In the months leading up to the military action, predictions of its economic impact generally depended on whether one assumed that the conflict would be short and relatively simple, or turn out to be prolonged and complicated. On the immediate eve of the conflict world stock markets registered big increases while oil prices plunged, reflecting early market expectations of a speedy coalition victory.

These were based on widely propagated predictions of capitulation by Iraqi forces, collapse of the Saddam Hussein administration, securing of the Iraqi oil fields and installation of a democratic, pro-western government in Iraq. Restoration and expansion of Iraqi oil production, under western control, would undercut the Organisation of Petroleum Exporting Countries cartel and drive the real price of oil down to pre-1973 levels. All this would lift world stock markets, boost international investment and trade, and lead to rapid and sustained global economic recovery-including tourism, since the world would have been made a safer place.

As the war enters its third week, this scenario is appearing less and less likely. Determined resistance by the Iraqi forces, using a combination of conventional and unconventional methods, raise the prospect of a prolonged conflict with no clear-cut victory. And the long-term repercussions are becoming harder to predict with any degree of confidence.

For instance, a prolonged conflict would add to the financial costs of the military action and could substantially impact the US budget deficit. Among the possible consequences are pressure on the US dollar, higher US interest rates and heightened global economic instability.

Another possible fall-out is on global trade negotiations. Some fear that the political rifts generated by the military action could spill over onto preparations for the up-coming World Trade Organisation Ministerial meeting and indirectly affect the growth of world trade. Others believe that this is unlikely, as all countries have a stake in a successful outcome to the meeting.

A more troubling prospect is the risk of increased terrorism. The rising incidence of civilian casualties and the physical occupation of Iraq by western forces could swell the ranks of potential terrorists beyond Al-Qaeda type fanatics to Arabs and Muslims of moderate persuasion, leading to heightened fears about the safety of air travel.

None of these are hoped-for consequences. But responsible and realistic forward planning requires that they be factored into the political and economic equations.

In the light of this, regionalism in the Greater Caribbean will be put to new and unprecedented tests. The difficulties being experienced by regional airlines, for instance, highlight the urgent necessity for implementing a plan for regional airline integration, or at least cooperation. Such a plan has been mooted for many years, backed by studies showing the tangible benefits from cooperation.

The alternative to such integration/cooperation is for one or more the airlines to go into receivership and out of service. There is also the possibility of foreign acquisition, making the region even more reliant on foreign carriers. Either alternative would have negative implications for regional tourism.

 

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