The Oil “Price Rise” Factor in the Iraq War: A Macroeconomic Assessment
By Dr. Mamdouh G. Salameh in Energy Politics Archives, Fall 2008
In his 2008 paper, “The Oil Price Rise Factor in the Iraq War,” Dr. Mamdouh G. Salameh argued that the U.S.-led invasion of Iraq significantly contributed to a steep rise in global oil prices. He estimated that the war alone accounted for about 63% of the oil price surge between 2003 and 2008, with the disruption of Iraq’s oil production removing critical supplies from the global market. Without the conflict, Salameh projected that oil prices would have stabilized around $50–$55 per barrel, even with rising demand from China and India.
Beyond immediate oil price effects, Salameh calculated that the global economy bore direct costs of $5.73 trillion between 2003 and 2008 due to higher energy prices and their macroeconomic ripple effects. The cost to Iraq alone, from lost oil export revenues and economic destruction, was estimated at $171 billion. Europe, heavily reliant on imported oil, faced an additional $1.35 trillion in oil costs over the same period. The article stressed that the war-induced oil shock represented one of the largest global economic redistributions in modern history, with transfers from consumers to oil producers amounting to $1.3 trillion in 2007 alone, or roughly 3% of world GDP. According to Salameh, this shift severely harmed the United States’ own strategic and economic position, contrary to its original aims.
Read the full paper here.
Where to Now: War-Risk and Sanctions Premiums in 2025
Today, geopolitical risks and sanctions continue to drive premiums in oil prices:
Geopolitical Tensions: Ongoing conflicts in the Middle East — notably between Iran and Israel — have reinstated a war-risk premium of between $5 and $15 per barrel, depending on the level of escalation.
Oil up 2% to a 2-week high as new US sanctions target Iran's exports
Geopolitical Concerns Have Oil Prices Back at October Levels
Sanctions on Iran and Russia: New rounds of U.S. sanctions on Iranian oil exports and tighter enforcement of the Russian oil price cap have further constrained global supply, exacerbating upward pressure on prices.
February 2025 — Monthly analysis of Russian fossil fuel exports and sanctions
As of late April 2025, the war-risk premium on crude oil—reflecting the added cost due to geopolitical tensions and conflicts—is estimated by some analysts to be between $5 and $15 per barrel, contingent on the severity and proximity of the conflicts to major oil-producing regions. This premium has been influenced by recent escalations in the Middle East, including tensions between Iran and Israel, which have disrupted oil production and transportation routes. For instance, prior to Iran's retaliatory attack against Israel on April 13, 2024, a war premium of $25 per barrel was already embedded in oil prices. Analysts noted that Brent crude prices could retreat by $10–$15 if the war premium returned to early 2024 levels, indicating the significant impact of geopolitical tensions on oil pricing .
However, despite these geopolitical risks, current oil prices have been under downward pressure due to other factors. Brent crude is trading around $61 per barrel, and West Texas Intermediate (WTI) at approximately $58 per barrel, marking a significant decline from earlier in the year. This decrease is attributed to a combination of factors, including increased OPEC+ production, easing of supply concerns, and broader economic uncertainties such as potential recessions linked to trade policies .
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In summary, while the war-risk premium remains a critical component influencing oil prices, its impact is currently being offset by other market dynamics, leading to a complex and volatile pricing environment.