, daß hier primär wirtschaftliche Interessen des Westens auf dem Spiel standen.” 27338uvk67pud7t
Iraq’s offensive against Kuwait: reasons, means and strategy
Saddam Hussein’s reasons
To start from the very beginning, one should take into consideration how everything commenced when Iraq invaded Kuwait within 3 days in August 1991. Saddam Hussein, the leader, or rather dictator of Iraq, justified that blitz attack with religious motives, although the economic aspect of his justification was apparent. He accused Kuwait, Saudi-Arabia and the United Arab Emirates of conspiring with western-orientated Israel and the USA. He used ”[...] die tiefe Wut der breiten islamischen Massen gegen die Moderne, gegen einen sozialen und wirtschaftlichen Wandel [...]” as an instrument to focus his ”[...] Haß auf den Westen [...]”2 with all its imperialism, ”[...] Kapitalismus und Kommunismus, Demokratie und Aufklärung [...]”2.
But in the same breath he also gave the real reason why he condemned his neighbour states in such a hard way. ”Er warf ihnen vor, dem Irak einen giftigen Dolch [emphasized by the author] in den Rücken gestoßen zu haben, indem sie die von der OPEC festgelegten Förderquoten überschritten, und damit den Ölpreis nach unten getrieben hätten.” For a better understanding, one must know that Saddam Hussein has always been a fighter for a higher oil price to amortize the debits he got out of the eight-year war against Iran, which amounted to some estimated $80 million. Therefore he always postulated a raising price per barrel of oil but stood fairly alone with this demand. As now the rest of the oil exporting Gulf states even wanted to force the price to go down, that was too much for Saddam Hussein. He proclaimed the ”Holy War” against those ”[...] derer sich Satan vom Scheitel bis zur Sohle bemächtigt hat.”
Building up his military equipment
But nobody really expected Iraq to attack Kuwait after it had supported Saddam Hussein with several billions of dollars in the war against Iran. The general opinion was that he could be kept under control with money but now, besides his disapproval of Kuwait’s conspiration with the West and its subversiveness of the ”Arabian Brotherhood”, he accused Kuwait of stealing oil from the Rumaila oilfield, which is located between both countries and could be tapped by both Iraq and Kuwait. To be honest, it has to be admitted here that Kuwait actually did a lot of oil thievery from the Iraqi part of the oilfield, which of course did not give Saddam Hussein the right of fighting a crime with another crime. The line ”Saddam rasselt bloß mit dem Säbel, damit er bei der Debatte um die Ölpreise gegen Kuwait die besseren Karten hat” should be the best expression for the attitude of most countries towards Iraq at that time.
10 years ago, nobody could have imagined Saddam Hussein saying that he was ”[...] von Allah auserwählt, die Führung der muslimischen Gemeinschaft zu übernehmen”, as he felt before the beginning of the Gulf war in 1991 and maybe still feels today. 10 years ago, Saddam Hussein rather seemed to be one of the best representatives of Western ideologies in the Gulf region, when he fought the ”original” Gulf war from 1980 till 1988 against Iran’s Chomeini. vu338u7267puud
During that war, the whole world built up Saddam Hussein’s weaponry by exporting either weapons or raw material for the manufacturing of military equipment to Iraq.
At that time, a lot of Western and Western-orientated governments throughout the world thought Chomeini to be a dangerous and dreadful menace to the world. That reason has been sufficient enough for many countries to encourage their companies to do business with Iraq in order to keep it ”as a necessary counterbalance to fundamentalist Iran”.
But instead of using all the weapons given to him to keep Iran down as he was supposed to, Saddam Hussein did not ”consume” all of his imports. In fact, he just used up a small part of them and kept the rest; enabling him to play a game of chess with the rest of the world and even bring it to a stalemate by occupying Kuwait without any direct consequences apart from the UN intervention of course, which was carried out by the Allies.
The main problem of that time, however, seemed to be ignorance: ”Diese Ignoranz ermöglichte es, daß der Westen während des Iran-Irak-Kriegs den orientalischen Despoten Saddam Hussein massiv mit Waffen und Finanzhilfe unterstützte, ohne die geringste Ahnung zu haben, daß man damit zugleich den Aufbau einer Republik der Angst förderte.”
