The most headline-grabbing economic effects of the Iran war are immediate, directly felt in consumers’ daily life: Pump prices are up 35 percent, and the spiking cost of a barrel of oil is sure to spur broader inflation. And as The Century Foundation has documented, the tens of billions of dollars the Trump administration is spending on munitions, personnel, and logistics could instead easily fund major investments in things like health care, child care, and education that actually benefit the public.
Yet as past conflicts have repeatedly shown, those first-order war expenses and economic impacts are merely the tip of the iceberg. There are good reasons why American consumer sentiment is crumbling. The bigger costs of war will become apparent in the long term. Some are quantifiable dollar amounts that take years to fully reveal themselves. Others manifest as deep economic burdens and distortions that other factors will amplify in unpredictable ways.
Any serious discussion of this war’s domestic impact must begin with a sobering and accurate appraisal of its terrible long-term costs—which the government, society, and American families will continue to pay long after the fighting subsides. These economic effects are a primary reason why Americans and their representatives should do everything in their power to stop the war, especially by withholding funding.
If the U.S. and Israeli assault on Iran were morally and strategically warranted, American voters might make an informed choice to assume the burden and accept its social, financial, and economic sacrifices. The reality is quite the opposite: the war is weakening America and destabilizing the world. It is also unpopular, unprovoked, illegal, and completely unjustified. That will make the war’s economic poisons all the more bitter for Americans to swallow.
Costs to the Government
War imposes specific long-term costs on the government that far surpass the costs of military operations that are (at least in theory) tallied by the Pentagon and shared with Congress.
The long-term costs of some of America’s previous wars have already been calculated. The Brown University Cost of War project has produced the definitive estimates of the costs of the Global War on Terror, with a special focus on the conflicts in Iraq and Afghanistan, and has come up with a total bill of $8 trillion. Just over a quarter of that figure is money directly spent on military operations. But a bigger portion is the cost of long-term care for veterans, an increasing percentage of whom, in modern wars, qualify for lifetime disability payments. Annual post-9/11 Global War on Terror costs in this category won’t peak until 2050.
Then, there’s the interest the government has to pay on loans it takes out to finance those other costs; from 2001 to 2022, interest payments alone topped $1 trillion. And debt-financed war spending makes it more expensive for the government to borrow, in general.
Costs like long-term veteran care and debt servicing are almost certainly not factored into the $200 billion that the Department of Defense is reportedly requesting for the Iran war—the White House hasn’t explained what it plans to spend the money on except “to kill bad guys,” as Secretary of War Pete Hegseth put it.
Most of these long-term costs are never reflected on any budget explicitly connected to the wars that generate them. They are, essentially, the shadow costs of military action—a long fiscal hangover that no one talks about when they beat the drums of war.
In fact, most of these long-term costs are never reflected on any budget explicitly connected to the wars that generate them. They are, essentially, the shadow costs of military action—a long fiscal hangover that no one talks about when they beat the drums of war. Recall that George W. Bush predicted that invading Iraq would cost the United States $50–60 billion. (Bush’s deputy secretary of defense, Paul Wolfowitz, even claimed that the war would pay for itself with Iraqi oil revenue.) That’s why the White House and Congress should be compelled to produce a much more honest accounting of such war costs before initiating military action.
Making Life Unaffordable
Odious as these hidden budget costs of war are, there are even more complex and long-lasting macroeconomic harms stemming from its downstream effects: a self-inflicted energy shortage, an oil price hike, an inflationary spiral, and cascading interruptions of supply chains and trade. The upshot of all this, for the average American, is that life will become even more unaffordable than it already is.
