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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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