As far as the other part of Iraq’s military arsenal is concerned, it was also built up by a number of countries all over the world throughout the years. Before and during the first Gulf war, in the late 70’s and early and middle 80’s, the main strategy of the weapon exporting countries like Germany, France, Italy, the former Soviet Union and the USA was to help Iraq against ”dangerous” Iran. But after 1988, the year of the peace treaty between Iraq and Iran, there was no such justification anymore and it became clear that the Western World simply wanted to increase its gains by supplying Saddam Hussein with the latest inventions on the military market.
Germany played a important but still not decisive role in that war game called ”Make-Quick-Money-By-Providing-A-Weak-Country-With-Important-Military-Equipment” because other countries also contributed to Iraq’s war machine, some even to a higher extent than Germany. ”(..) France, Italy, Britain and other Western nations flooded Iraq with $13.4 billion worth of military equipment between 1982 and 1989.”
Although new exporting restrictions had been enacted by many governments to stop the breaking of the embargo put on the imports to Iraq by the United Nations to prevent the risk of a military and economic growing of Iraq, only a few companies obeyed those new rules. The majority continued to send its ”war toys” to Saddam Hussein and to get its money out of those trades. Together with their governments, they simply closed their eyes whenever there was a sign of Iraq getting too powerful in relation to the other Gulf states. Companies, under the protection of their governments because of economic relations between both of them, were only interested in making money by sending Western technology to Saddam Hussein and it was quite a lot of money they made.
The former Soviet Union, for example, provided Iraq with Scud missiles and since it was a short-range missile, the former GDR (German Democratic Republic) contributed the technology which made the missiles reach even more distant targets like Israel and Saudi-Arabia, two of Iraq’s main enemies. A lot of nuclear, biological and chemical warfare technology was built up by West Germany, whereas France supplied Saddam Hussein with Antiship and Antitank missiles. Italy also participated in building up the nuclear and chemical war machine of Iraq, while Great Britain constructed hangars for fighter planes.
This list could be continued with many other countries but the enumration of only these few shows that a lot of companies just intended to use ”the silence before the storm” to sell their military goods before it was too late.
The embargo as well as the new laws were mainly ineffective because in the US, for example, some ”[...] companies received licenses to export more than $1.5 billion in dual-use goods (military and commercial) to Iraq” and elsewhere governments, in spite of all restrictions, even seemed to encourage their companies to do business with Saddam Hussein, as German’s Otto Graf Lambsdorff, the leader of the Liberals, and concerned with economic matters, put it: ”Raketen kann man bekanntlich für friedliche Zwecke einsetzen, man kann mit ihnen zum Beispiel Satelitten nach oben bringen.”
Other companies simply exported their goods to countries not being concerned with the embargo or any restrictives and from there on to Iraq to cover up the way the weapons took.
Paying his military equipment
Saddam Hussein for his part was able to pay for all the equipment because he had built up his own ”[...] verdecktes, weitverzweigtes Finanzimperium” and put aside at least $10 billion, most of which he got from holding back 5 percent of the proceeds of the sale of Iraqi oil for himself. He was said to have had (and probably still has) accounts all over the world and to hold stocks of different companies. It is obvious that this could only have worked by operating under cover and commissioning mysterious or sometimes even fake firms, which means that they were not really existing to buy or sell stocks. Those obscure companies, if they were real at all, in most cases were almost totally controlled by Saddam Hussein’s intimate friends or relatives.
His strategy
His strategy after having been armed by and at the same time against the Western world was to occupy Kuwait and keep it as the 19th province of Iraq. With that step he intended to change ”[...] die Kuwaitkrise in einen arabisch-israelischen Krieg [...]” and further into an international conflict. While he had to give up his first two aims, mainly ”[...] dank der israelischen Zurückhaltung [...]”16, he had achieved the third one but not to the extent he had intended to. It is true, indeed, that in the end it actually had turned out to be a multinational force fighting against him but firstly, he lost the war and secondly, it did not turn out to be a kind of third World War, East versus West, as he had planned it. His fourth aim however, namely to banish all Western and therefore ”evil” influence from the Middle East, had not only been missed but even been changed into exactly the opposite. Instead of getting rid of it, he had even contributed to strengthen this ”evil” influence by giving the UN and the Allies a reason to set up military bases in the Gulf and therefore to spread their ”evil” influence more than ever.
