Commentary - James Jay Carafano and William Beach: Gaming model shows economic impact of Iran attack on U.S.

WASHINGTON (Map, News) - From December 2006 to March, Heritage Foundation scholars conducted a computer simulation and gaming exercise that examined the likely economic and policy consequences of a major oil disruption in the Persian Gulf. The exercise utilized a realistic scenario, state-of-the-art macroeconomic modeling, and a knowledgeable team of subject matter experts from government, business, academia and research institutes from around Washington. ...

The game began with a series of economic results based on a scenario in which Iran began blockading the Strait of Hormuz in January. The assumption was that Iran may succeed in fully blockading the strait for up to one week, but after that, some oil shipping would slowly resume.

The Heritage Foundation economics team, supported by analysts at Global Insight, then modeled the blockade’s likely economic effects on world oil prices and the U.S. economy. They found that under worst-case circumstances:

» The price of West Texas Intermediate (WTI) crude1 would peak in the third quarter of 2007 at $150 per barrel, an increase of $85 per barrel;

» Real (inflation-adjusted) gross domestic product (GDP) would fall by more than $161 billion in the fourth quarter of 2007;

» Private non-farm employment would decline by more than 1 million by the middle of 2008;

» Real disposable personal income would be more than $260 billion lower by the fourth quarter of 2007.

You can read the full report on The Heritage Foundation Web site at: heritage.org/Research/EnergyandEnvironment/cda07-03.cfm.

Advertisement