CBO Puts the Iran War at $38 Billion and Raises Its Inflation Forecast

The Congressional Budget Office released an assessment of the Department of Defense’s costs for the armed conflict against Iran, together with the conflict’s economic and budgetary effects¹⁰. CBO estimates that as of 1 August, the war had cost the department approximately $38 billion⁹. That figure reflects the cost of replacing expended munitions and equipment lost in battle, increased flying hours, other operations and higher fuel costs⁹. The estimates do not include costs related to US military personnel⁸.

The budget office said the prolonged campaign will run at $2 billion to $3 billion a month for as long as it lasts^4,6. Its analysis was limited because the Defense Department did not respond to CBO’s requests for information^2,5. Among the shortfalls CBO identified was a deficit in critical munitions², with the agency separately costing defence interceptors and $1.2 billion for other munitions⁷.

Why it matters to investors

The report converts a geopolitical event into a macro variable. CBO put headline personal consumption expenditures inflation in the first quarter of 2027 at 0.5 percentage points above its February projection, and revised core PCE as well^1,3. That is an official body attributing a measurable share of next year’s inflation to the war.

TIME framed the total as approaching $40 billion and said the conflict has fuelled inflation⁶. For anyone modelling the rate path, the significance is that the fiscal cost and the price effect now come from the same source document, rather than from competing private estimates. The monthly run rate is the part that compounds⁴.

What to watch

The first marker is whether the Pentagon starts answering CBO’s questions. The budget office said plainly that the Department of War did not respond to its information requests^2,5, which means the published number is a floor built from what CBO could see rather than a full accounting.

The second is munitions replacement. The White House and the Pentagon have downplayed concerns about depleted weapons stocks⁷, while CBO’s own tally rests heavily on replacing what has been expended^8,9. The third is the inflation revision itself, which is dated to the first quarter of 2027 and therefore lands inside the window the Federal Reserve is currently forecasting over^1,3. If the monthly cost holds at the top of CBO’s range, both the deficit line and the price line move again⁶.