But that ”bad” influence was a vital necessity for Kuwait after Iraq’s occupation. Kuwait, small and weak as it was, was suppressed by its new adversary and could have done nothing but wait for help from an outside nation.
The Allies’ military intervention in the Gulf crisis
The USA for its reputation as the ”typical” representative of the West and its ideologies and best-armed and best-trained strike forces turned out to be this outside nation. Together with some other countries of the Occident and of the Middle East, it freed Kuwait from its enemy aggressor by force.
The composition of the Allies
The Allies can be roughly devided into two groups: the ones who only supported them with money or logistic equipment and did not send any troops to Iraq, like Japan and Germany, and the others who actively took part in battle and fought side by side with the USA in the name of the UN, like Great Britain, France and Saudi-Arabia.
Saudi-Arabia, however, was a exception in that case because it both paid, together with Kuwait, a large amount of money and fought in the war by sending soldiers to Iraq as well as permitting the Allies to land their fighter airplanes at airports in Saudi-Arabia.
Although all the Allied governments and the UN pointed out that aggression from one government to another was something vehemently to be proceeded against and to be punished for and that this was their declared aim, it became clear very quickly that those praiseworthy intentions were also mainly directed by economic thoughts: ”[...] Des 1992 abgewählten amerikanischen Präsidenten [...] George Bush zufolge sollte das primäre Ziel der USA bei der Kriegsführung die Verteidigung der Rechtsnormen und der Werte der zivilisierten Welt sein.”
But this was only a pretence for the Allies in order not to have to reveal the real background to the public. No nation would have risked either the lives of its soldiers and military equipment or a big amount of money, if there had not been at least a few economic advantages for the nation, for example the stability in the Gulf region in order to guarantee a stable oil price or the belief of some Gulf states in the Western system in order to guarantee a continuity of the trade with these states.
The thought of a war in the Gulf because of oil evoked vivid memories of the two oil price shocks in 1973 and 1979 in a lot of peoples’ heads. Then the oil price multiplied itself by four within a few months. This had lasting effects on the world economy, especially on the weak economy of the Third World. By this, the whole world was also confronted with its dependence on the oil producing and exporting countries, which to a high degree were and still are countries from the Gulf region. Most Western nations lost sight of this dependence and took their prosperity too much for granted, which was to reveal the intention of the oil producing and exporting countries. This was one reason for most countries to take part in the Gulf war, either by only paying for it or even sending troops down there to help the USA.
In contrast to the economic reasons, for most Allied countries there was also the duty of going to war against Iraq because of their membership to the UN, which could not let Iraq get away with an annexation of Kuwait and a violation of basic rights without imposing any sanctions on the its regime.
Nevertheless, there were no plans of killing Saddam Hussein after a successful intervention because the Allies did not want Iraq to get split up into different areas of different religious groups, which, until then, were controlled by Saddam Hussein. Those groups, some of them even militant, would have again endangered the stability and thus the safety of that region and its oil. So the Allies did not want to jeopardize another war ”Made in Iraq” which might have been even more unpredictable for the economy than this one was.
The part of the USA in the intervention
The USA, as the leader of the multi-national strike forces, has not been surprised by the situation of being in this position, for it knew it had the best military knowledge and equipment of all the Allies. But nevertheless, there had been the problem of identification with this role at the beginning of war. Whereas there had been no doubt about the fact that the US was predestined for that role because of its logistic and military presuppositions, its population did not want to play the ”world police” for other countries anymore.
