Unpacking The Cost Of The War On Iran

0:01The world's biggest story keeps getting bigger. This week on Up First, we're tracking the escalating war in Iran, rising oil prices, and a global economy on edge. As the conflict spills beyond Iran, our host Leila Fadal is on the ground in Iraq. Listen each morning for three stories you need to start your day on Up First on the NPR app or wherever you get your podcasts. Hi, it's Jen. Just a quick heads up before we start the show. The news moves fast and things may have changed by the time you hear this episode. So stay up to date with all the latest by listening to your local NPR station and visiting npr.org.

0:45It's been 13 days since the U.S. initiated Operation Epic Fury without congressional approval. The first 100 hours of the U.S.-led strikes on Iran cost around$3.7 billion. dollars. That's according to estimates from the Center for Strategic and International Studies. When asked about how long the war may last, President Trump has sent mixed signals. We're winning very decisively. We're way ahead of schedule. We've already won in many ways, but we haven't won enough. We could call it a tremendous success right now as we leave here, I could call it, or we could go further and we're going to go further.

1:25But without a congressional declaration of war and a spending package to back it up, how is the Pentagon paying for its military campaign in Iran? The Pentagon hasn't yet shared an estimate of how much the operation will cost. But some GOP lawmakers estimate the Pentagon is spending as much as$2 billion a day on the war. That's according to reporting from Politico. And the cost goes beyond drones, missiles, and fighter jets. People are also facing higher energy bills and gas prices at home as the fighting in the Middle East drives up the price of oil. The war and its impact on the U.S. economy could spell trouble for the GOP come midterms.

2:01I'm Jen White. You're listening to the 1A Podcast. Today, we explore the costs of the war militarily, economically, and politically. Stay with us.

2:23With Capital One, get a full suite of financial products and services tailored to meet your needs today and goals for tomorrow. Learn more at CapitalOne.com slash commercial. Member FDIC. Let's get back to our conversation about the cost of the U.S. and Israel's war against Iran. Joining us from Massachusetts is Heidi Peltier. She's a senior researcher at the Thomas J. Watson Junior School of International and Public Affairs at Brown University. She's also the director of programs at Brown's Costs of War Project. Heidi, welcome to the program. Thanks so much for having me. And also with us is Matthew Zeitlin.

2:59He's a correspondent at Heatmap News. Matthew, it's always great to have you. Thanks so much. So, Heidi, the estimates for how much the Pentagon is spending on the war in Iran range pretty widely, from about$870 million a day to more than$2 billion. When we talk about military spending, what does that include? Well, the estimates we heard from the Pentagon in the first few days of war at first were close to$6 billion. And that was just for the cost of some precision munitions, so Tomahawk missiles and some other missiles that were used. Then yesterday, the Pentagon came out with an updated estimate that they said, oh, we undercounted.

3:41It's actually closer to$12 billion. and that doesn't include some of the buildup costs for before the first few days of war. And what we know is that their estimates will not include all of the costs that come after the war is over. So whether this lasts 12 days, 12 weeks, 12 months, 12 years, whatever estimate we hear from the Pentagon will not include all the costs that will continue to accrue to the American taxpayer, which will be the ongoing cost for veterans' benefits and care and the ongoing cost for interest on the debt, because we will pay for this war through debt. So whether it's the$12 billion we've already spent or potentially$50 billion that might get appropriated for emergency spending, if that happens, or whatever the cost for the direct operations of the war, those costs will go on well into the future to pay interest on the debt that we take out to pay for the war.

4:49As Iran launches retaliatory strikes targeting sites in Gulf countries, including oil infrastructure, many are worried about the economic cost of the war. Iran and its neighboring countries along the Persian Gulf are some of the largest oil and natural gas producers in the world. Matthew, walk us through the critical role Iran plays in the shipment of oil and natural gas, especially as it relates to the Strait of Hormuz? Yeah. So the Strait of Hormuz is a body of water connecting the Persian Gulf with the Indian Ocean. It's where the vast majority of oil produced in the Gulf region transits through.

