Iran Conflict Stokes US Deficit Fears
The escalating U.S. military operations against Iran are sparking fresh concerns over the federal deficit. UBS has warned that the conflict is “yet another wobble” for government debt, as rising defense spending could threaten fiscal stability and rattle markets.
The current US military deployment targeting Iran is estimated to cost approximately $30 million per day. This figure is based on comparable estimates from other recent US military campaigns and reflects the expense of maintaining a large naval and air presence in the Persian Gulf region. A single 37-hour campaign against Iran's nuclear program last year, codenamed “Operation Midnight Hammer,” was estimated to have a total cost of $2.25 billion. Since October 2023, the U.S. has spent nearly $34 billion on conflicts involving Iran's proxies, including Hamas, Hezbollah, and the Houthis. This new spending comes as the U.S. national debt has surpassed $38.7 trillion. The federal government ran a deficit of $1.8 trillion in fiscal year 2025 and the cumulative deficit for the first part of fiscal year 2026 is already $697 billion. The conflict adds to a defense budget that is already slated for significant increases. The Pentagon's fiscal year 2026 budget request is expected to be around $892.6 billion, with Congress having already provided $858.9 billion in base discretionary spending, over $10 billion more than requested. Beyond direct military outlays, the conflict threatens to disrupt global energy supplies. Approximately 20% of the world's oil passes through the Strait of Hormuz, and disruptions have already caused oil prices to surge, potentially leading to broader inflation. These expenditures compound existing long-term fiscal challenges. According to the Congressional Budget Office, mandatory spending on programs like Social Security and Medicare is projected to increase by $2.5 trillion annually by 2035, adding to the strain on the national debt.
