Lea Paterson, Economics Editor of The Times, takes a detailed look at the financial implications of the War on Iraq for Britain and the world.

How much will the war cost?

Until we know how long the war is going to last, and the extent if the damage inflicted on the Iraqi infrastructure, it is impossible to put a precise figure on the likely cost of the conflict. However, analysts have made some broad estimates based on the experience of the 1991 Gulf War.

The US Congressional Budget Office (CBO) recently estimated that the initial deployment of troops to the Gulf would cost up to $14 billion (£8.8 billion), and the first month of combat would cost around $10bn. In subsequent months, the cost of war is estimated to fall to about $8bn a month. After hostilities end, the CBO expects the cost of repatriation of troops to be approximately $9bn.

Following the end of war, there is likely to be a period of military occupation, which could cost anything between $1bn and $4bn a month.

A short conflict, say lasting up to four weeks, followed by six months of military occupation, therefore could cost up to $57bn. In real terms, this is broadly in line with the cost of the 1991 Gulf War.

Who will have to pay for this war?

In the 1991 Gulf War, the costs of conflict were split between the allied nations. This time round, there is only the United States and Britain involved, and America is expected to bear the brunt of the cost.

In the short term, the war is likely to mean even higher levels of borrowing - and so larger budget deficits - in both the US and the UK. But over the longer term, the cost of war is likely to trickle down to the taxpayer.

What has been the impact of the build-up to war on the global economy?

The war - or in particular, the threat of war - has already had a substantial effect on the global economy. Share prices have tumbled, and, in early March, the FTSE-100 index sank to its lowest level since the summer of 1995. The dollar and the pound have weakened substantially. The oil price has risen sharply, squeezing the profit margins of businesses, and there has been a marked drop in business and consumer confidence. The most recent data have shown that the threat of war has led to a slowdown in the rate of consumer spending growth in the UK and a drop in business investment.

How will the stock and commodity markets respond to war?

There has been a substantial share price rally in recent days on hopes of a short and a successful conflict. The FTSE-100 is up 15 per cent from its trough, and the oil price has dropped by more than $8 a barrel. What happens next depends on how the conflict plays out.

If the war is concluded faster than markets expect, there should be further stock market gains and another fall in the price of oil. But if the allied campaign runs into difficulties, then there is likely to be an adverse reaction in both stock and commodity markets. The next few days are likely to be volatile ones in the City as traders gauge the success of allied strikes.

Will anyone benefit economically from the war?

The end of conflict with Iraq will bring some benefits to the global economy, but the extent of these will depend on international politics and the success of the campaign. When the conflict ends, some of the current diplomatic uncertainty will lift, and this could bolster business and consumer confidence. A successful campaign will also boost stock markets and help dampen down the oil price, and this will also have a positive economic impact.

There is a risk that the US and UK decision to go it alone will have substantial political repercussions in the longer term. This could limit the gains to the stock market, to business and consumer confidence, and the wider global economy. The economic gains from the conclusion of the Iraq conflict will also be limited if the US turns its attention to other military targets, or if there are widespread terrorist reprisals.

As well as the general economic gains from an end to the conflict such as a fall in the oil price and a rise in the stock market, individual firms could reap the rewards of peace if they win contracts to help with reconstruction in Iraq.