5:24So that's Saudi Arabia, Iran, Iraq, Kuwait. It's something like 20 million barrels a day. It's about a fifth of global oil production and about a third of the seaborne shipped oil production. And right now that strait is effectively closed. So, I mean, there's some Iranian tankers actually going through there, largely going to China. But so that means there's, you know, millions of barrels a day not getting through to global markets. And this has caused oil prices to surge since the war started. Well, and we should note that on Wednesday, at least three cargo ships were attacked in and around the Strait of Hormuz.

6:03That's according to the United Kingdom Maritime Trade Operations. and Iran has claimed responsibility for one of those attacks. Earlier today, bordering countries Iraq and Oman closed their oil terminals after two tankers were attacked off the coast of Iraq. Iran has also claimed responsibility for one of those attacks. Heidi, help us better understand how this instability is contributing to higher oil and gas prices we're seeing right now. Well, one of the things that happens is that financial markets, you know, have no idea what to expect. And so, you know, many of the costs of all of the goods in our economy have shipping as part of their costs.

6:51So whether, you know, so it's not just the gas prices that we're already seeing change at the pump, which, you know, all of us who are driving on a daily basis feel the pinch already from the surge in the gas prices. But all of the products that we use that get shipped from overseas will see an increase in costs from the shipping that goes into those products coming from overseas. And then if you look at American manufacturing, we use a lot of imported inputs into the American manufactured goods. So that's going to raise the cost of even domestically produced goods. And financial markets, you know, they are fickle.

7:34And so investors are not sure what this is going to mean for business. So they don't want to invest in something when they're not sure what the long-term ramifications of these wars are going to be in terms of energy costs, shipping costs, manufacturing, economic growth, slowdowns that might happen because of these energy prices. And so this can have a downward spiraling effect in terms of a loss in growth, a loss in investment, and so on. Well, Matthew, I want to talk a bit about the global energy ecosystem, because last week Qatar announced it would stop the production and export of liquefied natural gas after an Iranian military attack on its operating facilities.

8:16And Qatar is the world's second largest exporter of liquefied natural gas, second only to the U.S. And when you think about a country like India, which relies on LNG, just help us better understand how this is destabilizing the global energy market. Yeah, so the vast majority of those LNG exports from Qatar were going to Asia, and that gas is often used in the electricity sector. But I think the thing that's really pinching right now, because of the time of year it is, is that fertilizer production is being disrupted. There's a lot of fertilizer plants in the Gulf region as well as in South Asia.

8:58And as I think anyone would remember from high school chemistry, natural gas is a key feedstock to creating ammonia. And then from ammonia, you create what's known as urea, which is a way of getting nitrogen into the soil and fixed onto plants. And so this means that food costs will go up. These are input costs to farmers. So maybe in the rich world, that means that farmers would be paying more to fertilize their crops, especially as the growing season starts. But then also in the developing world, what you might see is just some farmers, these are subsistence farmers, poorer farmers in Africa and South Asia, might just go without fertilizer for a planting season and just would see a hit to their agricultural productivity.

9:48Well, on Wednesday, the International Energy Agency, that's an intergovernmental organization that works to ensure global energy security and promote clean energy, they announced that their 32 member countries are releasing 400 million barrels of oil reserves. Now, that's the agency's largest ever release, and it's in a bid to control spiking energy prices related to this war. But that move didn't stop the U.S. stock market from tumbling today after the IEA more than halved its forecast for oil supply growth this year. The agency is calling it, and I'll quote them here, the largest supply disruption in the history of the global oil market.

10:26So, Heidi, about a third of global emergency stockpiles will be depleted once the IEA releases the reserves. What does this move indicate about how long the agency expects the war might last and its longer-term impact on the global energy market? Well, you know, the reality is none of us have any idea how long the war will last. You know, what we might speculate about what the IEA is speculating is that they don't think the war will end immediately, that they already recognize the disruption in oil supply. As Matthew mentioned earlier, the Strait of Hormuz carries about 20 % of the, or is responsible for about 20 % of the flow of the world's oil through that shipping channel.

11:16So there already has been a severe disruption, and the IEA is trying to combat that disruption through this release of the reserve. Now, if they thought this was going to be a really long and protracted war, they might not release as much of the reserves as they have been because they might want to be more conservative in keeping some of those reserves. So this might imply that they are thinking of this as more of a medium term war. But the reality is that none of us can really know how long this is going to last. And before we go to a short break, Tom emails, I have heard figures of$50 billion in borrowing per week by the U.S.