Public reasons for the intervention
The USA, with its 250 million citizens, had so many other problems but war at that time that it took the population longer than in any other war it had been involved in before, to accept the situation. ”Eine zunehmend tiefe Rezession, eine strukturell kranke Wirtschaft, die Spätfolgen des Spekulationsfiebers in den achtziger Jahren, ein marodes Bildungssystem, ein gefährlich labiles Bankensystem und eine international geschwächte Wettbewerbsfähigkeit. Kein einziges dieser Probleme wird durch den Krieg gelöst.” The USA suffered from a bad recession and one remedy for it seemed to be the Gulf war. The government saw the chance of solving two problems at the same time: Firstly, it wanted to protect and, if necessary, restore the balance of the Gulf region and within the OPEC. Secondly, it thought it could end recession by reanimating its economy with a war.
Besides, the USA still had not forgotten about the Vietnam War, which was a bitter pill to swallow because it was more or less the only war in US history which the USA had to admit to have lost. And since this was the last war the US actively fought in, it was still fresh on the public mind. Therefore the Gulf war also was for the US the opportunity of curing itself from the ”Vietnam-Syndrome”, which it succeeded in.
Safety reasons for the intervention
Similarly important was the fact that Iraq, due to a lot of mostly Western countries, as mentioned above, was enabled to build its own nuclear bomb. The CIA found out that Saddam Hussein was on the verge of finishing the bomb. This of course would have had serious consequences on the world’s political and economic status quo. One just has to imagine Saddam Hussein blackmailing the rest of the world by threatening with the nuclear bomb. It would have led to catastrophic states. That was the situation the USA, like all the rest of the world, wanted to keep from coming into existence and therefore had to intervene.
Political reasons for the intervention
Domestic policies also played an overwhelming role in the background of the war. All political leaders in a democracy grabbed for re-election and tried very hard to reach this aim. That was just what George Bush, then President of the United States of America, did. During the Gulf crisis, however, it became clear that war was not the best way to lead a nation out of a recession.
Economic reasons for the US firms to support the intervention
Nevertheless, it cannot be denied that the armament of the Allies by American companies and the outbreak of the Gulf war ”[...] on Day One sent stocks skyrocketing [...]”. Especially the stocks of the armament industry jumped to a higher price level within a few days.
Raytheon in Massachusetts, for example, the producer of the Patriot anti-missile missiles, those ground-to-air missiles which were needed to intercept the Scud missiles heading for Israel and Saudi-Arabia, profited from this war-boom.
Military reasons for the USA to intervene
But not only the preparations for this war ”[...] accelerate[d] America’s recovery from recession.”20 Likewise it is important to mention that, after discovering that Scud missiles were already produced in more than twelve other countries, the Pentagon, the US Department of Defence, declared that new missiles and anti-missile missiles had to be built, ”[...] die Schutz vor Raketenangriffen aller Art von wo auch immer bieten.” While the actual conflict had not been over yet, the USA found another positive aspect of it, namely the opportunity of getting prepared for the next war with even better and more accurate weapons. The war in the Gulf, where ”[...] der Irak zu einem Testgelände für ein Arsenal modernster Waffensysteme wurde”, had introduced a small boom for the armament industry and had made the companies think about more effective weapons to fight with in this new era of high tech war.
Consequences of the intervention within the US
But despite all high tech shows in the Gulf, one important factor should not be forgotten, whose consequences and influences on the outcome of war and therefore on the world economy made up a big part of the whole planning and organization of the intervention, at this time. The length of the war has been decisive for the sort and extent of the consequences: a short war could have been followed by the re-election of the President of the USA, whereas a long crisis surely would have ”punished” the ”Western warlord”. A short war could also have brought some positive atmosphere into the economy, helping it to overcome recession, although it had to be clear that the war would not have solved the rest of the American problems which had been, as shown above, quite a few.