The closure of the Strait of Hormuz is driving oil prices higher, which doesn’t just increase the cost of commuting for millions of Americans. High fuel costs also have inflationary effects on everything Americans buy that takes oil or gas to get to market, including not only products like fertilizer and plastics that have a gas or petroleum input, but also anything that is transported, since diesel prices have increased even more than gasoline. The war has also disrupted supplies of helium, an important component in semiconductor production, which could trigger more widespread shortages of goods ranging from cars to dishwashers (as occurred during the pandemic). These disruptions will linger; supply chains can break overnight, but take months or sometimes years to recover. In other words, this crisis will likely lead to inflation—broad-based price increases in the economy. Inflation also drives up the cost of individual borrowing, like mortgage rates, which have increased on four occasions already since the war began. Some homeowners could be stuck for years or decades with higher monthly payments, or priced out of the market altogether, because of this wartime spike.
The Iran war’s harm to American consumers is of grave concern to overall economic growth, since consumption is the biggest element of the primary measurement of the national economy, the gross domestic product, or GDP. Pressure on consumers—who will consume fewer goods and services as price levels go up—could have an impact on an already-fragile labor market, and is a major reason why economists say the war could cause a recession.
A Bad Investment
There are further macroeconomic harms from the Iran war that are harder to quantify, but no less serious. War spending usually isn’t a very good investment, because it crowds out more productive investments in the nation’s well-being, and—as we are now learning in real time—can cause chaos that leads to recessions.
War spending usually isn’t a very good investment, because it crowds out more productive investments in the nation’s well-being, and—as we are now learning in real time—can cause chaos that leads to recessions.
It’s true that war can often technically increase the size of the economy in the short term, as measured by GDP, which tallies consumption, investment, government spending, and net exports (abbreviated in economics as C + I + G + NX). So, government spending on war boosts at least one aspect of GDP.
Of course, war’s other adverse effects can easily offset those GDP gains from government spending—and that’s exactly what’s happening now, with price pressures on households. But even if the Strait of Hormuz miraculously opens and the inflation is short-lived (an increasingly unlikely outcome), spending on the Iran war would be a poor economic stimulus. Yet rather than making productive investments in our economy that would help ease Americans’ affordability concerns, like extending health care tax credits, the Trump administration is doubling down on a war that won’t provide any material benefit to families already struggling to make ends meet.
Consider that something as silly as paying Americans to dig holes throughout the land and refill them would also increase government spending, and thus GDP—a point made famous by the economist John Maynard Keynes. But at least a hole-digging program could put money in the pocket of every American. Defense contracts and military spending, in contrast, accrue mainly to one sector of the economy, and disproportionately to the executives of that sector. A broad, paid workforce mobilization would distribute the benefits of the GDP increase evenly, and give a bigger secondary boost to consumption.
It would be better still, though, to invest that war money in things that have not only a high return but also a positive transformational potential—things like research and development, infrastructure, and the health and education of Americans. The right government expenditures not only juice economic output (GDP) but can also help a new, wealthier, and more resilient economy emerge.
Yet Congress seems unable to say no to defense appropriations. The Trump administration’s defense budget for 2026 was already $1 trillion before the war. Rife with waste, it was the largest defense budget in history. But over and over, the U.S. government has found money that ends up subsidizing defense contractors by cutting money from health benefits—effectively taking money away from regular Americans who need to see the doctor and giving it to a small number of companies that build bombs and drones.
Disfiguring the Economy
This last point, about transformation, brings us to the most dangerous economic effect of spending on war. Such spending is also transformational—but usually not in ways we should welcome. War spending disfigures the economy: it suffocates productive investment, boosts the surveillance-defense-industrial complex, and corrodes democracy.
Historically, not every war-driven economic transformation has been bad. World War II acted as an accidental industrial policy in the United States, helping move millions of workers into factories and cities, and out of an agricultural sector whose mechanization was a key cause of the Great Depression. There is no reason to think that the current war could help prod the American economy into a new and better direction, however, based on the example of the last twenty-five years of runaway war spending, which neither created jobs nor a broad lift to the economy.
