Profiting From Conflict: The Business Benefits Of The Iraq And Afghanistan Wars

The Iraq and Afghanistan wars have been highly profitable for the US defence industry. Since the start of the war in Afghanistan, Pentagon spending has totalled over $14 trillion, with one-third to one-half going to military contractors. Lockheed Martin, Boeing, General Dynamics, Raytheon, and Northrop Grumman are the five corporations that have benefited the most from these contracts. The withdrawal of US troops from Iraq and Afghanistan has been among the biggest reasons for the drop in military spending. However, the defence sector stocks outperformed the stock market overall by nearly 60% during the Afghanistan war.

Private military contractors profited from supplying weapons, training, logistics, and base management

Private military contractors (PMCs) have profited from supplying weapons, training, logistics, and base management in several ways during the Iraq and Afghanistan wars.

Firstly, PMCs have benefited from increased demand for their services due to the downsizing of professional armies after the Cold War. This created a demand-supply gap that PMCs were able to fill, as they could offer their services to governments and private companies. PMCs often provide tactical military assistance, strategic planning, logistical support, and technical assistance. They train troops, guard installations and individuals, and provide intelligence and reconnaissance.

Secondly, PMCs have profited from the nature of modern warfare, which often involves non-state actors, child soldiers, and warlords, making it more chaotic and less professional. PMCs have been able to operate in this environment and provide their services to the highest bidder, including governments, rebel groups, and even drug cartels.

Thirdly, PMCs have taken advantage of the privatisation and outsourcing trend of government functions. Many governments have turned to PMCs to perform tasks that were previously carried out by the military, such as base management, catering, construction, IT, and transportation. This has allowed PMCs to profit from government contracts worth billions of dollars.

Fourthly, PMCs have benefited from the lack of regulation and oversight in the industry. They often operate in a legal grey area, as international laws and local jurisdictions struggle to keep up with the evolving nature of private military contracting. This lack of regulation has allowed PMCs to engage in unethical and illegal activities, such as human rights violations and fraud, with little accountability.

Finally, PMCs have profited from their ability to offer specialised services and equipment, such as advanced weaponry and aircraft, that are in high demand during wartime. They have also been able to charge premium rates for their services due to the urgency and complexity of military operations.

Overall, private military contractors have profited handsomely from supplying weapons, training, logistics, and base management during the Iraq and Afghanistan wars by exploiting the gaps in the market, the nature of modern warfare, the trend towards privatisation, the lack of regulation, and the demand for specialised equipment and services.

Oil companies benefited from the Iraq War as they gained access to oil production

Oil companies have benefited from the Iraq War as they gained access to oil production previously off-limits to Western companies.

Before the 2003 invasion, Iraq's oil industry was nationalized and closed off to Western companies. In the years following the invasion, however, the industry has become largely privatized and dominated by foreign firms. Major Western oil companies such as ExxonMobil, Chevron, BP, and Shell have established operations in Iraq, as have American oil service companies including Halliburton.

The Iraq War was a central factor in this development. Planning for Western oil exploration in Iraq was underway years before the invasion, and the Bush administration pressured the Iraqi government to pass laws allowing foreign firms into the country. Antonia Juhasz, an oil industry analyst and author, has stated that Western oil companies played the most aggressive roles in lobbying their governments to ensure that the invasion would result in an Iraq open to foreign oil companies.

The war also resulted in significant changes to Iraq's oil infrastructure. The country's oil production capacity increased by more than 40% in the five years following the US withdrawal in 2011, reaching 3 million barrels of oil per day. This growth has been facilitated by contracts between the Iraqi government and foreign oil companies, which provide for exceptionally long contract terms and high ownership stakes.

While the presence of Western oil companies in Iraq has faced opposition from some Iraqis, who argue that these companies are stealing the country's oil, the industry has continued to expand. Iraq's oil reserves are estimated to be the second-largest in the world, and the country is expected to become a key player in meeting growing global petroleum demand.

Defence contractors engaged in profiteering, fraud, waste, and corruption

Defence contractors have been accused of profiteering, fraud, waste, and corruption during the Iraq and Afghanistan wars.

A 2011 report by the congressionally mandated Commission on Wartime Contracting found that between $31 billion and $60 billion had been misspent in the wars in Iraq and Afghanistan. Dov Zakheim, one of the commissioners, described this as a "stunning finding", with up to one out of every four dollars spent on contractors being misspent. Zakheim gave examples of waste, such as a road in Afghanistan that should have cost $85 million but ended up costing over $170 million, and contractors in Iraq being paid for a full day's work when they were only working 15% of the time. He also described instances of criminal fraud, such as an invoice issued to a contractor by an outfit calling itself the Islamic Republic of East Afghanistan.

The Commission's final report blamed the losses on a lack of oversight, poor planning, and corruption. It made 15 recommendations to improve contingency contracting and limit the potential for abuse in the future, including expanding the powers of inspectors general, facilitating the increased use of suspension, and developing deployable cadres for acquisition management and contractor oversight.

The US House Subcommittee on National Security, Homeland Defense and Foreign Operations also investigated defence department contracting in Afghanistan, holding hearings in 2011. The Subcommittee found that the Department of Defense's supply chain in Afghanistan relied on paying the enemy and fueling corruption. It also found that senior officials within the contracting chain of command had been aware of the problem but had done little to address it.