Convincing the US’ population of a ”good meaning”
George Bush had to end the conflict successfully within only a few months and, without further ado, strengthen the American economy in order to absolutely succeed in that situation. For those reasons, he had to fight on two fronts: on the front line in the Gulf and on the home front, which was almost as important as the actual battle in Iraq. The population at home, more than the soldiers who simply had to do their jobs, had to be convinced of the accuracy of home-made weapons and the necessity of the war. The government knew of the importance of mass media as an instrument to provide its population with daily pro-American and pro-war material such as pictures showing American missiles and bombs hitting, for example, the entrance of a Iraqi building without killing any civilians. So not only the military industry profited from the war but also the US media. ”Seit [...] [Kriegsausbruch] haben sich die Einschaltquoten mehr als verdoppelt”, was the comment of the news channel ”Cable News Network” (CNN), for instance, whose correspondents voluntarily stayed right in the eye of the storm, namely Baghdad, to keep their viewers in touch with the latest news from the battle field.
In spite of all these efforts, President Bush did not manage to remain in office, although he won the Gulf war in less than two months, which once again proves the fact that ”Politiker, die Kriege beginnen, [...] in den seltensten Fällen dafür belohnt [werden] [...]”
The economic consequences
With pictures taken from US fighter planes over Iraq, the USA wanted to strengthen its reputation as a powerful nation. Rumours about the ”[...] ökonomische and technologische Dekadenz der USA [...]” were widely spread and prompted some countries to doubt the position of the US as a great power.
At the time of war, the US economy was in a deep recession with a high unemployment rate (6-7 % in 1991) and a high federal budget deficit which amounted to approximately $300 billion.
Not only the USA had to deal with this problem: countries all over the world complained about economic problems. Therefore this war seemed to be an opportunity for a lot of governments to suggest to their people that there was a beam of light at the end of the dark tunnel of recession. The rising stocks of the first day even seemed to prove this statement and made capitalism appear cold and ruthless.
Only one day after the stocks skyrocketed, the euphoria was slowed down by Iraq’s attack on Israel and it became clear that one had to wait for the outcome of the war to make any further advances in foretelling the development of the world economy. During the war, ”uncertainty, anxiety and high oil prices have depressed consumer spending and business investment, worsening the recession. (The Commerce Department reported [...] that the GNP dropped 2.1 percent in the fourth quarter)” of 1991. In general, this was also true for the other Allies, who all had to deal with a weak economy and vague future prospects.
In this situation, especially Germany got into dire straits since on the one hand its companies helped Saddam Hussein to build up his war machine and made a lot of money by doing so and on the other hand its government later was asked to pay for the damage and the injuries partly caused by weapons ”Made in Germany”. But ”statt eindeutig zur Golfallianz zu stehen, erweckte sie [annotation: the government] den Eindruck, Deutschland sei nur beim Geschäftemachen an vorderster Front.”
In this context, one has to mention the so-called ”Gulf war syndrome”, a reaction of the human body to the preventive medicine the governments gave to their soldiers to protect them from Saddam Hussein’s biological weapons given to him by the West, such as viruses and bacteria causing infectious diseases. The effects on the human body of most of those preventives had not, and if, not fully been tested when the war broke out, so that in a lot of cases soldiers became a sort of ”laboratory animals” for the military. They wanted to find out more about the medicine in actual battle situations, so they thought the opportunity of the Gulf crisis suitable for a kind of medical experiment on their own soldiers, not caring about the consequences. After the war, a lot of soldiers were neither able to continue their jobs in the army nor to find a job anywhere else to live on. The government just paid them a small amount of money when they left the army but that was hardly enough to make ends meet. Therefore the soldiers accused the government of not having informed them properly about the risks of those preventatives. The compensation, which has to be paid in some cases, now of course is a financial problem for the countries because they do not have enough money to support their former soldiers.
Despite all economic speculations about the oil price after the crisis and the oil-related consequences on the economy, there was one fact all nations thought about right from the beginning and which became really obvious on the day the fighting in Iraq ceased: the reconstruction of Kuwait’s destroyed industries and oil refineries.
All the Allies hoped to belong to the group of authorized nations which were allowed to help Kuwait in rebuilding its state. After the successful freeing of Kuwait, most of its infrastructure and communication network had been destroyed, mainly by retreating Iraqi troops. The costs of the reconstruction of Kuwait were estimated at some $100 billion, it was said to be the biggest investment program since World War II, where the ”Marshall-Plan” coordinated the rebuilding of destroyed Germany.
