The True Economic Cost of a US Iran War

America’s Iran War Bill Is Exploding

An Iranian strike, likely involving a drone, appears to have damaged a US E-3 Sentry airborne warning and control aircraft at Prince Sultan Air Base in Saudi Arabia. Reports suggest the hit landed near the radar dome attachment point, which matters because the E-3 is not just a surveillance aircraft, it is a core battle management platform that helps coordinate fighters, strike packages, and air-to-air refuelling across the theatre. US media and Reuters reporting indicate the aircraft was damaged, not confirmed destroyed.

It is being assumed that Russian intelligence may have helped Iran use satellite data to target the aircraft.

What matters most here is what the E-3 Sentry actually is. It is not just a radar plane. It is an airborne battle management platform. Every fighter operation, every strike package, and every air-to-air refuelling mission depends on the Sentry for situational awareness and coordination.

That is significant because the US Air Force now has only 16 E-3s left in service, and six were reportedly at Prince Sultan before the attack. On paper, losing or badly damaging one aircraft is about a 6% hit to the fleet, but operationally the impact is larger because these are ageing, scarce assets with no active production line. The planned replacement, Boeing’s E-7 Wedgetail, is expected to cost more than US$700M per aircraft and replacement timelines are measured in years, not months.

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The munitions problem

In addition to the damage to the aircraft, the RUSI estimate suggests the Pentagon could be just one month away from running critically low on THAAD interceptor missiles and certain classes of guided bombs.

Munitions spending is estimated to be around US$26B in the first 16 days alone. Annualised, that would burn through most of the entire DoD procurement budget, which makes the current pace clearly unsustainable.

If the rate of weapons use stays this high, the constraint is no longer just political or strategic, it becomes industrial and financial as well.

The strategic picture

Operation Epic Fury is, at least so far, not achieving its stated objective. The regime has not fallen, and instead we are now seeing allied groups from places like Yemen stepping in with strikes and broader regional escalation.

Iran has not buckled. If anything, the IRGC appears to have tightened its grip on political decision-making, and the fact that the regime has survived a month of joint US-Israeli bombardment is now being used internally as proof of resilience.

The Strait of Hormuz remains Iran’s ultimate asymmetric lever. By closing it, or even credibly threatening to close it, Tehran can put immediate pressure on the Gulf’s oil supply chain through one of the most important chokepoints in the world.

That is what makes this so difficult. Even if Iran cannot match the US or Israel conventionally, it still has the ability to raise the economic cost of the conflict in a way that matters globally.

What is the cost of war?

If we look back to the post-9/11 wars, the total cost has been enormous. That period alone is estimated to have cost around US$8T, including long-term veteran care. US defence spending as a share of GDP has come down somewhat from the early 2000s and now sits closer to 3%, but what recent analysis is starting to show is that the issue is no longer just how much the US spends. It is where the gaps are in manufacturing capacity and defence industrial depth.

Missiles are extremely expensive, they consume large parts of the budget very quickly, and when critical aircraft and systems no longer have active production lines, that starts to expose weaknesses in the US defence posture and manufacturing base.

What makes today different is how these conflicts are being financed. From the Civil War through to Vietnam, the US largely funded wars through higher taxes. Today, wars are increasingly being funded through debt. That matters because it adds directly to the strain on an already stretched fiscal position.

US federal debt reached US$38T in October 2025, or around 100% of GDP, the highest level relative to economic output since 1946. Annual interest payments now sit at US$1.1T, which is more than the US spends on national defence each year.

That is why the current burn rate matters so much. If munitions spending is running at US$26B in just 16 days, that annualises to roughly US$590B. That is close to the entire DoD operations and procurement budget being consumed by one category alone.

For us, that is the real issue. A sustained conflict at that level would not just be militarily intense, it would be fiscally extraordinary.