War with Iran poses a bigger threat to US debt than to its military
The real risk is not missiles or carriers, but the slow erosion of fiscal stability.
The launch of Operation “Roaring Lion” on Saturday morning, the combined attack by the US Air Force and Army on Iran, and the Iranian counterattack that struck American bases in the Gulf raise serious questions about the cost of war with Iran for the United States and the consequences for the global economy. The greatest danger is that these questions will be reduced to narrow technical issues such as the daily cost of operating an aircraft carrier, the price of a cruise missile, or the expense of deploying additional squadrons to the region. In reality, it is critical to examine this event from a broader, long-term perspective. Wars do not financially collapse economies on the first day, nor even in the first year.
The real danger is that war slowly erodes the fiscal capacity of the world’s largest power, whose debt is already at historic highs at a time when interest rates are no longer near zero. This is how a security event can evolve into a macroeconomic event. This is not theoretical, it is exactly what happened to the United States after 2001. Going further back, it is also the lesson of declining empires. Spain and Britain both held reserve currencies and dominant economic positions and came to believe that global trust in their finances was unlimited. They financed prolonged wars through debt, assuming markets would absorb it indefinitely. Trust erodes slowly, and when it does, it does not necessarily collapse overnight, but its consequences are profound.
This is even more relevant when analyzing the security strategy of the second Trump administration, which makes clear that the Middle East is no longer the primary strategic focus. Instead, priority has shifted to the Indo-Pacific region, where China represents the principal long-term rival. This raises a fundamental question: can the United States finance sustained military engagement in two theaters simultaneously?
1. The strategic framework: Iran matters, but China matters more
About a month ago, the Trump administration published the US National Security Strategy for 2026. It does not present an isolationist doctrine, but rather a pragmatic and utilitarian one based on reprioritization. The hierarchy is clear: fewer open-ended military interventions and nation-building missions, and greater focus on defending core American interests and confronting a primary systemic rival - China.
Within this framework, the Middle East does not disappear as a strategic arena, but it is no longer the center of gravity. It becomes secondary. However, containing Iran remains a defined American interest, and the strategy devotes specific attention to it.
In this context, contrary to some voices on the American right, Israel is viewed in Washington as a strategic asset rather than a liability. It is not perceived as a burden that could drag the United States into endless war, but as an autonomous regional power capable of deterring adversaries, defending itself, and reducing the need for direct American military presence. The strategy explicitly describes Israel as “an exemplary ally.”
From a cost-benefit perspective, Israel is seen as a relatively inexpensive source of regional influence. Annual aid of $3.8 billion represents less than half a percent of a US defense budget approaching $1 trillion. Although aid has increased since October 7, it remains modest relative to the cost of sustained American deployment. More importantly, Israel provides intelligence and operational capabilities that the United States would otherwise need to develop independently at far greater expense.
2. Even “cheap” wars carry massive financial consequences
Even so, this arrangement is not cost-free. Recent American military preparations in Venezuela illustrate the enormous costs associated with maintaining forces in operational readiness. According to a cost model cited by the Center for Strategic and International Studies (CSIS), preparing for a potential campaign against Venezuela cost approximately $28-30 million per day, even before combat began.
Last week, CSIS analyzed the US military posture in the Middle East and concluded that American deployments there are significantly larger and more sophisticated. Iran represents a far more capable adversary than Venezuela, requiring deeper operational capacity.
Even using conservative assumptions of $25-40 million per day, preparation alone for a Middle East conflict could cost $350-600 million over two to three weeks, before a single day of actual combat. This illustrates a critical point often overlooked in public debate: initial deployment costs are only the beginning. The real financial danger emerges if military engagement persists for months or years, particularly as expensive precision munitions, missile defense interceptors, and operational readiness requirements steadily drain resources.
The risk is not the first weeks of deployment. The risk is strategic drift into prolonged war.
3. The oil market: where war becomes a global economic event
The primary channel through which war with Iran could trigger global economic consequences is the oil market.
Disruption to oil supplies raises prices, which fuels inflation, increases bond yields, tightens monetary policy, and ultimately slows economic growth. CSIS outlines four potential escalation scenarios.
The first scenario, a limited disruption to Iranian oil exports of about 1.6 million barrels per day, would likely produce moderate price increases of $10-12 per barrel and remain reversible.
The second scenario, disruption to tanker traffic in the Persian Gulf, could affect up to 18 million barrels per day of non-Iranian oil exports and push prices above $90 per barrel. This would significantly raise global energy costs, although still potentially reversible.
The third and fourth scenarios are more severe: direct attacks on oil infrastructure in Iran or Gulf states. These could remove significant production capacity for extended periods and push oil prices above $100 per barrel, and potentially as high as $130 in extreme escalation scenarios.
The shift from temporary disruption to physical destruction of infrastructure marks the dividing line between manageable volatility and systemic economic risk.
4. Financial markets react quickly, but rarely collapse immediately
History suggests that financial markets react sharply to geopolitical shocks but typically stabilize quickly.
Major events initially trigger volatility, declines in equity markets, and a flight to safe-haven assets. But markets adapt as uncertainty is gradually priced in.
Even the September 11 attacks, one of the most severe shocks in modern history, did not produce a sustained collapse. Markets fell sharply but recovered over time. Investors often respond to uncertainty more than to conflict itself.
Markets do not collapse because of war alone. They collapse when war undermines fiscal stability.
5. The real risk lies in debt and interest rates
The central question is not how markets respond in the first week, but whether war triggers sustained increases in debt and borrowing costs.
The wars in Afghanistan and Iraq illustrate this dynamic. Between 2001 and 2007, US debt rose from about 55% to 64% of GDP, a significant increase but not catastrophic. However, those wars were financed largely through borrowing rather than taxation or spending cuts.
Defense spending increased, but tax cuts reduced government revenue, widening deficits. The result was structural fiscal deterioration rather than immediate financial crisis.
This is the defining characteristic of unfunded war.
6. The United States enters this conflict with historically high debt
Today, the United States faces a more fragile fiscal position than it did two decades ago.
According to the Institute of International Finance, US government debt reached 122.8% of GDP at the end of 2025, up from 119.9% a year earlier. Debt held by the public is approaching 100% of GDP, nearing levels last seen after World War II.
At the same time, global demand for US Treasury bonds remains strong. Investors continue to view American debt as a safe asset, reinforcing the dollar’s position as the world’s reserve currency.
This continued trust allows the United States to sustain high levels of borrowing. But it also creates a structural temptation to defer difficult fiscal decisions.
The greatest danger is not war itself, but war financed indefinitely through debt.
The United States cannot afford prolonged entanglement in the Middle East while simultaneously preparing for strategic competition with China. Sustained military commitments increase defense spending and risk crowding out investments essential for long-term economic growth.
Wars do not necessarily destroy economies.
Wars without funding do.
