LONDON - A prolonged war against Iraq could shrink the U.S. economy and result in soaring oil prices, according to a report published Monday by a British business leaders' group. The Institute of Directors - a nonpolitical organization with 55,000 members - said prolonged military action could see oil prices more than double to $80 a barrel, the U.S. stock market fall by 30 percent and gross domestic product shrink by 2 percent this year. A far more likely scenario, however, was a short successful war forcing Baghdad's prompt capitulation, which could result in oil prices quickly falling by a third to $20 dollars a barrel and the U.S. economy growing by 2.9 percent in 2003, the institute said. "In economic terms, a short war is better than no war, or no regime change, because of the removal of uncertainty," said the report, titled "War and the World Economy."
"There are tremendous military, political and economic uncertainties facing the U.S. and world economy this year," said the institute's chief economist Graeme Leach, who wrote the report. He said the report was an effort to help the group's members understand what might happen to U.K. export markets. U.S. economists have expressed concern a war will push up oil prices, quashing an economic recovery and negating the potential benefits of President Bush's proposed $674 billion tax cut package - assuming that plan is approved by Congress. The institute said a "short war/capitulation scenario" would help the president "obtain Congressional approval" for the tax package. "Lower oil prices would also provide the Federal Reserve with further opportunity to reduce interest rates," the report added. March oil futures were $33.28 a barrel on the New York Mercantile Exchange on Friday.//www.miami.com