How Much Is the Hormuz Blockade Costing the US?

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1:58Becca Wasser:This is the cost of a big war of fighting an adversary that has a whole bunch of ballistic missiles that can hit around the region, that can strike your bases, that can aim at your ships. Jerry Doyle is Bloomberg's global defense editor. These compounding costs are not anything I would say is unexpected, but this is just sort of the baked-in baseline for when you fight a war, this type of war, these are the expenses that you can expect to encounter. Becca and Jerry have new reporting out this month that puts a price on the steadily mounting cost of the latest phase of the war, the U.S.'s blockade of Iranian oil.

2:36It's running as high as$42 million a day. And there's no clear end in sight.

2:43Becca Wasser:There's something like 17, 18 ships participating in this blockade of Iran. And they are tasked with making sure that Iran can't get any shipping out of the trade of Hormuz, out into the wider world, and sell their products. So the blockade is intended to slowly choke off Iran's economy and force them to the negotiating table. There have been a great deal of costs for the United States when it comes down to continuing this blockade. There are financial costs, there are readiness costs, there are opportunity costs. Do they meet the objective and are they worth it? I'm Sarah Holder and this is The Big Take from Bloomberg News.

3:23Today on the show, tallying the cost of the U.S.'s naval blockade in the Strait of Hormuz. not only in dollars, but in morale, weapon stockpiles, and U.S. defense capabilities around the world.

3:43Jerry and Becca, you worked together on a new piece about the mounting and far-reaching military costs of the U.S. blockade of Iran. And we're talking on September 15th, so these numbers could go up. But Becca, how did you come up with this figure and what was the total cost of this blockade so far? We've done this by tracking ships, looking at the duration of time that they have spent in the Middle East, as well as using some estimates that have been published by the Congressional Budget Office to help us have that sense of daily operating costs and projecting it out over time. And we're looking right now at what we've referred to as Blockade 2.0, because the U.S.

4:27has already had a blockade. It lifted it initially. And then when the memorandum of understanding with Iran fell apart, it reinstituted a blockade. So we're now in the second phase, if you will. And just the operating costs for that phase of the blockade have gone up to$2 billion alone. The initial naval buildup, Operation Epic Fury, which was that initial high-intensity war with Iran, as well as the first blockade, altogether, we see U.S. naval operating costs going up to an estimated$7.1 billion. And that is a total that rises day to day. How is the U.S. paying for all this? Yeah, so some of the naval ship operating costs are essentially already budgeted for.

5:17But if you look at the sheer amount of ships that are being used just for this operation, the amount of time that they are spending doing pretty much constant operations, it means that what was budgeted probably isn't enough. That means that you're going to have to try and, you know, reprogram funds from elsewhere to cover those costs. We've also seen members of the Trump administration go to Congress and say that they need more funds for the Iran war. So all of that to say, the final bill for the Iran war is going to be quite high. And some of these naval operating costs for the blockade are only going to be a drop in the bucket of that.

5:59Becca Wasser:You know, it's on top of the actual dollar figure cost, though, of course, there's also opportunity cost. These ships and people could be doing other things. They could be training. They could be improving their skills. They could be, you know, patrolling other parts of the world. They could be maintaining the ships. These ships could be getting refit. You know, you saw the pictures of the USS Abraham Lincoln when it pulled into Thailand. A lot of that is just normal. the visible stuff that's sort of normal wear and tear that you see on a ship that's been in the ocean in a saltwater environment for a long time.

6:33Becca Wasser:But the people aboard that ship and the machinery inside that ship certainly suffered from the long deployment. And that sort of stuff has effects that echo through time. I think one of the big ones that we haven't fully wrapped our heads around is the fact that there have been opportunity costs from region to region. So a great deal of that naval force structure that we've seen that have prosecuted the blockades, that have been involved in some of these escort missions to get oil flowing out of Hormuz, a lot of those have been pulled from other regions, namely the Indo-Pacific. So there are these trade-offs that right now may make sense, but over time they leave potential gaps.

7:14Just look at aircraft carriers, which there are not as many of them as there are guided missile destroyers. But, you know, at any given time, there can be four out in the ocean. And right now, two of those are in the Middle East. So that's 50 percent of U.S. naval carrier presence in the Middle East. Well, I want to talk more about the current state of U.S. munitions, because, you know, you've written about and we've talked about the fact that U.S. is burning through these Patriot and Thawed missiles. Why are those sorts of missiles so important? And what did you find about the U.S. military supplies at this point in the war?

7:52About half of the Patriot missile stockpiles have been expended as of August in the Iran war. Those missiles continue to be used. So in reality, that might be an even more daunting figure right now. About 40 percent of THAAD stockpile has been expended in the Iran war. And we're talking about a weapon where stockpiles were just in the hundreds, not even thousands. So that gives you a sense of how extreme and how potentially dire all of this is. And how long does it take to rebuild those stockpiles? If we are looking on average at various lead times, the point in which a missile is procured and purchased to when it actually is produced, I think that's about two and a half years for a patriot.