This of course meant ”Big Business” for the companies and one can guess that every country wanted to take part in it. But the Kuwaitis carefully selected the participating countries because they saw it as a reward for the liberation of their country. Great Britain, France and the other Allies got some orders from Kuwait but the USA, of course, got the biggest piece of the cake. Raytheon, for instance, producer of the Patriot missiles, delivered airport equipment, whereas IBM, Motorola and AT&T were commissioned to build up a new communication system with modern computers and telephones. And even before the intervention had begun, the U.S. Army Corps of Engineers had already entered into a contract about $45 million with Kuwait to supply it with water and electricity after the war. Detroit’s Big Three, General Motors, Ford and Chrysler, provided Kuwait with vans and trucks.
As far as the financial power of Kuwait was concerned, there had been no doubt about the fact that it might not have been able to pay all the contractors. It was said that Kuwait’s foreign fortune amounted to nearly $100 billion, raised, similar to Iraq, by saving 10 percent of the profits of the oil sales and controlled by the KIO. Kuwait then was (and probably still is today) shareholder of companies like British Petroleum (BP) and Daimler-Benz. But it did not want to sell all of its shares to get the money for its reconstruction since this would possibly have evoked a new crisis on the, at that time, very instable stock markets of the world. It rather wanted to raise the money by credits and therefore hoped that, considering its actual financial situation, there would be enough credit offers.
Kuwait wanted to pay back those credits by continuing to sell oil which of course made it necessary to repair its destroyed oil wells and refineries. Already the quenching and rebuilding of those was a $10 billion business, where, among others, also Red Adair, the world’s most famous fire-fighter, had his fingers in the pie.
The main part of the reconstruction business was given to the winners of the Gulf war, namely the USA, Great Britain, France and Saudi-Arabia. The other Allies, who only paid for the war, were hardly considered. ”Wir haben erkannt, wo unsere Freunde sitzen und wo nicht”, was Kuwait’s only comment on its distributing of the contracts for the reconstruction. ”Zwar werden Unternehmen wie BMW, Mercedes-Benz und Porsche bei der Ersatzbeschaffung für die von den Irakern gestohlenen Luxus-Autos nicht übergangen. Doch vom eigentlichen Boom fällt nichts ab.”
Some companies in Germany and Japan claimed that their governments were responsible for this development and the loss of some very lucrative businesses with Kuwait because they hesitated to take a clear position in war politics or even showed no interest at all. This gave the USA and the other Allies the opportunity, ”[...] den Aufmarsch als eine internationale Dienstleistung zu organisieren, über die nun abgerechnet wird.”31 Since they risked lives and machines on the front line, it seemed only suitable to ask the passive members of the alliance to pay for that.
War costs were valued at $60 billion or even more, still a vanishing amount of money in comparison to the costs of the Vietnam War, for example, which were around $570 billion or even World War II with its $3.1 trillion, both counted in today’s US dollars. ”In January the unofficial buzz was that the United States wanted the Saudis and Kuwaitis to pay about 60 percent of the war’s costs, the Japanese 20 percent, and the Germans and Americans the rest. Well, of the $54.6 billion in pledges to the United States, 67 percent ($36.8 billion) comes from the Gulf states (mainly the Saudis and Kuwaitis), 20 percent ($10.7 billion) from the Japanese, and nearly all the rest ($6.6 billion) from the Germans.” This means that ”[...] the U.S. percentage may be zero”32 or that the USA even gained a profit out of the war, depending on what one counts, ”(aids to Kurds? debt forgiveness for Egypt?)”32. In any case, there were still all the contracts with Kuwait for the reconstruction after the war, so that, counted altogether, the USA probably profited from the war.
For the other Allies, especially the ones who had to pay for the war, this posed the problem of raising the money for it. They mainly had two opportunities of covering their surplus of costs: to increase their taxes or to borrow money from foreign countries and with it to increase their national debt. ”Die Konjunktur bekommt in beiden Fällen einen Dämpfer: Höhere Steuern schöpfen Kaufkraft ab, höhere Staatskredite treiben den Zins und gefährden dadurch die Bau- und Investitionsgüterindustrie.”