Numerous companies have been accused of taking advantage of wartime conditions, which require speed of delivery and often involve less rigorous oversight, to overcharge the government or engage in outright fraud. These include Halliburton, the International Oil Trading Company, and Blackwater. A 2011 report by the Special Inspector General for Iraq Reconstruction exposed scores of examples of overcharging, faulty construction, and outright theft by contractors engaged in the rebuilding of Iraq.

Defence contractors have also been accused of paying bribes and making facilitation payments to warlords, the Taliban, and local officials to ensure the safe passage of their convoys. A 2009 briefing for senior commanders by US Army investigators estimated that the going rate for protection was $1,500 to $2,500 per truck. A 2014 article in Time magazine reported that Finmeccanica, an Italian aerospace and defence firm, had been charged by Italian prosecutors with fraud and corruption related to the sale of helicopters to the Indian government. The article quoted Dr. Samuel Perlo-Freeman, director of the Stockholm International Peace Research Institute's Programme on Military Expenditure and Arms Production, as saying that "the arms industry has always been associated with corruption both in international arms transfers and sometimes in domestic procurement".

Defence contractors have also been accused of inflating the perceived military challenges posed by countries such as China in order to maintain high levels of Pentagon spending. According to a 2021 article in The Guardian, the defence industry was the clear winner of the $5 trillion spent on the Afghanistan and Iraq wars. The article noted that defence industry stocks outperformed the stock market overall by nearly 60% during the Afghanistan war, and that the Pentagon's budget doubled between 2001 and 2020.

Defence contractors have also spent large sums on lobbying and campaign contributions. According to a 2024 article in Watson Brown University's Costs of War project, weapons makers have spent $2.5 billion on lobbying over the past two decades, employing over 700 lobbyists per year on average over the past five years. The article also noted that in 2010, the defence industry spent $144 million on lobbying and donated over $22.6 million to congressional candidates.

The practices of defence contractors during the Iraq and Afghanistan wars have raised major concerns, with calls for Congress to implement wartime contracting reforms and for the Pentagon to fix its accounting procedures.

Lobbyists and congressional candidates received donations from defence contractors

The defence industry has played a significant role in the post-9/11 wars in Afghanistan and Iraq. The US military has relied heavily on private contractors for support in various areas, including weapons, logistics, and combat operations. This has resulted in a ""culture of endless money" within the Pentagon, with defence contractors benefiting from lucrative contracts.

In the context of lobbying and political donations, defence contractors have been active in influencing decision-making and gaining access to lawmakers. Between 2001 and 2021, the defence sector spent over $2.4 billion on lobbying Congress, and made direct campaign contributions to most members. This includes donations to both Democratic and Republican lawmakers, with a focus on those sitting on committees that oversee defence spending.

One notable example is the top five defence contractors: Lockheed Martin, Raytheon Technologies, Boeing, Northrop Grumman, and General Dynamics. These companies contributed nearly $2 million to Republicans who voted against certifying the 2020 presidential election results. They have also donated to Democratic leaders and lawmakers who voted to certify the election results.

The defence industry's lobbying efforts and political donations are often seen as a form of corruption or "pay-to-play". Critics argue that this system is based on access and corruption rather than performance and that defence contractors are purchasing influence to generate business. However, supporters of the practice argue that contractor contributions are essential to ensuring Congress takes national security seriously.

Overall, the defence industry's financial influence on lawmakers and decision-making processes has been significant, with potential implications for government spending, policy outcomes, and the conduct of the wars in Afghanistan and Iraq.

Defence stocks outperformed the stock market

Defence stocks outperformed the market during the Afghanistan and Iraq wars. If you had invested $10,000 in the top five US defence contractors on 18 September 2001, when President George W. Bush signed the Authorization for Use of Military Force, your investment would be worth $97,295 today. That's a total return of 872.94%. By contrast, $10,000 invested in an S&P 500 index fund on the same date would be worth $61,613 today. That's a total return of 516.67%.

In other words, defence stocks outperformed the stock market by 58% during the Afghanistan War.

The top five US defence contractors are Boeing, Raytheon, Lockheed Martin, Northrop Grumman, and General Dynamics. These companies profited from the surge in defence budgets following 9/11. The US defence budget rose from $305 billion in 2001 to $754 billion in 2021, with a projected increase to $777 billion in 2022.

The wars in Afghanistan and Iraq contributed to this increase in spending, as the US relied heavily on private contractors for support in virtually all areas of war operations. By 2019, there were 50% more contractors than troops in the US Central Command region, which includes Iraq and Afghanistan. Contractors supplied trucks, planes, fuel, helicopters, ships, drones, weapons, and munitions, as well as support services such as catering, construction, IT, and logistics.

The conflict was highly lucrative for all the major defence contractors. For example, Lockheed Martin manufactured the Black Hawk helicopters used extensively in Afghanistan; Boeing sold aircraft and land combat vehicles; Raytheon won the major contract training the Afghan air force; and Northrop Grumman and General Dynamics supplied electronic and communications equipment.

However, it's worth noting that the growth of the five largest defence companies had relatively little to do with Afghanistan or Iraq. Boeing, for instance, made most of its profits on commercial airliners, while Raytheon's big contracts were for a new nuclear cruise missile, strategic missile defence systems, and projects dealing with sensors, satellites, electronics, and cyberwar. Lockheed Martin's big-ticket items included the F-35 stealth fighter, combat systems for Aegis cruiser ships, and electronics for command-control, cyberwar, and space communications.

Frequently asked questions