What would be the potential impacts to the economy – both positive and negative – from a prolonged military involvement in Libya? Mostly negative.
While some defense contractors might benefit from a pickup in orders, most of the economic effects would be negative. Oil prices would remain elevated as Libya’s oil output would likely remain almost nil compared to the 1.6 million barrels produced prior to the conflict. Although budgetary impacts would probably not be huge, funding costs would make deficit reduction even harder. Debate on the U.S. role in Libya could also distract Congress from focusing on our long-term debt problem. Finally, adding Libya to America’s involvement in Iraq and Afghanistan would weigh on consumer confidence and add more uncertainty to future election outcomes.