Another important consequence of the ”[...] Persian Gulf conflagration” was, of course, the development of the oil price. A rising or dropping of it would have equally affected all Western nations, so it was a major request of all of them to keep this development under control. The Gulf crisis itself even was called the ”Great Oil War”35 once, referring to its importance for the stability of the barrel price .
Before the beginning of Operation Desert Storm, the oil price used to be at around $30 per barrel but ”[...] plunged by $10 to $21.44 a barrel on January 17, 24 hours after Desert Storm commenced.” This stood in contrast to most predictions which foretold a rising oil price, for the loss of Iraqi and Kuwaiti oil was seen as a safe indicator for an increase in price. But after the ”[...] fears that a Mideast conflagration would cause an economy-wrecking energy shortage”35 had been banned, it became clear very quickly that a short supply of crude would not have bothered the Western nations in the short view, for the strategic reserves of oil were all filled up to the brink of their capacity.
Those reserves could, in general, last up to 6 months, so most nations felt themselves secure from any major fluctuation of the oil price. The two oil shocks gave the initiative to build those reserves, which in the USA, for example, is called the Strategic Petroleum Reserve (SPR) and contains 586 million barrels of oil.
But it was not even necessary ”[...] to call up the oil reserves” because Saudi-Arabia replaced Iraq’s and Kuwait’s production almost all by itself. It increased its own production from about 5.3 million to 8.2-8.5 million barrels a day and so made up nearly 75 percent of the lost exports. The other 25 percent were substituted by Iran, Venezuela, the United Arab Emirates and other OPEC countries.
Although there was at first the risk of Saddam Hussein’s missiles hitting Saudi-Arabian oil wells or refineries and therefore having further effects on the world economy, the inaccuracy of Iraq’s weapons and the high tech defence arsenal of the Allies prevented any bad consequences. But even if one or two refineries within the range of Iraq’s missiles in Saudi-Arabia had been hit, it would still have had no results on its production because it took precautions against that case, for example to fill up tankers with oil and store it that way.
But since it took the Allies only 50 days to free Kuwait, there was no need of using much of the ”[...] stocks of 3.6 billion barrels [...]” ”[...] the industrialized world [was] sitting on [...]”36. During the war, the oil price kept relatively stable at around $20. That was rather positive for the economy in most countries because it dampened inflation and caused banks to lower interest rates which helped the local economy to overcome the recession.
But there were also negative consequences. The increased energy consumption because of the low oil price encouraged a lot of countries to go on with the wasting of energy, for instance, not caring about the environmental pollution.
When the war was over, the OPEC wanted to cut back on the daily oil production by 5 percent to avoid ”[...] the great oil glut” because the oil tanks had been filled up during the war. The increased daily production of 23.5 million barrels during the war should have been reduced because it was an almost 10 percent surplus of the amount that was actually needed in the months after. Besides, it was the intention of the OPEC to raise the price from $18 to $21 and stabilize it before it might have dropped further on and endangered world economy.
During the crisis, all OPEC members increased their production, some, like Saudi-Arabia, even to such an extent that analysts postulated a much higher cutback in production to bring at least a little bit of stability into the oil market. The biggest problem the oil cartel had to cope with was the unyielding position of Saudi-Arabia, which, as mentioned above, expanded its production more than any other Gulf state and then refused to decrease it because it saw its economic and political chances in the Middle East. Its chief enemy, Iraq, had been defeated and thus the Saudis became the most considerable and influential member of the OPEC.
In former times, Saddam Hussein always threatened Saudi-Arabia and Kuwait because of their striving for lower oil prices. But after the downfall of Iraq, Saudi-Arabia was able to control the OPEC in a certain way. After the Organisation had announced that it wanted to reduce production, Saudi-Arabia simply refused to do this and announced in return that it even wanted to increase its own production from 8 million to nearly 12 million barrels per day in the next few years.