8:40for a FAD, I want to say that it's a little under three years. And that assumes that the funding comes in on time, the factory lines are ready, that there are no potential bottlenecks in things that are really important to missile production, like seekers, like solid rocket motors, that all of the materials, the energetics are available. And also the most important part, The workforce is there. And as the U.S. is trying to ramp up its munitions production, we've seen a number of potential deals from the Department of Defense, these framework agreements, which are pretty much promises that eventually there will be contracts trying to get defense industry to essentially pony up their own funds in advance in hopes of these potential contracts to try and surge missile production where possible.

9:32So all of that means that when we say it's about 2.5 to 3 years, the reality is quite often longer.

9:45When we come back, Jerry Doyle and Becca Wasser on some of the other costs of the war to military personnel and U.S. military readiness around the world.

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11:48I'll just ask you straight up, has the U.S. naval blockade in the Strait of Hormuz made the U.S. more vulnerable to other attacks, given the amount of resources that are being expended there and diverted there?

12:00Becca Wasser:The short answer is yes, but the longer answer is a lot more complicated because there's not really any sign that there's a major adversary of the U.S. waiting to, you know, pounce somewhere. China has military problems of its own. Is China ready to start a big war in Asia? No, probably not. Is Russia in any position to start a war other than the one it's already got its handful with in Ukraine? No, probably not. There's no sign that there's going to be some kind of an imminent big conflict. But if there were, the U.S. would be in worse position than it was before. And I think that's the key point, which is if there were to be something in the future, the U.S.

12:40is in a less advantageous position than it had been. So to put a finer point on it, in a lot of the war games that I've run looking at a potential U.S.-China conflict, The U.S. would run out of munitions in the first few days of a conflict, first few weeks even, if they were being really, really smart about their strategies. And that assumed stockpile depth that just doesn't exist today and isn't going to exist into the near term future. And that can be slightly problematic when you are looking at theories of deterrence and how it is that you would be able to deter and, if needed, defend against potential aggression from another potential adversary.

13:24Becca Wasser:And I think it's all the more striking, too, when you consider that the U.S. and its allies sort of in Asia have been thinking really hard and focusing on China, which they see as sort of a big, powerful potential future adversary. And right now the war is pulling ships and weapons out of that region, the Indo-Pacific region, and into the Gulf, creating, you know, maybe not a vacuum, but certainly a lack of hardware and personnel and capability in that region that wouldn't have existed without the Iran war. So it's a zero-sum game. If you're going to pull stuff from one region into another region, then you've left a hole there that is not going to be filled for a long time.

14:07I mean, another cost that we've talked about already is the toll on these sailors who've been in the Persian Gulf for extended tours. You know, we've seen some sailors be out there for months at a time. We saw the headlines coming out of the USS Abraham Lincoln, you know, the limited access to toiletries, extended Internet outage, mental health issues on board. How widespread are these issues and how long might it take to rebuild morale that might have been lost here?

14:33Becca Wasser:Morale is a difficult thing to quantify, and it's a difficult thing to sort of explain how to rebuild it once it's gone. Maybe one way of quantifying the effects is looking at re-enlistment numbers. There have been reports in recent weeks that, for instance, the Navy is having a hard time getting pilots to stay in the Navy. That's really difficult for the Navy because it takes a long time and a lot of money to train a pilot. Both, you know, the Navy and other service branches, keeping people away from their families for long periods of time. It just makes people reconsider, you know, the next time they're asked to re-enlist.

15:16Becca Wasser:Those kind of decisions will come home to roost, I think, in coming years. And what did the Pentagon say to your reporting on this, on these costs and on the potential readiness costs, especially? The Pentagon says that they plan for a wide range of operational scenarios to execute presidential and secretary level direction and to ensure missing success in any operational environment. Well, I speak Pentagon, so that translates to we are prepared for anything and we are not going to actually answer your question. So for the U.S., the toll of this blockade has been vast in nominal terms, in potential opportunity costs, in morale.

16:02What about for Iran? What has the U.S. blockade cost them?

16:06Becca Wasser:Well, we've already seen soaring inflation, I think something like 80 percent. Their economy was not big to begin with, something like$300 billion. Their main source of income is cut off with the oil supply being blockaded. However, unlike more traditionally democratic countries or more like, you know, countries with actual functioning democracies, Iran's rulers, the people running the country right now, aren't beholden politically to people who are being squeezed, who don't have the money to buy gas or don't have the money to buy food. And so the leverage that those economic pressures have on them is pretty minimal.

16:44Becca Wasser:And we know that because Iran has been buried in sanctions for decades now, and it really has not moved the needle much for them. You know, Iran hasn't greatly changed its behavior or position over the last 30, 40 years. So it does not seem likely, based on that, that increased economic hardship now is going to make their leadership change course here either. Yeah, and I think that's really a question about how effective has the blockade been? We can say that they've redirected 101 ships. You know, is that actually a measure of effectiveness? If the intent and main objective of the blockade is to squeeze Iran economically so that its leadership capitulates to U.S.

17:31demands, then I would argue at this juncture in time, it probably isn't as effective as it wants to be.

17:46This is The Big Take from Bloomberg News. I'm Sarah Holder. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. If you like this episode, make sure to follow and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow.

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