11:59government for this war. Our current debt is more than$38 trillion. Now we have a war costing a billion a day, and we have no one in government screaming and pounding desks to stop it. Most in this country can't afford health care, but we can find a billion dollars a week to kill school children, tens of billions to give to foreign countries, and now tariffs that must be refunded. Who are we? We'll be right back.

12:23This message comes from NPR sponsor Charles Schwab with its original podcast on investing. Each week, hosts Lizanne Saunders, Schwab's chief investment strategist, and Kathy Jones, Schwab's chief fixed income strategist, along with their guests, analyze economic developments and bring context to conversations around stocks, fixed income, the economy, and more. Download the latest episode and subscribe at schwab.com slash oninvesting or wherever you get your podcasts. Welcome back. We're discussing the economic costs of the U.S. and Israel's war in Iran. Before we get back to our panel, some emails we got.

13:04Justin wrote, prices for my family are going up, mainly fuel and daily necessities like food and energy. We have to choose between taking the kids out for an ice cream day or whether to eat dinner. People like us, living paycheck to paycheck in a place where there is no public transportation, are finding it a lot more expensive to keep up our vehicle maintenance, including replacement parts, which are mostly made overseas. And Kit emails, how much longer can this war, low taxes for the ultra-wealthy, and eventually reimbursing importers for tariffs last before there are major repercussions from the ballooning debt?

13:37The cost of maintaining the debt will grow too big at some point, as government bonds will need to pay higher interest and the U.S. government can't be trusted. Heidi, I'd love to hear your response to Kit's email specifically about the cost of the debt to the U.S. taxpayer. That's right. Both great questions. So the cost of the debt, you know, so the debt is not just because of the cost of war, but the cost of war certainly is a great contributor to our debt. And, you know, historically, you know, up through World War II, the U.S. government would pay for war through raising taxes, through selling war bonds, and would pay for war by raising revenues.

14:24And that has not happened since basically since World War II. That starting with the Korean and Vietnam Wars, we started raising supplemental emergency funding, appropriating funds differently. And in the post 9-11 era, it's entirely been debt funded. And, you know, we've incurred over a trillion dollars of just interest costs in the Iraq and Afghanistan wars. And all of what we're spending in Iran is being paid for through debt. And those interest costs will, you know, whether we stop our engagement in Iran today or, you know, well into the future, the interest costs will keep accruing. And that every dollar we're spending on interest is a dollar that we're not spending on your first listeners question.

15:24You know, is a dollar we're not spending on helping, you know, with tax relief or helping to invest in public transportation or helping with other parts of the federal budget. So right now, the federal budget, the interest cost is increasingly crowding out other parts of the federal budget. We're paying 14 percent of the federal budget just in interest costs. So that is an enormous sum of money that we could be spending. For those people who would want more defense spending, we could be spending that on defense. We could be spending that on non-defense. We could be spending that on education or health care or public transportation or all kinds of other things.

16:08But we're spending 14 percent of the defense of the federal budget on invest costs alone. Well, we have some news here. Iran's new supreme leader, Ayatollah Majdaba Khomeini, issued his first statement. He called for national unity and said the Strait of Hormuz would continue to be closed to pressure Iran's enemies. He also warned that all U.S. bases should be immediately closed in the region or face continued attacks. Now, Matthew, President Trump told CBS News this week that he was considering taking over control of the Strait of Hormuz from Iran. Is that something the president can do? So we're in this very funny situation where you see the president and some of his allies saying to these, you know, tanker captains that are on either side of the strait, Just go through, you know, just like turn off the transponder, wait for it to be dark, and just like make a run for it.

17:01But right now, as far as best I can tell, as I've heard, the U.S. Navy itself is not super active in the Persian Gulf right now. You know, it's not really navigating through it. It's not, you know, launching naval attacks on Iran. The strikes are all coming from the air. So if the Navy right now does not feel like it's safe for them to operate, the idea that we're going to seize the Strait of Hormuz and open it up on any kind of quick time frame seems a little unlikely. I think Secretary Chris Wright, the Secretary of Energy, said maybe there could be Navy escorts by the end of the month. But that's two weeks from now.

