UBS Warns War Spending is Destabilizing US Debt

The escalating conflict with Iran, dubbed "Operation Epic Fury," represents one of the most significant U.S. military deployments in the Middle East in decades. The operation, which began on February 28, 2026, involves a wide array of American military power, including B-2 stealth bombers, two aircraft carrier strike groups, and the first combat use of new low-cost attack drones. U.S. and Israeli forces have struck numerous targets, including military leadership, air defense systems, and missile installations. This major military campaign is unfolding against a backdrop of already strained U.S. finances. The national debt has surpassed $38 trillion, and prior to the conflict, the Congressional Budget Office projected it would reach 120% of GDP by 2036. The U.S. government is projected to spend $1 trillion in 2026 just on interest payments for its existing debt. While a precise cost for "Operation Epic Fury" has not been officially released, maintaining a significant military presence in the Persian Gulf is a costly endeavor. Operating a single aircraft carrier strike group costs approximately $6.5 million per day. A previous, much more limited, 37-hour campaign against Iran's nuclear program in 2025 was estimated to have cost $2.25 billion. Analysts project that a prolonged conflict with Iran could lead to an immediate, unplanned debt issuance of $1.5 to $2.0 trillion. The conflict is introducing volatility into U.S. Treasury markets, which are typically seen as a safe haven for investors during global uncertainty. While some investors are moving money into U.S. bonds in a traditional "flight to safety," others are expressing concern. The prospect of increased government borrowing to fund the war, combined with rising inflation fueled by potential oil price shocks, is testing the long-held belief in U.S. Treasuries as a risk-free asset. The economic repercussions extend beyond government debt. The conflict threatens to disrupt the 20% of global oil supplies that pass through the Strait of Hormuz. A sustained disruption could drive oil prices to $150 a barrel, which would in turn fuel inflation and potentially slow global economic growth. In early February 2026, President Trump authorized new tariffs on any country trading with Iran, adding another layer of economic uncertainty. This trade policy, which could be a factor in the Treasury market's "wobble," aims to further isolate Iran economically. The combination of increased military spending and trade disruptions creates a complex and challenging fiscal picture for the United States.