Iran War Costs US $38B as Missile Supplies Shrink

The United States' military campaign against Iran cost approximately $38 billion through July, according to a Congressional Budget Office (CBO) assessment. This expenditure, primarily for Operation Epic Fury, significantly depleted critical missile-defense inventories and fueled domestic inflation.

Pentagon Spending Details Emerge

The CBO, a nonpartisan agency, reported the $38 billion estimate covers the period from February 28, when Operation Epic Fury began, through July. The operation's initial phase concluded with a ceasefire on April 8, which President Trump declared over on July 10 following attacks on tankers in the Strait of Hormuz. The agency projects ongoing operations will incur an additional $2 billion to $3 billion monthly.

Munitions Replenishment Drives Costs

Replacing expended munitions constituted the largest single expense within the $38 billion total, accounting for $21.7 billion. This included $13.1 billion for missile-defense interceptors and $7.3 billion for land-attack cruise missiles. Other significant costs included $10.4 billion for additional flying hours, $2.7 billion in higher military fuel expenses, $1.9 billion for combat equipment losses, and $1.5 billion for other operational expenditures.

Critical Inventory Depletion

The conflict has drawn down US missile-defense interceptor stocks, with the CBO estimating between one-half and two-thirds of the inventory has been used since June 2025. Rebuilding these stocks could require at least five years, even with accelerated procurement efforts. The CBO report highlighted such a shortfall would become particularly problematic in a conflict with an adversary possessing a large arsenal of ballistic and cruise missiles, specifically identifying China.

Economic Repercussions on Inflation

Beyond military expenditures, the conflict has impacted the American economy. The CBO noted disruptions to oil and natural gas shipments through the Strait of Hormuz and the Red Sea contributed to increased energy prices. This rise in energy costs added 2.3 percentage points to the annualized inflation rate during the second quarter of 2026. The agency forecasts inflation in the first quarter of 2027 will be 0.5 percentage points higher than pre-war projections.

Broader Fiscal Impact

Higher inflation is also anticipated to exert upward pressure on interest rates for US Treasury securities. Defense Secretary Pete Hegseth informed Congress in July that operations against Iran were projected to cost $37.5 billion through September. The White House has requested $87.6 billion in supplemental funding, with approximately $42.3 billion of the Pentagon's $67.1 billion request directly linked to the conflict, according to the CBO.

Future Scenarios and Strategic Challenges

The ongoing conflict with Iran presents several potential paths forward, each with distinct implications for global macroeconomics, US defense posture, and the energy sector.

If the current operational tempo against Iran persists, the US could face continued fiscal strain. Defense spending might exceed initial estimates, impacting the global macro picture through increased US debt issuance and inflationary pressures.

For the US military, sustained high-intensity operations risk further depletion of advanced munitions, creating a strategic vulnerability, particularly in potential future conflicts with near-peer adversaries like China, as identified by the CBO. The defense industry would likely see increased demand for missile systems and other armaments, but supply chain limitations could hinder rapid replenishment.

Alternatively, a de-escalation of hostilities could alleviate immediate cost pressures and allow for a more measured rebuilding of military inventories. This scenario might temper energy price volatility, benefiting global macroeconomic stability.

However, underlying geopolitical tensions in the Middle East would likely remain, posing a persistent risk to shipping lanes and energy markets. For specific companies involved in defense manufacturing, a slowdown in immediate demand could shift focus towards long-term strategic procurement and research and development for next-generation systems.

The wider energy sector would benefit from reduced supply chain risks, potentially stabilizing prices and reducing global inflationary impulses.

A third scenario involves an expansion of the conflict, which would dramatically escalate costs and risks. Such an outcome would likely trigger a significant increase in global oil prices, fueling inflation and potentially leading to a global economic slowdown.

The US defense budget would face immense pressure, requiring substantial supplemental appropriations. Rapid consumption of advanced weaponry could accelerate the strategic inventory crisis.

The defense industry would operate under emergency conditions, prioritizing production over innovation, while heightened geopolitical instability and economic uncertainty would dominate the global macro picture. The main open question remains the conflict's duration and intensity, and whether diplomatic efforts can achieve a lasting de-escalation to mitigate these accumulating costs and risks.