US War with Iran Could Cost Economy Up to $210 Billion, Analysis Warns
The ongoing military conflict between the United States and Iran could inflict economic losses on the American economy as high as $210 billion, according to a detailed fiscal analysis. Kent Smetters, director of the widely utilised Penn Wharton Budget Model, provided these projections to Fortune, highlighting the significant financial strain from disrupted trade, volatile global energy markets, and rising gasoline prices.
Economic Impact Estimates and Market Volatility
Smetters' current predictions estimate a $115 billion economic loss, but he cautions that this figure could range dramatically between $50 billion and $210 billion, depending heavily on the conflict's duration and intensity. "One problem I have with cost-of-war calculations is that they really do ignore the counterfactual," Smetters explained. "If Iran really did get a nuclear weapon, then we might have spent a lot more on military and even repair of cities later on."
The economic repercussions are already materialising in energy markets. At the close of trading on Tuesday, West Texas Intermediate crude oil prices surged by more than five percent, while the national average price per gallon of gasoline increased by over ten cents, according to AAA data. Former Biden economic adviser Alex Jacquez, now chief of policy at the Groundwork Collaborative, warned that markets are underestimating the risks. "Markets are right now really under-pricing the tail risk of a sustained engagement and an operation that does not wrap up quickly, restore travel through the Strait of Hormuz and get everything back to de-escalation and normal in a timely manner," he told The Associated Press.
Government Response and Military Commitments
President Donald Trump has acknowledged the economic threats posed by the war, announcing measures to mitigate disruptions. On Truth Social, he stated, "If necessary, the United States Navy will begin escorting tankers through the Strait of Hormuz, as soon as possible. No matter what, the United States will ensure the FREE FLOW of ENERGY to the WORLD. The United States' ECONOMIC and MILITARY MIGHT is the GREATEST ON EARTH."
In addition to potential naval escorts, the administration is offering government-backed insurance for energy tankers navigating key chokepoints in the Gulf region. Speaking to reporters in Washington, Trump conceded that oil prices might remain elevated "for a little while," but he predicted a post-conflict drop, asserting, "once the conflict is over these prices are going to drop, I believe even lower than before."
Budgetary Costs and Operational Uncertainty
Beyond the broader economic impact, the military campaign itself, dubbed Operation Epic Fury, carries substantial direct costs. Analysts project an additional $65 billion in budgetary spending for marshaling and supplying US air and naval forces deployed across the Middle East. In a letter to Congress, Trump noted the uncertainty surrounding the operation's scope, writing, "Although the United States desires a quick and enduring peace, it is not possible at this time to know the full scope and duration of military operations that may be necessary."
Previously, the president suggested the bombing campaign could last "four to five weeks," but the evolving nature of the conflict makes precise timelines challenging. The combination of economic disruptions and military expenditures underscores the multifaceted financial burden the United States faces as tensions with Iran escalate, with long-term implications for global stability and domestic fiscal health.
