The Cost of Fighting Islamic State

by | Nov 5, 2014

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The mid-term elections on 4th November have left Barack Obama struggling for political support. But at least there’s one thing on which the voters still back him – the necessity of the struggle against Jihadists in Syria and Iraq. Has anybody tried to cost this highly popular operation yet? Michael Wilson considers some of the issues

They say that the great Irish playwright George Bernard Shaw was once challenged to a duel. To which he replied that, as the recipient of the challenge, he had the traditional right to choose the means of combat. Now, it wasn’t an era wherein you could just purchase AR-15 magazines to dovetail them into an AR-15, so his choice of weapons was to be a pair of field guns across a card table. His challenger immediately backed off, knowing that he would be instantly dead from blast injuries even if he were lucky enough to get the first shot in.

Sensible chap. Whatever else GBS might have been – and he had some pretty convoluted thinking about military force – he had nailed one of the most important dangers of all. Namely, that the collateral damage from any confrontation could be just as bad if you won it as if you lost.


Unfortunately, it looks as though Barack Obama has no real choice but to accept the odds.. Six months ago, the US president told the American people that only fools and dyed-in-the-wool warmongers would find reasons to send American troops back into the Middle East, from which they had only recently been withdrawn. But now they’re back in.

What’s so striking now, however, is not just the strong cross-party political support that America’s abrupt return to the military front in Syria and Iraq has received. It’s also the welcome that the move has received among the population at large. Seldom can a U-turn have been so politically effective.

(Editor: Not that that will make his presidential task any easier since his party’s rout in the mid-term elections on 4th November: the scale of the Republican gains mean that the Prez will find it tough going on virtually every other front.)

No Ordinary Evil

But then, the so-called Islamic State which is now ravaging Syria and Iraq is no ordinary enemy. At ground offensive level it’s possibly the most committed perpetrator of supremacist atrocity since the holocaust. And at organisational level it’s in a different league from anything the world has seen before.


It’s rich, for a start, because it receives hundreds of millions of dollars in support from all over the Middle East, some of it in bitcoins. It may already have a billion dollars in the bank, and it gets richer with every oil well that its soldiers capture. It’s technologically savvy, with a mastery of social media that ought to scare everybody. And it’s operating in a region where frightened minority communities sit huddled and waiting to be rounded up for possible execution.

For the moment, IS has set its sights on forcing its dominion on the Islamic world, but it has left the West in no doubt that we are next. In short, the rise of Islamic State looks to most people like the sort of evil that surely nobody can ignore.

The Cost?

We are already being assured that the fight will take decades, not months, even if the current physical campaign were to sweep away the insurgents quickly. Which is why we cannot really imagine that the western world’s spending on this campaign will do anything but escalate in the coming months and years.


What form will the offensive take? At present the US initiative revolves around remote air strikes against IS positions in Syria and Iraq – Britain was operating in Iraq only at the time of writing – but the near-certainty is that ground penetration will need to follow if civilian casualties are to be restrained. And, all the while, Western nations will need to step up their own security and surveillance systems in ways that we’ve hardly even considered yet.

All of this, God forbid, is for the future. And accordingly it will be clear that we don’t yet have much to go on when trying to calculate the cost of this particular struggle. But without any figures at all we don’t even have a starting point. So here goes.

At the end of September the independent Center for Strategic and Budgetary Assessments in Washington estimated that lower-intensity air operations could cost $2.4 billion to $3.8 billion per year, rising to between $4.2 billion and $6.8 billion if the pace of airstrikes should increase in any sustained fashion.


The Washington Post estimated that the 260 airstrikes launched by US forces in Iraq and Syria since Aug. 8 – plus around 50 Tomahawk missile strikes at $1 million apiece – and concluded that the US had probably spent between $780 million and $930 million so far in its military campaign against Islamic State. The probable cost at current levels would pan out at between $200 million and $320 million per month if a contingent of 2,000 U.S. service members were deployed on the ground.

