Fireside Chat: Unintended Consequences of the War on Terror

Ximena Ortiz interviews Richard Vague, discussing the price of oil, the potential for postwar stagflation, the root causes of terrorism and much more.

Richard Vague, CEO and co-founder of Juniper Financial, says the Iraq War alone is responsible for a $20 to $30 premium in the price of a barrel of oil and claims that absent the war, oil would sell around $40 to $45. In an interview with National Interest editor-at-large Ximena Ortiz, Vague points to other "unintended consequences" of the war, and raises the possibility of "at least a little bit" of stagflation, although he remains optimistic about the economy.

You have historically voted as a conservative, but your perspective on the causes of terrorism and the policies that should be enacted to counter it is very much at odds with the Bush Administration. Why do you believe that so many self-described conservatives subscribe or did subscribe to the Bush approach to countering terrorism, and why do you believe that such an approach did not represent conservatism?

I think people tend to vote their party line. This issue prior to 9/11 was not what people were focusing on. And so when 9/11 occurred and when President Bush put forward his course of action, I think folks were inclined to trust and follow the leadership.

But if you think about conservatives or Republicans, there's nothing inherently conservative or Republican about initiating war. If you look at the Republican Party since the time that it was originally formed, it has often been the party that has gotten us out of war. The Republicans were elected to get us out of Korea and Vietnam.

People are inclined to follow the party line, and if Bush had taken a different posture, they would have followed that equally. I don't think it comes out of people's own independent thinking or research on this issue.

How would you suggest dealing with those underlying causes? Wouldn't you say that before 9/11, that discussion of so-called root causes was very much associated with liberals?

Perhaps. I think that dialogue was very much in the background, irrespective of who was talking about it. I just don't think it was a very elevated dialogue because it wasn't on the agenda. But if you study terrorism in the period since World War II there have been more terrorist acts in liberal democracies than there have been in any other kind of country.

When you examine it on a case-by-case basis, what you find is that terrorists get the support of a broad population under two circumstances-one of those is occupation, like England and Ireland in the 1800s and 1900s, and the other is oppression, from a dictator, perhaps towards an ethnic minority, like with the dictatorship in Peru in the 1970s. In those situations the broad population is susceptible to the lead of the terrorists.

The situation in the Middle East is that you have terrorists that the population responds to. So the real question is: Why does the broad population follow, sympathize with and support terrorists in some situations but not in others?

Do you find that your perspective is at odds with those of other high profile CEOs and business leaders? Or have you just been more vocal in your views?

It was definitely at odds with those folks in 2001 and 2003, but I find it's much less so today. I find again and again that thoughtful CEOs that I come across, particularly those that are involved in a lot of international travel, are beginning to see how poorly this is going, beginning to do some thinking and on their own. They're beginning to see that it's a more complex problem with a different solution than has been espoused by the Bush Administration.

And during that period when you were more at odds with the rest of the business community, did you find that you had to pay a price for your perspective? Did you become alienated from the rest of the community?

It was a very emotional issue. I did find that people didn't want to hear what I had to say. I also tried to adopt a tone that was not strident, not adversarial and asked folks that had an issue with me to simply listen to my reasoning. I find that business people are generally pretty smart folks, and once they kind of get into the facts and can weigh the pros and cons, they can very quickly see the perspective that I bring.

Speaking of the pros and cons, you have noted that on the eve of the invasion of Iraq, the price of oil was $28 a barrel and it's now above $60 a barrel. But the fundamentals in oil haven't really changed much, so would you attribute psychological factors to the spike, and if so, what does that suggest about market expectations for the War on Terror and the Middle East in general?

I think it's a very important point. In many ways, the invasion of Iraq has accomplished things we did not intend. And two big ones are the increase in the price of oil and the rise in the federal deficit. Surely Iraq is not the only reason for those, but it is a major contributor in both cases.

And I think it's not just the psychological factor. I think it is actual supply and demand as well. Supply has been cut off, and there's been an increase in demand in places like India and China. So you have some increase in the price of oil attributable to that. The price of oil absent the war would probably be $40, $45 a barrel. So the premium of another $20 a barrel or $30 if you're at about $70, clearly is attributable to the lack of supply from some Middle Eastern countries because of war and also the psychological effect that you [mentioned]. It reflects market concerns about things not being resolved. To me, that's a reflection of the fact that this course is not producing any tangible evidence that it's working.

And speaking of the deficit, what longer-term impact do you think that the war could have on the economy? What do you see in terms of fiscal health, inflation and interest rates?