American workers and cities are still reeling from the movement of manufacturing abroad, recent job growth has been sluggish and limited to a small number of sectors, and workers are increasingly concerned about how artificial intelligence will impact the labor market. Myriad proposals are circulating for how to boost the labor market, focusing on expanding investments in child care, making higher education more affordable and accessible, building worker power, and investing in sectors that have a lot of growth potential, such as health care. Here’s what won’t prepare the labor force: fattening defense industry CEO bonuses, turning America into a rocket factory, or lining the pockets of oil companies. Such will be the “transformative” effects of this war: greater inequality, weakened American households, and a defense industry that hogs more of the economic pie—foreclosing job opportunities and investments in other sectors.
All war spending carries these dangers. Even as we remember the positive economic effects of World War II, we must remember that it also created the “military industrial complex” effect that President Eisenhower warned about—a problem that has dogged our economy and national security policy ever since. The bonanza that wartime creates for specific industries creates a maze of bad incentives and high-level corruption—think Dick Cheney and Halliburton during the Iraq war—that sends us perpetually hurtling toward the next conflict.
Congress Must Rein in This War
Economists tally the price of war because it’s a language that American markets and voters understand, and because it’s a way to quantify war’s amorphous and sprawling harms and horrors.
But the worst negative economic impacts of war cannot be summed up on a ledger. War transforms the economy in a way that incentivizes more war. It robs society of other opportunities. It narrows policymakers’ choices, creating its own traps and logic.
That’s why the U.S. constitution requires the president to consult Congress before going to war—an obligation that different presidents have routinely ignored for decades, but which Trump has ignored with exceptional abandon.
As Trump sends thousands of Marines to the Persian Gulf, America finds itself unmoored from its principles. Congress must reassert its powers to declare war and spend money, by withholding all funds for this war. If the war continues, inflation, recession, and decades of expenses for veteran affairs could be the least of America’s problems.
Header Image: Lightning flashes as META 4, an oil products tanker, sails into Muscat Anchorage on March 21, 2026, at Sultan Qaboos Port in Muscat, Oman, on the coast of the Gulf of Oman south of the Strait of Hormuz. Maritime traffic through the strait, which conveys about 20 percent of the world’s oil and gas, has mostly come to a halt after the joint U.S.–Israeli war with Iran that began on February 28. Source: Elke Scholiers/Getty Images.
Tags: iran, economy, War, iran war
The Iran War’s Forever Costs Will Far Exceed the Immediate Pain for Consumers
The most headline-grabbing economic effects of the Iran war are immediate, directly felt in consumers’ daily life: Pump prices are up 35 percent, and the spiking cost of a barrel of oil is sure to spur broader inflation. And as The Century Foundation has documented, the tens of billions of dollars the Trump administration is spending on munitions, personnel, and logistics could instead easily fund major investments in things like health care, child care, and education that actually benefit the public.
Yet as past conflicts have repeatedly shown, those first-order war expenses and economic impacts are merely the tip of the iceberg. There are good reasons why American consumer sentiment is crumbling. The bigger costs of war will become apparent in the long term. Some are quantifiable dollar amounts that take years to fully reveal themselves. Others manifest as deep economic burdens and distortions that other factors will amplify in unpredictable ways.
Any serious discussion of this war’s domestic impact must begin with a sobering and accurate appraisal of its terrible long-term costs—which the government, society, and American families will continue to pay long after the fighting subsides. These economic effects are a primary reason why Americans and their representatives should do everything in their power to stop the war, especially by withholding funding.
If the U.S. and Israeli assault on Iran were morally and strategically warranted, American voters might make an informed choice to assume the burden and accept its social, financial, and economic sacrifices. The reality is quite the opposite: the war is weakening America and destabilizing the world. It is also unpopular, unprovoked, illegal, and completely unjustified. That will make the war’s economic poisons all the more bitter for Americans to swallow.
Costs to the Government
War imposes specific long-term costs on the government that far surpass the costs of military operations that are (at least in theory) tallied by the Pentagon and shared with Congress.