17:40And so, yeah, right now, the United States does not seem to be prioritizing the amount of kind of military hardware and risk to American sailors, airmen, Marines. That would probably be necessary to take the strait and clear it out for commerce. We got this question from Timothy who says, I don't understand how oil that hasn't even been processed can affect the price of gas that is already at the station. Matthew, what can you tell us? Yeah, I mean, he's right in the sense that some of these price increases will take some time to feed through the system. I mean, what you can say is that these markets are kind of forward-looking.

18:25So oil that's going to be delivered in a month has already gotten more expensive. And the people that operate gas stations know that. And they know that their input costs are going up. And so they can adjust to that. It's not a secret that oil is getting more expensive. Heidi, you talked about debt and the potential long-term impacts of a protracted, well, even a short-term, the short-term war with Iran. But what are some of the broader economic consequences of war spending that are often overlooked? um well so one one thing that we should think about uh when thinking about war spending is every dollar we're spending on war is a dollar we're not spending on something else so um whether you know we're spending a dollar on war that is uh funded through debt then that is uh you know a dollar that we are going to have to pay interest on starting today and well into the future It's also a dollar that's not available to be spent on whatever else is important to Americans, whether that's infrastructure or clean energy or education or health care or whatnot.

19:41So there are these tradeoffs that we have to think about. You know, if we're spending on defense, we're not spending on non-defense. Um, alternatively, you know, if, if we're raising revenues to pay for war, um, such as, you know, Trump's idea that we could raise tariffs in order to increase the defense budget, well, that money has to come from somebody. So if we're raising tariffs, then we are, uh, you know, that's essentially like raising taxes. And that is coming out of the pockets of the consumers for those tariffs or the businesses who are paying for those tariffs. And so that's, you know, spending money or investment money that's not available to be spent somewhere else.

20:21So I think it's important for us to think about these tradeoffs that the cost of war is not just, you know, the very important cost of human life, but also that we are, you know, facing these opportunity costs of what else we could have been doing as a country in terms of the technologies we could have been investing in, the types of productivity, the types of, you know, the technologies, the programs, the kinds of investments, and the kind of path we would rather be on rather than the path of militarism. Well, we got this from Michael in North Carolina who emails, I would like to know who is profiting from this war.

21:06I imagine weapons manufacturers have warehouses full of weapons that need to get used up and replaced in order to keep people on the job. Am I naive? So I want to talk about this through two lenses briefly. First, Matthew, as oil prices continue to rise, who stands to profit economically? This is a good question. I mean, so the U.S. is a large producer of oil. And, you know, that oil, a lot of it is exported. We've been exporting oil now for about 10 years. It used to not be allowed. And so those barrels are, you know, fetching these high prices. on the global market. And one reason why that might turn more into just pure profit is because often when there's a kind of disruption in the oil market, the so-called swing producers may start producing more to kind of bring prices back into a more normal range.

21:55The issue is that those swing producers, their Saudi Arabia, their Iraq, they're the countries that can't get their oil out right now through the Strait of Hormuz. So there's actually not that much prospect for increasing production. which just means that the barrels that are going through the system right now are fetching these high prices. So, yeah, it's U.S. oil and gas producers and exporters that are looking to profit from these price increases. Well, we also know the U.S. rolled back some of the measures and sanctions it had against Russia. Does Russia stand to gain here? Absolutely. Russia, I think, is probably one of the biggest short-run beneficiaries of this war, which is somewhat ironic because Russia and Iran have a close relationship.

22:48Yeah, I mean, so one of the first kind of oil price measures that went through was lifting some sanctions on Russian barrels that India was going to buy. India is a major customer of Russian and Middle Eastern oil. And so, yeah, Russia is definitely a beneficiary of that because, yeah, there are these sanctioned barrels out there. And so kind of a quote-unquote easy way to increase supply is to make that oil more accessible on the global market. Although, of course, this then runs into kind of pretty obvious tensions with, say, U.S. policy in Ukraine, where we're currently now supporting funding arming Ukraine's resistance to the Russian invasion, which has been ongoing since 2022.

