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Estimating the Cost of Combat Operations Against Iran
Congressional Budget Office · 2026-09-15
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CONGRESSIONAL BUDGET OFFICE Phillip L. Swagel, Director
U.S. Congress
Washington, DC 20515
September 15, 2026
Honorable Brendan F. Boyle
Ranking Member
Committee on the Budget
U.S. House of Representatives
Re: Estimating the Cost of Combat Operations Against Iran
Dear Ranking Member Boyle:
You asked the Congressional Budget Office to estimate the cost of U.S.
combat operations against Iran that began this past February as Operation
Epic Fury.1 Specifically, you asked CBO to focus on four categories of
costs associated with the armed conflict: the Department of Defense’s
(DoD’s) operational, logistical, and sustainment costs; DoD’s opportunity
costs; costs associated with increased prices as a result of economic
disruption; and potential additional costs, such as those associated with
diplomatic operations and foreign aid.
Summary of CBO’s Findings
The estimates that CBO was asked to produce for each category of costs are
the result of separate analyses that reflect disparate data, methods, time
periods, and magnitudes of uncertainty. Thus, the estimates for each
category are not directly comparable or summable. Moreover, CBO’s
estimates of costs in those various categories are qualitatively different. For
example, estimates of the cost of expended munitions are directly tied to
events that have transpired, whereas estimates of the long-term economic
and budgetary impact of the conflict reflect fiscal effects that have yet to
unfold.
1
Operation Epic Fury is the name that the Department of Defense gave to the initial, intense phase
of the conflict, which lasted from February 28, 2026, until a ceasefire agreement was reached on
April 8, 2026. Since then, the conflict has generally become less intense. DoD continued to refer
to the conflict as Operation Epic Fury after the ceasefire agreement was reached but later ceased to
do so. To minimize confusion, this letter refers to the entire conflict as Operation Epic Fury.
Hon. Brendan F. Boyle
Page 2
DoD’s Operational, Logistical, and Sustainment Costs. CBO estimates
that as of August 1, 2026, the armed conflict with Iran has cost DoD
approximately $38 billion. That amount reflects the costs of replacing
expended munitions and equipment lost in battle, increased flying hours,
other operations, and increased fuel costs. It also reflects that the initial,
intense phase of the conflict lasted just over a month (less intense combat
operations are still ongoing) and that relatively few U.S. forces have been
involved compared with the much larger and longer U.S. operations in Iraq
and Afghanistan. CBO’s estimate does not include costs borne by other
parts of the federal government, such as the increased cost of fuel used by
the Postal Service. Nor does it include costs already accounted for in the
federal budget, such as the basic operating costs of the military forces
involved in the conflict.
As the conflict persists, DoD’s costs will continue to increase—slowly if
the level of violence remains low and sporadic (as it did in May and June)
and rapidly if the intensity of the conflict escalates (as it did in July). CBO
estimates that if the level of violence remained as low as it was in May and
June, an additional month of conflict would cost $2 billion; if the intensity
of the conflict increased to roughly the level experienced in July, the cost
per month would increase to $3 billion. Monthly costs could be higher still
if the violence escalated further.
To estimate DoD’s costs, CBO relied on government databases and public
reports because DoD did not respond to CBO’s requests for information. As
a result, CBO’s estimates are subject to considerable uncertainty. This past
June, the Administration requested $87.6 billion in supplemental
appropriations, of which $67.1 billion was for DoD to pay for the conflict.
The portion of that request that appears to be directly related to the conflict,
$42.3 billion, is about 10 percent larger than CBO’s estimate of DoD’s
costs.
DoD’s Opportunity Costs. For DoD, the main opportunity cost of the
conflict thus far has been the large expenditure of missile defense
interceptors, which will leave the United States with a reduced inventory of
interceptors for several years. The shortfall would become especially
problematic if a conflict arose with an opponent whose arsenal included
large numbers of ballistic and cruise missiles. (The People’s Republic of
China, PRC, maintains such an arsenal, which would probably play a major
role in a military conflict involving Taiwan.)
