The Defense Department says the conflict with Iran has cost taxpayers $25 billion so far. But this tally dramatically understates the true cost. By my calculations, the bill for a typical American household likely runs to thousands — or even tens of thousands — of dollars.
Yes, that’s a wide range; blame the economic fog of war. But what’s clear is that Defense Secretary Pete Hegseth is trying to obscure just how expensive this war will be.
The Pentagon’s stated number reflects only a narrow accounting of the tab that Operation Epic Fury is running up. It’s the price of the more than 2,000 Tomahawk and Patriot missiles already fired, the warplanes already flown and in some cases lost, and the rest of the gear already chewed through. It does not measure the true cost of the war — including the human toll. Russell Vought, the director of the Office of Management and Budget, acknowledged as much when he told the House Budget Committee on April 15, “I don’t have a ballpark for you.”
I do. Since the start of the war, oil markets have been disrupted, consumer confidence has cratered, the global economy is groaning and military budgets are growing. The toll from this upheaval must be counted in lives disrupted, jobs lost, companies shut down (see: Spirit Airlines), and the income and output sacrificed. The less easily quantified costs — death, disability and mental health — could become much more dramatic should President Trump send troops into Iran, which still can’t be ruled out.
Start with oil. While the White House is keen to tell you that oil markets will bounce back to normal, futures markets disagree. Futures prices for oil at the end of 2026, 2027 and 2028 are all still sitting well above where they were before the start of the war. Indeed, the November 2026 futures price of West Texas Intermediate hit a new high this week at $86.12 a barrel. It could be that oil traders are pricing in near-term disruption. Or perhaps they see the current episode as raising the risk of future disruption. Either would be expensive.
The rise in geopolitical risk is costly. Recent research by Fed economists Dario Caldara and Matteo Iacoviello suggests that heightened geopolitical risk leads to lower investment and employment, and dramatically raises the chances of an economic disaster. Their measure of this risk has skyrocketed, and their estimates of the effect of risk on the economy suggest a cost of about $200 billion, with a million fewer Americans working in a year.
The war has also pushed the Federal Reserve Bank into a corner. Back in February, many economists expected a couple of rate cuts this year; markets now think that’s unlikely. If the Fed raises rates, it may succeed at beating back a war-fueled burst of inflation, but only by destroying hundreds of thousands of jobs and edging the economy closer to recession. A reasonable guesstimate — informed by the Fed’s own models — is that this will cost the economy about $200 billion.
Wall Street is worried, despite the market touching new highs. Every time the president takes a more belligerent stance, stocks tank, suggesting that investors think this conflict will undermine the value of leading U.S. companies. My estimate — based on the movement of oil prices, along with the S&P 500 — is that stocks are about 5 percent lower than they otherwise would be, suggesting that the war has wiped about $3 trillion off the value of these companies. (The overall market strength most likely reflects other macroeconomic forces, such as surging artificial intelligence stocks.)
Professional forecasters account for the full set of macroeconomic consequences, and economists at Goldman Sachs reckon that U.S. economic growth will be 0.5 percentage points lower as a result of the war. If it takes a couple of years for the economy to return to normal, that slower growth rate would mean around $400 billion in lost income, and Goldman warns it could be nearly twice as bad.
Beyond the United States, both the International Monetary Fund and the World Bank marked down their forecasts for the global economy, highlighting much larger effects in other countries. The world’s poor and most vulnerable spend the largest share of their income on food and fuel, and so this war will cause millions, and perhaps tens of millions, to go hungry. These are not costs borne by the American people, but perhaps they offend the American conscience.
If Iran succeeds in charging a toll on tankers that pass through the Strait of Hormuz, that’ll matter, but perhaps not for the obvious reason. A toll of $1 per barrel isn’t a big deal for us — it would raise the price of gas by only a few cents, and domestic oil producers who are spared this expense could boost their profit margins.
But if Iran can extract effectively a 1 or 2 percent tax on the one-fifth of the world’s oil that passes through the Strait of Hormuz, that would yield a vital source of revenue that could be used to rebuild the nuclear program that Mr. Trump vowed to destroy.
This war has also revealed that Iran — at least for now — can harness its control over the strait to hold the global economy hostage. How many billions will the U.S. have to spend to avoid giving other countries this sort of leverage?
And that leads to the biggest bill of all: Future military outlays. As Iran spends more on defense, other countries in the Middle East will follow suit, and as our (former?) allies feel less secure under the American security umbrella, they may also spend more. It follows that if the U.S. wants to maintain its military supremacy, more spending will be required.
How costly could this get? The White House originally signaled that it would need an extra $200 billion to prosecute the Iran war. More recently, the administration made a defense budget request of $1.5 trillion for fiscal 2027, a roughly 40 percent boost over this year. That’s a massive $600 billion increase, or roughly $4,000 per household.
That’s just additional spending for 2027. Defense budgets rarely go down, especially today, with a lobbying army fighting to keep spigots open and Mr. Hegseth more than willing to listen.Put these numbers together and the bill is staggering, but not surprising.
Economists have long known that only a small fraction of the costs of war show up immediately in government spending accounts. What the Pentagon is doing is cash flow accounting — keeping track of the dollars flowing out of the Treasury. The economists Linda Bilmes and Joseph Stiglitz argue that we get very different — and much more realistic — estimates with accrual accounting, when you add the cost of each future obligation as you create it.
They estimated that the Iraq war cost the U.S. around $3 trillion. A huge share of those expenses came after the conflict, including the expense of lifetime medical care and disability benefits for veterans, and the higher recruitment and retention costs that follow a bloody war — all compounded by a rising interest bill.
The Pentagon’s lowball $25 billion estimate gets a lot of attention, but it’s more of a headline than a real number. The best any economist can do right now is get the order of magnitude right, and my math suggests the Iran war will cost hundreds of billions of dollars, and very possibly trillions.
War is hell. And hell comes with a hefty price tag.
Justin Wolfers is a professor of economics and public policy at the University of Michigan. He also writes on Substack and teaches economics at YouTube for Platypus Economics.
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