War Spending Threatens US Debt Stability

The current conflict builds on a national debt that has swelled to over $37.6 trillion. Historically, U.S. government debt spikes during wartime. The debt-to-GDP ratio, a key indicator of a country's ability to repay its debts, peaked at 106% after World War II and is now around 124%. Since October 2023, the U.S. has already spent between $9.65 billion and $12.07 billion on military operations in the wider Middle East region related to the conflict. This is in addition to $21.7 billion in military aid to Israel, bringing the total spending to over $31 billion. Some estimates place the daily cost of the current military buildup around Iran at $25 to $40 million. This new spending comes on top of a defense budget that already accounts for nearly half of all discretionary spending. Prior to the conflict, the Trump administration had already proposed a 2027 military budget of $1.5 trillion, and the current combat operations make supplemental spending all but inevitable. The conflict introduces significant economic risks beyond direct military outlays. A key concern is the potential disruption of oil shipments through the Strait of Hormuz, a chokepoint for about 21% of global petroleum liquids. Analysts warn that a sustained disruption could drive oil prices to between $150 and $180 a barrel, with spikes over $200. Such a spike in energy prices would fuel inflation, which is already a concern for many households. A sustained $10 increase in the price of oil is estimated to add up to 0.4 percentage points to the inflation rate, complicating the Federal Reserve's decisions on interest rates. Disruptions to shipping could also make a wide range of consumer and industrial products more expensive. These "asymmetric risks" include the potential for a broader regional conflict that could lead to stagflation—a combination of rising prices and slowing economic growth.