The cost of war in Iran

The war in Iran is now in its second week, and as the fighting continues, analysts are beginning to estimate how much the U.S. military operation may cost taxpayers.

As the human toll rises, the financial cost of the conflict is also coming into clearer focus.

The figures vary, but several institutions are attempting to put a dollar amount on the war. Kent Smetters, who heads the Penn Wharton Budget Model — a nonpartisan initiative that analyzes the fiscal impact of federal policy — estimates the daily cost of the conflict at roughly $800 million.

Marketplace’s Sabri Ben-Achour spoke with Smetters, who is also a professor at the University of Pennsylvania’s Wharton School, to learn more about how those costs are calculated. The following is an edited transcript of their conversation.

Sabri Ben-Achour: So we do not have an official estimate on costs from the Pentagon, but a lot of folks are trying to figure it out. The Washington Post reported the government may have spent $5.6 billion in the first two days. The Center for Strategic and International Studies said $3.7 billion in the first 100 hours. Does that line up with what your thinking is?

Kent Smetters: Our estimate right now, over the first couple days, is closer to about the $3.5 billion mark. But having said that, we think the ongoing daily cost is going to be closer to about $800 million.

Ben-Achour: $800 million a day…

Smetters: Yeah.

Ben-Achour: What goes into that number?

Smetters: Certainly, the forward cost of the ships, running the aircraft. I mean aircraft, even fourth-generation aircraft, costs about $25,000 per hour to run. The intensive air enable operations directly, the high-end strike packages, the munitions, all the depot-level maintenance, and when you put all that together, it comes out to about $800 million a day.

Ben-Achour: Does the cost of war per day come down over time, or does it just kind of sit there as a constant?

Smetters: So on one hand, you have fewer strikes that are happening kind of later on. On the other hand, you have to loiter longer to find some of those targets. What makes us very different from, say, Iraq. Iraq had quite a bit, you know, few “boots on the ground,” whereas right now, our “boots on the ground” are fairly limited.

Ben-Achour: Is there a point at which spending like this pushes up the cost of borrowing for the United States government?

Smetters: Sure. I mean, that's definitely true for virtually all spending and any deficits. So in particular, the interest rates that we saw pre-COVID, those actually should be the current interest rates that we have today, if it were not for this exploding debt path that we're on. That means borrowing costs in your homes are going to be higher, mortgage rates are going to be higher, and so forth. The real risk, of course, is that they suddenly go up even more as the market loses confidence, in the bond markets, in particular, loses confidence and really drives up these interest rates.