The United States was already on an unsustainable fiscal trajectory, adding to the national debt at breakneck speed, before it launched a joint attack on Iran with Israel.
Even before the first munitions struck Tehran, the federal debt had surged past the $38 trillion mark, even jumping $1 trillion in just over two months between August and October 2025, the fastest rate of accumulation outside the pandemic in history.
Now, President Donald Trump has committed the U.S. to a war with Iran that is draining nearly $1 billion a day from the government’s coffers. With the U.S. borrowing at an accelerating rate, economists and defense analysts are aggressively gaming out the macroeconomic scenarios of a conflict with no clear endgame.
The $1 Billion-a-Day War
Operation Epic Fury is racking up a staggering military bill. According to the Center for Strategic and International Studies, a DC think tank, the military campaign is costing approximately $891.4 million every single day. The first 100 hours of the conflict alone consumed $3.7 billion, CIS added in a report on the costs of the fighting, as reported by CNN.
The daily price tag is driven by massive air and naval deployments, with air operations costing $30 million daily and naval operations add another $15 million. Keeping an aircraft carrier strike group active costs $6 million per day, and deploying stealth bombers, non-stealth fighters, and tanker aircraft costs millions more. Kent Smetters, faculty director of the Penn Wharton Budget Model, projected that a two-month war could cost taxpayers up to $95 billion, depending on troop deployments and munition replenishment.
A preexisting debt crisis
These massive military expenditures are piling onto a highly fragile fiscal foundation. Michael A. Peterson of the Peter G. Peterson Foundation warned last October that the nation’s debt was growing at twice the rate seen since 2000. The U.S. government is now spending nearly $1 trillion annually just on interest payments, costing taxpayers more than spending on defense and Medicaid.
This fiscal strain is being compounded by an ongoing partial government shutdown, which adds billions in short-term costs and stalls essential economic activity. Credit ratings agencies have already stripped the U.S. of its top-tier rating due to political gridlock and fiscal slippage. And now a genuine oil shock is upon the global economy, with oil experiencing its most volatile trading day in history, touching $120 briefly on Monday before plummeting back to earth on mixed comments from the White House and Iran’s Revolutionary Guard.
Scenario 1: The short-term shock
With the Strait of Hormuz effectively closed, 30% of the world’s oil consumption and 20% of global liquefied natural gas supplies are currently facing logistical disruptions. In an optimistic scenario where the conflict is resolved in weeks without permanent damage to energy infrastructure, oil prices are expected to temporarily hover around $100 per barrel.
Morgan Stanley chief economy Michael Gapen projected on Monday that this would act as a transitory shock, pushing headline inflation up by roughly 35 basis points for a few months while leaving underlying core inflation mostly unaffected. However, because inflation has remained persistently above target, the Federal Reserve would likely be forced to delay expected interest rate cuts until later in the year.
A more severe scenario paints a much grimmer picture for the global economy. If the war drags on for several months, oil prices could surge to $130 per barrel. If oil prices double over the course of a year due to sustained supply shocks, Morgan Stanley estimates it could shave 1.5% off real U.S. GDP growth. This scenario would function as a massive “uncertainty shock,” chilling business investment, halting hiring, and causing households to dramatically cut back on consumption. Under these conditions, the Federal Reserve might be forced to abandon its inflation fight entirely and aggressively cut rates to rescue faltering economic activity.
Apollo Global Management chief economist Torsten Slok also calculated a transitory versus a persistent shock, projecting a 0.5% boost to headline inflation and a nearly 0.1% drag on GDP in the first quarter, in either case. But the transitory shock would fade by the third quarter of this year, he projected, while the persistent one would be felt even to the end of 2027. In other words, this war is already threatening to impact American wellbeing two years from now.
For now, financial markets remain somewhat insulated, largely due to a belief that President Trump’s sensitivity to market sell-offs will prevent a protracted conflict. However, as the debt explodes and the bombs continue to fall, the U.S. economy faces a highly precarious balancing act in the months ahead.
For this story, Fortune journalists used generative AI as a research tool. An editor verified the accuracy of the information before publishing.