The long-term costs of some of America’s previous wars have already been calculated. The Brown University Cost of War project has produced the definitive estimates of the costs of the Global War on Terror, with a special focus on the conflicts in Iraq and Afghanistan, and has come up with a total bill of $8 trillion. Just over a quarter of that figure is money directly spent on military operations. But a bigger portion is the cost of long-term care for veterans, an increasing percentage of whom, in modern wars, qualify for lifetime disability payments. Annual post-9/11 Global War on Terror costs in this category won’t peak until 2050.
Then, there’s the interest the government has to pay on loans it takes out to finance those other costs; from 2001 to 2022, interest payments alone topped $1 trillion. And debt-financed war spending makes it more expensive for the government to borrow, in general.
Costs like long-term veteran care and debt servicing are almost certainly not factored into the $200 billion that the Department of Defense is reportedly requesting for the Iran war—the White House hasn’t explained what it plans to spend the money on except “to kill bad guys,” as Secretary of War Pete Hegseth put it.
In fact, most of these long-term costs are never reflected on any budget explicitly connected to the wars that generate them. They are, essentially, the shadow costs of military action—a long fiscal hangover that no one talks about when they beat the drums of war. Recall that George W. Bush predicted that invading Iraq would cost the United States $50–60 billion. (Bush’s deputy secretary of defense, Paul Wolfowitz, even claimed that the war would pay for itself with Iraqi oil revenue.) That’s why the White House and Congress should be compelled to produce a much more honest accounting of such war costs before initiating military action.
Making Life Unaffordable
Odious as these hidden budget costs of war are, there are even more complex and long-lasting macroeconomic harms stemming from its downstream effects: a self-inflicted energy shortage, an oil price hike, an inflationary spiral, and cascading interruptions of supply chains and trade. The upshot of all this, for the average American, is that life will become even more unaffordable than it already is.
The closure of the Strait of Hormuz is driving oil prices higher, which doesn’t just increase the cost of commuting for millions of Americans. High fuel costs also have inflationary effects on everything Americans buy that takes oil or gas to get to market, including not only products like fertilizer and plastics that have a gas or petroleum input, but also anything that is transported, since diesel prices have increased even more than gasoline. The war has also disrupted supplies of helium, an important component in semiconductor production, which could trigger more widespread shortages of goods ranging from cars to dishwashers (as occurred during the pandemic). These disruptions will linger; supply chains can break overnight, but take months or sometimes years to recover. In other words, this crisis will likely lead to inflation—broad-based price increases in the economy. Inflation also drives up the cost of individual borrowing, like mortgage rates, which have increased on four occasions already since the war began. Some homeowners could be stuck for years or decades with higher monthly payments, or priced out of the market altogether, because of this wartime spike.
The Iran war’s harm to American consumers is of grave concern to overall economic growth, since consumption is the biggest element of the primary measurement of the national economy, the gross domestic product, or GDP. Pressure on consumers—who will consume fewer goods and services as price levels go up—could have an impact on an already-fragile labor market, and is a major reason why economists say the war could cause a recession.
A Bad Investment
There are further macroeconomic harms from the Iran war that are harder to quantify, but no less serious. War spending usually isn’t a very good investment, because it crowds out more productive investments in the nation’s well-being, and—as we are now learning in real time—can cause chaos that leads to recessions.
It’s true that war can often technically increase the size of the economy in the short term, as measured by GDP, which tallies consumption, investment, government spending, and net exports (abbreviated in economics as C + I + G + NX). So, government spending on war boosts at least one aspect of GDP.
Of course, war’s other adverse effects can easily offset those GDP gains from government spending—and that’s exactly what’s happening now, with price pressures on households. But even if the Strait of Hormuz miraculously opens and the inflation is short-lived (an increasingly unlikely outcome), spending on the Iran war would be a poor economic stimulus. Yet rather than making productive investments in our economy that would help ease Americans’ affordability concerns, like extending health care tax credits, the Trump administration is doubling down on a war that won’t provide any material benefit to families already struggling to make ends meet.
