1. Iraq War Scenarios Copyright © 2003 Global Insight, Inc. February 18, 2003 Nariman Behravesh Chief Economist

2. Copyright © 2003 Global Insight, Inc.2 Baseline – Short War Short war (two months or less) starts in March Minimal coalition casualties No major oil disruption Oil prices spike to $40 per barrel, but average $31.50 in Q1 and $25.30 for the whole year The dollar falls gradually, losing 4% of its value against industrial country currencies during 2003 Falling confidence and stock prices hamper growth, but rebound after successful conclusion of war Tax cuts plus additional $50 billion in defense spending help to sustain the recovery 60% probability

3. Copyright © 2003 Global Insight, Inc.3 Victory Without War Either a war that lasts less than a week or a regime change in Iraq without a war Sanctions against Iraq lifted quickly Oil prices drop below $20 per barrel, but recover gradually as world demand strengthens A rebound in confidence and equity markets, along with lower oil prices, boost growth worldwide Weaker defense spending in the U.S. is offset by stronger growth in consumer and business expenditures 20% probability

4. Copyright © 2003 Global Insight, Inc.4 No War/ No Resolution No war but uncertainty over Iraq continues throughout the year Geopolitical tensions remain high Oil prices remain high (averaging $30 per barrel for the year) and volatile Consumer and business confidence, along with the stock market, remain depressed Global growth, especially outside of North America and non-Japan Asia, remains weak Less than 10% probability

5. Copyright © 2003 Global Insight, Inc.5 Long War War drags on for six months or more with higher coalition casualties Confidence falls further and remains depressed longer Oil prices spike to $50 per barrel and average above $30 per barrel in 2003 Defense spending rises by $70 billion The dollar falls by 10% on a trade-weighted basis The Fed cuts interest rates by another 50 basis points Less than 10% probability

6. Copyright © 2003 Global Insight, Inc.6 Bad War The war escalates into a regional conflict Oil prices spike to $60 per barrel, because of supply disruptions, and average $40 per barrel in 2003 Consumer and business confidence plunge Consumers retrench and capital spending falls once again A double-dip in the U.S. and world economies The dollar falls by 20% in trade-weighted terms Less than 2% probability

7. Copyright © 2003 Global Insight, Inc.7 World Growth (Percent change, annual rate)

8. Copyright © 2003 Global Insight, Inc.8 U.S. Growth (Percent change, annual rate)