Hon. Brendan F. Boyle
Page 3
Economic and Budgetary Effects. CBO estimates that the main economic
impact of the conflict with Iran consists of inflationary pressures caused by
the reduction in shipments of oil and natural gas through the Strait of
Hormuz and disruptions to shipping through the Red Sea (which have
intensified since CBO completed the analysis underlying this letter). That
reduction has increased energy prices globally. In addition to raising crude
oil prices, the conflict has disrupted global refining activities and,
consequently, increased the prices of refined petroleum products such as
gasoline, diesel fuel, and jet fuel. Petroleum is a component of the bundle
of goods and services that all Americans purchase. Because the price of
almost every product reflects shipping costs, increases in petroleum
prices—a significant input in transporting goods—indirectly affect the
prices of most goods and services.
In CBO’s assessment, the effects of those higher energy prices will put
upward pressure on consumer prices. As a result, in the first quarter of
2027, inflation (measured year over year) in the price index for personal
consumption expenditures (PCE) is now estimated to be 0.5 percentage
points higher than the agency projected in February 2026, and core PCE
inflation is estimated to be 0.3 percentage points higher than previously
projected.2 (The core PCE price index excludes prices for food and energy.)
In CBO’s baseline projections, the paths of overall and core PCE inflation
differ: Overall PCE inflation reflects the direct effect of increased energy
prices, which, in CBO’s estimation, added 2.3 percentage points to the
annualized rate of inflation in the second quarter of 2026. (PCE inflation in
that quarter was 5.3 percent.) As energy prices decline, that effect
diminishes in subsequent quarters in relation to CBO’s projections. The
conflict has affected core PCE inflation more gradually than it has affected
overall inflation. But in CBO’s estimation, core PCE inflation will remain
elevated longer because higher energy prices take longer to affect prices of
nonenergy goods and services than they do the price of gasoline or other
energy-related products.
The agency estimates that the higher rates of inflation attributable to the
conflict will boost interest rates on Treasury securities. In CBO’s
assessment, interest rates on 3-month Treasury bills are nearly 0.2
percentage points higher in 2026 than the agency estimated this past
2
For those February 2026 projections, see Congressional Budget Office, The Budget and
Economic Outlook: 2026 to 2036 (February 2026), www.cbo.gov/publication/61882.
Hon. Brendan F. Boyle
Page 4
February. By the first half of 2027, such rates are less than 0.1 percentage
point higher than previously estimated.
Those higher rates of inflation and higher interest rates are estimated to
have modest effects on CBO’s projections of federal revenues and
spending. Moreover, those effects would be roughly offsetting. On the one
hand, higher inflation would boost revenues. On the other hand, higher
interest rates and higher inflation would increase net outlays for interest and
outlays for mandatory spending programs, and CBO’s baseline projections
of discretionary spending would increase if wages and prices in the
economy were higher.
Potential Additional Costs. CBO was unable to estimate potential
additional costs of the conflict associated with diplomatic operations and
foreign aid, for example. Such costs would be diffuse and would depend on
the outcome of the conflict.
Overview of Operation Epic Fury
The United States commenced Operation Epic Fury on February 28, 2026,
with air and cruise missile strikes against Iran, along with coordinated
Israeli airstrikes. According to the Administration, the goals of the
operation were to “obliterate Iran’s ballistic missile arsenal and production
capacity, annihilate its navy, sever its support for terrorist proxies, and
ensure the world’s leading state sponsor of terrorism will never acquire a
nuclear weapon.”3
The Iranian response to the operation has included volleys of ballistic
missiles and drones launched against U.S. bases in the region and other
countries such as Israel, the Gulf Cooperation Council states, and Jordan.
Iran has also sought to restrict the flow of commercial shipping through the
Strait of Hormuz by attacking ships that transit the strait. The United States
has enforced a blockade of Iranian commercial shipping.
The United States and Iran agreed to a ceasefire that began on April 8,
2026. After that agreement, the intensity of the conflict lessened. On July
10, 2026, after a series of Iranian attacks on tankers transiting the Strait of
Hormuz, the President declared that the ceasefire was over. The conflict has
generally been less intense than it was in its first several weeks but has
flared up occasionally.
3
The White House, “Operation Epic Fury: Decisive American Power to Crush Iran’s Terror
Regime” (press release, March 12, 2026), https://tinyurl.com/3pruda5t.
