Asia Would Feel Blast From an Iraq Conflict

The threat of war with Iraq has already put a strain on the U.S. economy and added to the current disheveled state of investor confidence. A war with Iraq, according to the Merrill Lynch Global Report Talking Heads, released November 18, would cost the United States upwards of $50 billion to $100 billion (the Gulf War cost America $12 billion to $14 billion, but the international cost could become much higher–economically speaking.

This situation “has already affected the Asian economies to some extent,” says G. Paul Matthews, fund manager and founder of Matthews Capital International Management in San Francisco (and IA’s Mutual Fund Spotlight manager for December). “Asia remains the most dependent [region] on imported energy, and the price of that energy is critical.” As the primary fund manager for five of Matthews’s six Asia-only funds, and with more than 30 years of experience in running money in Asia, Matthews says that if world trade were significantly impacted by an Iraq conflict, that too would affect Asia’s growth rates. “Lower growth rates run the chance of [producing] some form of recession,” he says, “but that would obviously depend on the longevity of any action and its impact on the free movement of oil.”