The Report
of the Iraq Inquiry
•
developing
countries knocked by oil prices, leading to lower
growth.
66.
In his
covering minute, Mr Cunliffe advised that the Treasury’s main
concern related
to its
“ability to maintain sound public finances, especially in the more
pessimistic
cases”.
There would be some risk to the “Golden Rule” in all three war
scenarios; the
risk would
be much greater if a war involved WMD. Mr Cunliffe concluded
by suggesting
that
Mr Brown might want to warn colleagues about the risk to
public finances.
67.
The Inquiry
has seen no evidence that Mr Brown took any action as a result
of
Mr Cunliffe’s
advice.
68.
In his
evidence to the Inquiry, Sir Jon Cunliffe described the oil
market as the
“main transmission
mechanism” from a conflict in Iraq to the world
economy:
“There are
general confidence effects [on markets]; markets don’t like wars,
they
don’t like
political situations they can’t read, but … the more concrete
transmission
channel
through which a crisis … would impact the global economy, we
thought
would be
oil and oil price shock …
“We
modelled that quite closely …”29
69.
The Inquiry
asked Sir Jon whether the Treasury had done any work on the
benefits
of a
conflict in Iraq to UK energy supply or to the UK oil industry. He
told the Inquiry:
“No, the
only thing that I think comes close is that, in the fiscal impacts
of a crisis,
a high
oil price benefits the UK, because we are an oil producer and we
have tax
and licence
revenues, so we took that upside. That’s one of the reasons why
the
impact on
the UK economy is not straightforward. So we took into account
what
would
happen with an oil price spike. It would actually mean damage to
the UK
economy,
but more revenue coming in, but we weren’t trying to do an exercise
about
the
economic pros and cons of the war. That was not the object of the
exercise.”30
70.
Sir Jon
told the Inquiry that the DTI was also engaged on modelling the
impact of
conflict on
oil prices.31
71.
Mr Drummond
sent a paper on models for Iraq after Saddam Hussein to
Sir David
Manning on
1 November.32
In his
covering minute, Mr Drummond advised that it was
a synthesis
of some of the work undertaken by departments under the auspices of
the
AHGI, and
that it would be used as the steering brief for the
FCO/MOD/Department for
International
Development (DFID)/Cabinet Office delegation to the forthcoming
talks on
post-conflict
issues with the US and Australia in Washington. Mr Drummond
advised that
the ideas
in the paper would not be presented as UK policy.
29
Public
hearing, 9 July 2010, pages 8 and 9.
30
Public
hearing, 9 July 2010, pages 10 and 11.
31
Public
hearing, 9 July 2010, page 9.
32
Minute
Drummond to Manning, 1 November 2002, ‘Iraq: Post-Saddam’ attaching
Paper ‘Iraq: Models
and some
questions for post-Saddam government’.
384