Iran Conflict Straining US Debt, UBS Warns

The daily cost of the U.S. military buildup surrounding Iran is estimated to be between $25 million and $40 million, a figure that covers heightened naval and air operations but does not include the capital costs of assets like aircraft carriers, which can be as much as $13 billion each. This surge in spending represents a significant increase over the typical $10 to $20 million daily cost for routine U.S. military operations in the Middle East. Since late 2023, the United States has already expended nearly $34 billion on conflicts involving Iran's proxies, including support for Israel and other allies, a sum that is approximately six times the usual annual U.S. spending on military aid to its allies in the Middle East. The 37-hour American military operation against Iran's nuclear program in 2025, codenamed "Operation Midnight Hammer," is estimated to have cost the U.S. government around $2.25 billion. This new spending comes as the U.S. national debt has surpassed $38.7 trillion. For context, the U.S. Treasury pays an average of $2.8 billion per day in interest on this debt, a figure projected to rise to $5.9 billion per day by 2036. In the first three months of fiscal year 2026 alone, net interest payments on the debt reached $270.3 billion, exceeding the $266.9 billion spent on national defense in the same period. Historically, U.S. military conflicts have been a primary driver of national debt. The wars in Afghanistan and Iraq, for instance, were financed largely through borrowing. From 2001 to 2022, the cost of U.S. wars amounted to an estimated $8 trillion, accounting for more than half of the $15 trillion increase in debt during that period. A prolonged conflict with Iran could lead to a "structural repricing of sovereign risk," according to some financial analysts. Such a scenario could see the 10-Year U.S. Treasury yield, a benchmark for global borrowing costs, rise toward 6.00%–6.50%. This would significantly increase the cost of borrowing for the U.S. government, further compounding the national debt. Moody's Analytics has warned that escalating hostilities risk renewed energy and inflation shocks, particularly if key trade routes like the Strait of Hormuz are disrupted. While credit rating agencies have not issued a specific downgrade warning for the U.S. related to this conflict, S&P has cautioned that a protracted war could lead to a downgrade of Israel's credit rating, highlighting the economic risks for nations involved. The conflict has already impacted global markets, with defense stocks surging and investors moving towards safe-haven assets. A sustained spike in oil prices could also pressure the valuations of major tech companies by lifting inflation expectations and bond yields.