23:36Well, Heidi, I want to get your thoughts about that other question. But, Matthew, thanks for your time. Matthew Zeitlin is a correspondent at Heatmap News. It's always great to talk to you, Matthew. Thanks. Thank you. And Heidi Peltier is sticking with us. She's the director of programs at Brown University's Costs of War Project. Heidi, to Michael's question about other people or groups who profit from this war or other wars, what do we know? We know that about half of the Department of Defense budget in the U.S. goes to contractors who stands to gain a lot from going to war. We know that the Tomahawk missiles, which are used in Iran, are made by Raytheon.

24:25So they are certainly one of the beneficiaries of going to war and having extra demand for their product. And there are a lot of American manufacturers who are producing and selling goods to the U.S. government, you know, selling weapons systems, munitions, all kinds of goods and services that benefit when we are at war. Well, let's move now to Capitol Hill, where Democratic lawmakers are speaking openly against the military strikes in Iran and the multi-billion dollar price tag of waging war on the country. And let's bring in a new voice. Kadia Goba is a politics reporter covering Congress for The Washington Post.

25:10Kadia, welcome to the program. Thank you for having me. Let's hear from one of those Democratic lawmakers speaking out against the U.S.'s war in Iran. Donald Trump has entered into this war of choice. They're spending billions of dollars in the Middle East, have zero interest, these extremists, and actually trying to lower the high cost of living for the people of this country. In terms of this war of choice, Donald Trump has no clear plan of action. There's no discernible objectives. They shift every day. And there's no exit strategy to get us out of a conflict when Donald Trump promised as a candidate not to get us into this type of potentially endless war in the Middle East.

25:52Now, that's the top House Democrat, Representative Hakeem Jeffries, speaking to MS Now on Tuesday. Kadia, what are Republican lawmakers on the Hill saying about how much this war is costing? You know, it's interesting because obviously it's never a good idea to see. it's never great to see high gas prices or utility prices for the party in charge when you're going into the midterms. But this is sort of particularly detrimental for Republicans who've sort of made a point to promote energy dominance and promising voters cheap gas. I'd say in addition to that, House Republicans who've sort of hitched their political wagon to this concept of affordability are in a very tight spot right now as they try to justify the president's foreign policy posturing with this idea that they are promising or they are the party of affordability.

26:53So openly, they are talking about, you know, they're kind of leaning on the president's promise to have this, make this a very, quote unquote, short war. and sort of justifying his actions in that way and saying that, well, you know, voters have really short-term memories and they probably won't see this as we get closer to the— they're hoping that they won't see this as they get closer to the midterms. Heidi, you know, what qualifies as a short-term war, a long-term war, is relative. We know the Pentagon hasn't yet asked Congress for additional money to fund this war in Iran, but how clear picture does Congress have about how much this war is costing the U.S.?

27:42We've heard a lot of numbers over the past 13 days. Yeah, that's a good question. And, you know, I can't answer for Congress. I don't know how clear a picture they have of how much this is costing, you know, Even the White House itself has revised its estimate recently. So up until two days ago, they were saying it was$6 billion in the first week of war. And then yesterday we found out it was more like$11 billion in the first week of war. And that estimate didn't count the buildup before the first week of war. It, of course, doesn't include all of the future costs for veterans, for interest costs, and so on.

28:35And so, you know, one thing that we can be sure of is Congress tends to undercount the cost of war. In fact, the project where I work at Brown, the Cost of War Project, was founded because we tend to get an underestimate from the government about the true cost of war. The number we get from the Pentagon about what it costs to go to war is one small representation of what it costs. Really, we have to add to that the cost of interest on the debt. We have to add to that the cost of our obligations to veterans, which goes well into the future, decades into the future. And that's just the budgetary cost.

29:24Then we also have environmental costs and humanitarian costs and public health costs and other kinds of ripple effects that go well beyond the financial costs. We have to go to a quick break. But before we go, Alita in Illinois emails calculating the monetary costs of war. It's far easier than grappling with the overwhelming moral costs of war, the toll of suffering and deaths, the environmental devastation, the losses of irreplaceable cultural inheritance. In fact, the monetary financial costs of wars pale in comparison to these other losses. We'll be right back.