Time to take cover and wait for the dust to settle

Some 12 years ago this month, Iraq invaded Kuwait and within a year a significant chunk of the world was at war with President Saddam Hussein. Apart from driving Iraqi forces out of Kuwait, the whole exercise proved inconclusive and, for the US at least, has rankled ever since. President George Bush Snr, then in the White House, has passed on to his son the burden of unfinished business.

Fears about a possible US action against Iraq have been hanging over the markets for most of the year but last month President George Bush Jnr revived the idea of 'regime change'. He wants a new order in Baghdad. Leaving aside the question of whether toppling Saddam Hussein is moral, legal, right or just, and also why other nasty, dangerous, repressive regimes are allowed to continue, what will 'regime change' do for the citizens of the world?

The US administration argues that because Iraq is acquiring weapons of mass destruction, Saddam's removal is essential at some point, so it should be done sooner rather than later. However, given a weak global economic outlook, there is little appetite for conflict right now. In Europe, Russia, France, Germany, the UK population and key ally Turkey are all skeptical. Former Gulf War allies Saudi Arabia and Jordan have warned against US action. Even Israel would probably prefer fuller US support for its home battle than the prospect of a new front.

The armchair strategists say war is good for economies. In fact, it is the post-war reconstruction that often provides the spending base on which to rebuild growth. And there is very little information coming from Washington hawks about the 'post' scenario. If Saddam is ousted, who or what will take his place? What will be the interim maintenance arrangements and how, exactly, will reconstruction of a post-Saddam Iraq contribute to global peace and prosperity?

President Bush is obviously personally obsessed with Iraq, in the way some of his White House and Pentagon predecessors have been with other nations, like Cuba. He chose to announce his commitment to revisit the military option the day after data was released showing US GDP growth last year was lower by 25% than previously calculated and that economic growth in the first half of this year wasn't as robust as expected. His priorities are clear.

The 11 September attacks in New York have given anti-terrorist agendas everywhere a new validity and urgency. Arguably, they have given the US the right to be more vigorously pre-emptive than anyone else. But few believe the US, or any combination of it and various allies, can deliver the 'surgical strike' or 'silver bullet' that would achieve the diverse ideological, political and military goals identified. War is a hazardous, shambolic activity that leaves most of its participants feeling cheated and their environment scarred. The White House scenario of overwhelming force supported by 'tight lips, perfect timing and total unity' comes straight from Hollywood B movies.

Investors can only take cover while the dinosaurs thrash about above us. Expect another oil price hike, with all its ramifications. Investment, both domestic and foreign, is already drying up. Confidence is evaporating in the heat of ongoing corporate accounting scandals. Markets are expecting an interest rate cut from the US Federal Reserve this week but the cavalry is not yet saddled, let alone ready to ride. Hold onto your scalps, for the action may just be beginning.

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