Although the USA have always aimed at becoming partly independent of imported crude, the relationship between those two winners of the Gulf war still grew stronger during Operation Desert Storm and therefore the economic relations did not allow the US to dissociate itself from its dependence on Mideast oil, which they wanted to achieve by supporting their own oil industry and exploring still unused space in Alaska. But the USA were no exception in that case. The whole world was and still is dependent on oil from the Middle East. About 40 percent of the total oil production came from the Persian Gulf and this amount even grew up to 50 percent in recent years. But since that region was and will always be an instable system of religion, fundamentalism and hatred which endangers the safety of the world and its economy, the search for new oil wells or rather oil substitutes has to be continued and supported by the countries concerned.
A further consequence of the Gulf crisis had to be experienced by a number of different companies and industries not directly involved in the war. A lot of airlines, for instance, had to deal with growing numbers of people who cancelled their flights to the Gulf or to those attractive holiday resorts like Turkey or Greece because they were afraid of Iraq’s missiles or attempts on hotels by radical Muslims or other terrorists and militant groups. The hotels and restaurants there were just as much affected as the travel agencies all over the world.
But also restaurants and public institutions in other countries, which were not directly threatened by Saddam Hussein’s missiles, had to suffer from the war because it affected the mood of the people and therefore their spending habits. The yearly carnival season in Germany for example, which took place during the Gulf war, had to renounce some of its parties because the government did not want the public to celebrate parties while there was fought a war in another part of the world. So the turnover which normally came from those parties grew smaller and affected restaurants and the food and beverage industry.
For other businesses the war was a predecessor for the following boom. The people made more use of the railway system because many companies advised their employees to take the train instead of taking the plane, considering the higher risk of an attempt on an airline. The telecommunication sector also boomed because of the war since more and more people wanted to hold their conferences via video. The services which provide people with bodyguards or take care about the security of companies had to work at full capacity.
But the serious problems undoubtedly towered over the positive effects of the war: ”Die Milliarde Dollar am Tag, die der Waffengang am Golf nach Schätzungen Tag für Tag kostet, erhöht weltweit das Inflationspotential. Mit den Preisen steigen die Umsätze - und es kommt zur Scheinblüte durch Inflation.”
The more political but still economic intention of the Allies after their ”crusade” against Iraq was to keep up or rather restore the stability in the Gulf region. Since Kuwait itself wanted to rebuild its post-war state after Democratic rules and with new technological equipment and thus saw the war as an opportunity and even advantage for it, the only problem for the Allies remained Saddam Hussein.
They did not kill him, for he was necessary to preserve the stability in his own country, although he endangered the balance of the Gulf Region in general.
On the one hand, it would have seemed arrogant of the Western world to deal with the problems of other countries and to think of having to find a solution for its problems.
On the other hand, it would have been necessary to help the Middle East, considering its economic importance for the rest of the world. Stating a democracy in Iraq seemed the best solution but at the same time also the hardest to reach. Admittedly, the total exchanging of a country’s regime and system succeeded once, namely in changing Germany into a democracy after 10 years national-socialist system.
But Germany cannot be compared with Iraq. As it was mentioned at the beginning, the main difference of the Gulf countries is religion. In every country there are different groups of followers of those religions. Of course it is not that there were no different pious beliefs in Germany either but at least their followers did not fight against each other and killed people of ”the other side”. This was and still is exactly what is happening between radical groups in Iraq and even between whole countries in the Gulf region.
A war normally shakes the whole system of a country and might even bring it to a downfall, which would give room to a new one. But even if the Allies had managed to build up a democracy in Iraq, there would have still been the problem of dealing with the thoughts and values of the people. That was easy in post-war Germany because most of the people had seen the disadvantages of their former regime and therefore wanted to change it. But this was not the case with Iraq.
Firstly, Saddam Hussein remained head of state and continued his way of ruling the country and thus did not admit any change of the system.
Secondly, it would surely have been very difficult to change the thoughts and assets of the Iraqis since most of them were and still are totally convinced of their religion and their form of state.
So the Western world, for which the Middle East was still is a big petrol station, only had the alternative of threatening Iraq with another war to keep it from further aggression to other Mideast countries for the sake of a stable oil price and from continuing to work on the nuclear bomb and endangering the security and stability of the whole world and its economy.
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