And that’s just for the United States alone. So how much more military support will be needed? How long is a piece of string? It does not seem unreasonable to suppose that the overall effort might need to treble or quadruple. And suddenly, front-line international defence costs of $50-80 billion a year do not seem so fanciful.

For comparison’s sake, that’s about 0.5% of US GDP. Or the amount of quantitative easing that the Federal Reserve was pushing out every single month until very recently. It won’t be the end of civilisation as we know it.


But a concerted cyber-attack or a major terrorist operation in the west might be any times as harmful. That’s the prospect that is presumably concentrating the market’s mind at the moment – by the second week of October the Footsie had taken a 6% bashing from its July level, and the S&P was down 4% from mid-September alone. Bond yields were ticking upward – and, although nobody was in panic mode, there was general agreement that only a real contrarian would consider this a good time to go in heavily.

Measuring the Consequences

Now, there are many people who object, for perfectly principled reasons, to the idea of computing the economic effects of a military campaign. The US military-industrial complex made a fortune out of the Vietnam war, they argue, and anything that smacks of similar thinking stinks to high heaven. (The observation that US economy soared during the Second World War as its manufacturing moved into overdrive meets with a slightly more muted response.)

But, whether we like it or not, the awkward truth remains that armed conflict is often a stimulus for an economy – at least, until the debt issuance comes home to roost. (That’s subject, of course, to the important proviso that terrorism doesn’t knock out the information and travel infrastructure, or compromise the energy supply industry.)


Should we ask about the impact of this conflict on the oil price? A first glance suggests not. Crude oil has remained staggeringly cheap throughout the conflict so far, with Brent nudging $90 in mid-October. That’s down from $115 in mid-July, by the way. But then, Iraq has sharply reduced since March by the Islamic State attacks on its pipeline to Turkey, so you could say that the damage has already been discounted. Booming US shale production has cushioned the west from what might otherwise have been a crippling blow.

Getting At The Truth

We should face the likelihood that both the strategic ground and the political justification are likely to shift in the coming months. If IS were ever to decide to stop killing its victims and to start holding them instead as human shields, the West would be faced with an agonising moral dilemma that might well split the support back home in Idaho and Pennsylvania.

A more immediate question might be to wonder which way Russia will play the current situation. An unashamed supporter of Syria’s president Assad, Vladimir Putin has been crowing about the West’s forced realignment with his troops in their battle against the Islamist insurgents. But there’s plenty of scope for further blocking and game-playing – some of which may relate to the tense situation in Ukraine as much as anywhere else. It would be no surprise if Moscow tried to leverage the Syria situation in an attempt to extract economic concessions.

As we discussed in this column last month, America has no particular reason to fear Russia’s wrath – except for the bizarre possibility that, if it continues to block Russian companies from refinancing their debts, their own share prices in Moscow might hit the dust in a way that would shake their foreign shareholders to the core. Bloomberg reports that Russia’s major banks will need to refinance $15 billion worth of bonds denominated in dollars, euros and Swiss francs during the next three years. And that if they can’t raise the money, their creditworthiness may come into doubt and the whole system may become unstable.

In short, the more we look at the Middle East situation, the more it becomes impossible to limit the potential for damage, however remote. In a fully inter-connected world, it could hardly be otherwise.

Back To Shaw

We opened with George Bernard Shaw, and maybe we should close with him. GBS was stroppy old polemicist at the best of times, but he left little doubt that he wouldn’t have been particularly squeamish about the carnage that Obama’s campaign against Islamic State would surely entail.

In his 1905 play Major Barbara, Shaw allows the loathsome arms manufacturer Andrew Undershaft to win the moral argument against his adversaries, the Salvation Army peace protesters, by brutally declaring: “Nothing is ever done in this world until men are prepared to kill one another if it is not done”. Embarrassingly, 109 years later, nobody has yet come up with a counter-argument that really convinces.

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