Iran War Drives Costs, Inflation and Military Strain

A nonpartisan Congressional Budget Office report says the six-month US war on Iran has already cost approximately $38 billion and is adding about $3 billion in costs each month. The conflict is also projected to raise US inflation by 0.5 percentage points during the first three months of 2027. The findings intensify criticism of the Trump administration over the war, which was launched by the United States and Israel in February and has disrupted global energy markets, contributing to higher prices and growing voter concern about the cost of living before the November midterm elections. The estimate is broadly consistent with Defense Secretary Pete Hegseth’s July congressional testimony, when he estimated the war’s cost at $37.5 billion and urged lawmakers to significantly expand the already large US military budget. Hegseth also rejected claims that the conflict was becoming a “quagmire,” despite the war lasting longer and costing more than initially expected. The report further warns that the conflict has strained US supplies of important munitions. Replenishing stockpiles could take as long as five years, potentially affecting the military’s ability to meet commitments elsewhere. The CBO estimate excludes borrowing costs and damage caused by Iranian attacks on US military installations in the Middle East, suggesting the total financial burden could be higher. The report follows a Pentagon inspector general review that documented munitions shortages, production bottlenecks, and the loss of dozens of US aircraft. The Trump administration has rejected claims that military supplies are dangerously low and continues to argue that the war is justified. President Donald Trump has said oil prices will fall sharply once the conflict ends, while Pentagon spokesperson Sean Parnell maintained that the military has the resources needed to strike whenever the president orders it.

The Congressional Budget Office estimates that the U.S. war with Iran cost the Pentagon $38.1 billion through Aug. 1, with an additional $2 billion to $3 billion expected for every further month of fighting. More than half of the spending has gone toward replacing missiles and other munitions, while increased military flight operations cost $10.4 billion and higher fuel prices added $2.7 billion. The conflict has also sharply depleted U.S. missile-defense inventories. The CBO estimates that American forces have used as much as two-thirds of the nation’s interceptors since June 2025, partly while defending Israel from Iranian attacks. Rebuilding those stocks could take at least five years, even if production increases. The CBO also projects broader economic effects. Disruptions to oil and natural-gas shipments through the Strait of Hormuz, along with problems affecting Red Sea shipping, are expected to raise inflation. By early 2027, the war could add 0.5 percentage points to year-over-year personal consumption expenditures inflation and 0.3 percentage points to core PCE inflation. Fuel is expected to account for about 40% of the conflict’s effect on consumer prices. The Pentagon’s inspector general separately estimated that the war cost $33.4 billion through June 29, including $22.3 billion for expended munitions, $7.4 billion in operating costs and $3.7 billion in equipment losses. Iranian attacks damaged hundreds of structures across eight Middle Eastern countries and destroyed or damaged numerous aircraft, including F-15E and F-35A fighter jets, refueling aircraft, helicopters and drones. The conflict also generated State Department evacuation costs and damage to diplomatic sites. The reports are likely to intensify political debate over a war President Donald Trump initially said would last only weeks. Democrats are highlighting its effects on fuel, food and other prices, while Trump has justified the conflict as necessary to prevent Iran from developing nuclear weapons. The depleted missile inventories could also create serious risks in a future confrontation with China, including a conflict over Taiwan.

The article examines how the U.S.-Iran war is placing additional financial pressure on American households through sharply higher energy prices, rising Treasury yields, and increased government spending. Moody’s Analytics estimates that the conflict has added roughly $1,760 in costs per household since it began. Higher energy expenses account for about $930 of that amount, while increased interest rates contribute $425 and additional military spending accounts for $405. Collectively, U.S. consumers have spent more than $121 billion extra on energy. Oil prices have risen above $105 per barrel, while the average U.S. gasoline price has exceeded $4.32 per gallon—36% higher than a year earlier. Diesel prices have reached record highs, increasing transportation costs that could eventually be passed on through higher prices for groceries and other goods. Rising fuel costs are also contributing to faster inflation in categories such as air travel. At the same time, the 10-year Treasury yield has reached its highest level since 2007, pushing mortgage rates above 7% and raising borrowing costs for homes, cars, credit cards, and business investment. Economists warn that higher corporate financing costs could slow hiring and worsen an already weak “low hire, low fire” labor market. The financial strain is especially severe for lower-income households, which spend a larger share of their income on energy. Economists say increased energy costs have more than offset the benefits of larger tax refunds under President Donald Trump’s tax legislation. With inflation rising faster than incomes, real earnings and purchasing power are declining. Consumers are increasingly using savings to maintain spending, but economists warn that this cannot continue indefinitely. A pullback in consumer spending could threaten economic growth because household consumption represents most of U.S. GDP.