Consider that something as silly as paying Americans to dig holes throughout the land and refill them would also increase government spending, and thus GDP—a point made famous by the economist John Maynard Keynes. But at least a hole-digging program could put money in the pocket of every American. Defense contracts and military spending, in contrast, accrue mainly to one sector of the economy, and disproportionately to the executives of that sector. A broad, paid workforce mobilization would distribute the benefits of the GDP increase evenly, and give a bigger secondary boost to consumption.
It would be better still, though, to invest that war money in things that have not only a high return but also a positive transformational potential—things like research and development, infrastructure, and the health and education of Americans. The right government expenditures not only juice economic output (GDP) but can also help a new, wealthier, and more resilient economy emerge.
Yet Congress seems unable to say no to defense appropriations. The Trump administration’s defense budget for 2026 was already $1 trillion before the war. Rife with waste, it was the largest defense budget in history. But over and over, the U.S. government has found money that ends up subsidizing defense contractors by cutting money from health benefits—effectively taking money away from regular Americans who need to see the doctor and giving it to a small number of companies that build bombs and drones.
Disfiguring the Economy
This last point, about transformation, brings us to the most dangerous economic effect of spending on war. Such spending is also transformational—but usually not in ways we should welcome. War spending disfigures the economy: it suffocates productive investment, boosts the surveillance-defense-industrial complex, and corrodes democracy.
Historically, not every war-driven economic transformation has been bad. World War II acted as an accidental industrial policy in the United States, helping move millions of workers into factories and cities, and out of an agricultural sector whose mechanization was a key cause of the Great Depression. There is no reason to think that the current war could help prod the American economy into a new and better direction, however, based on the example of the last twenty-five years of runaway war spending, which neither created jobs nor a broad lift to the economy.
American workers and cities are still reeling from the movement of manufacturing abroad, recent job growth has been sluggish and limited to a small number of sectors, and workers are increasingly concerned about how artificial intelligence will impact the labor market. Myriad proposals are circulating for how to boost the labor market, focusing on expanding investments in child care, making higher education more affordable and accessible, building worker power, and investing in sectors that have a lot of growth potential, such as health care. Here’s what won’t prepare the labor force: fattening defense industry CEO bonuses, turning America into a rocket factory, or lining the pockets of oil companies. Such will be the “transformative” effects of this war: greater inequality, weakened American households, and a defense industry that hogs more of the economic pie—foreclosing job opportunities and investments in other sectors.
All war spending carries these dangers. Even as we remember the positive economic effects of World War II, we must remember that it also created the “military industrial complex” effect that President Eisenhower warned about—a problem that has dogged our economy and national security policy ever since. The bonanza that wartime creates for specific industries creates a maze of bad incentives and high-level corruption—think Dick Cheney and Halliburton during the Iraq war—that sends us perpetually hurtling toward the next conflict.
Congress Must Rein in This War
Economists tally the price of war because it’s a language that American markets and voters understand, and because it’s a way to quantify war’s amorphous and sprawling harms and horrors.
But the worst negative economic impacts of war cannot be summed up on a ledger. War transforms the economy in a way that incentivizes more war. It robs society of other opportunities. It narrows policymakers’ choices, creating its own traps and logic.
That’s why the U.S. constitution requires the president to consult Congress before going to war—an obligation that different presidents have routinely ignored for decades, but which Trump has ignored with exceptional abandon.
As Trump sends thousands of Marines to the Persian Gulf, America finds itself unmoored from its principles. Congress must reassert its powers to declare war and spend money, by withholding all funds for this war. If the war continues, inflation, recession, and decades of expenses for veteran affairs could be the least of America’s problems.
Header Image: Lightning flashes as META 4, an oil products tanker, sails into Muscat Anchorage on March 21, 2026, at Sultan Qaboos Port in Muscat, Oman, on the coast of the Gulf of Oman south of the Strait of Hormuz. Maritime traffic through the strait, which conveys about 20 percent of the world’s oil and gas, has mostly come to a halt after the joint U.S.–Israeli war with Iran that began on February 28. Source: Elke Scholiers/Getty Images.
Tags: iran, economy, War, iran war