Hon. Brendan F. Boyle
Page 5
Approximately 250 tactical aircraft, two carrier strike groups (providing
about 90 of those tactical aircraft), and an amphibious ready group took
part in the initial phase of Operation Epic Fury. Those forces were
supported by many bombers, airlifters, refueling tankers, other support
aircraft, additional Navy vessels, and Army air defense, aviation, and
artillery units. The initial phase of Operation Epic Fury was smaller and
briefer than such full-scale conflicts as Operations Desert Shield, Desert
Storm, Iraqi Freedom, and subsequent operations in Iraq, but it was larger
than most limited air campaigns conducted since Operation Allied Force
(the 1999 campaign against Yugoslavia), which involved a greater number
of U.S. aircraft.
How CBO Estimated DoD’s Costs for Operation Epic Fury
To estimate the costs to DoD of Operation Epic Fury, CBO grouped costs
into the following categories:
• Replacing expended munitions, particularly cruise missiles and
missile defense interceptors;
• Replacing equipment lost as a result of Iranian attacks, air defenses,
or other causes;
• Increased flying hours for air operations, including the air transport
of forces, equipment, and weapons to the Middle East;
• Other operations costs, mainly for Navy ships and Army ground
forces;
• Increased fuel costs resulting from higher fuel prices; and
• Repairing or rebuilding U.S. bases damaged by Iranian attacks.
To estimate costs in each category (see Table 1), CBO relied on
government databases and public reports. DoD did not respond to CBO’s
requests for information.
CBO’s analysis does not assign financial costs to U.S. military personnel
killed or injured in the conflict, nor does it include longer-term costs
associated with future increases in outlays for veterans’ health care and
disability compensation. It also does not include costs that could emerge in
the future if ships, aircraft, and other equipment need repairs or additional
maintenance as a result of their use in the conflict.
Replacing Expended Munitions. DoD has expended a large quantity of
costly munitions during the conflict, particularly in its first few weeks.
First, the campaign against Iran involved large expenditures of land-attack
cruise missiles (Tomahawks and Joint Air-to-Surface Standoff Missiles).
Hon. Brendan F. Boyle
Page 6
Second, defending against Iranian ballistic missile and drone attacks
consumed many costly missile defense interceptors—Patriot, Terminal
High Altitude Area Defense (THAAD), Standard Missile 3 (SM-3), and
Standard Missile 6 (SM-6) interceptors.
CBO estimates that the cost to replace the munitions expended through
August 1, 2026, is $21.7 billion: $7.3 billion for the land-attack cruise
missiles, $13.1 billion for the missile defense interceptors, and $1.2 billion
for other munitions.4 Replacing those munitions has been the largest single
component of the costs incurred by DoD during the conflict, CBO
estimates. Although CBO has reliable data about the cost of each type of
weapon, the agency had to rely on information from publicly available
sources to estimate the quantities expended.5
Replacing Equipment Lost in Battle. DoD has lost equipment in battle
that it probably wishes to replace—most significantly, a THAAD radar
destroyed by Iran.6 DoD also lost aircraft that it probably wishes to replace.
CBO estimates that the cost of equipment lost in battle—that DoD would
have to change its plans to replace—amounts to $1.9 billion (see Table 2).
The approach that DoD would take to replace that equipment is uncertain.
Some aircraft (such as the F-15E, A-10, KC-135, or E-3) are no longer in
production, but their replacements (the F-15EX, F-35A, KC-46, and E-7,
respectively) are already included in DoD’s regular budget, so no
supplemental appropriations would be necessary. If DoD sought
supplemental appropriations for all its battle losses, however, the total cost
of such losses could increase to $3.3 billion instead of the $1.9 billion that
CBO estimates (see the alternative estimate in Table 2).
Increased Flying Hours. A limited number of fighter and attack aircraft
were deployed during Operation Epic Fury, but they were supported by a
large number of other aircraft. Those other aircraft included bombers not
deployed to the Middle East but flying strike missions there from other
locations, aerial tankers for refueling various aircraft, cargo airlifters
supporting the deployment of forces and their logistical needs, and other
4
Numbers in the text and tables may not add up to totals because of rounding.
5
The most detailed publicly available information was provided by the Center for Strategic and
International Studies; see Mark F. Cancian and Chris H. Park, Last Rounds? Status of Key
Munitions at the Iran War Ceasefire (Center for Strategic and International Studies, April 2026),
https://tinyurl.com/2xf2hsk4.
6
A THAAD battery has a single TPY-2 radar that costs roughly $500 million and is essential to
the battery’s functioning. DoD has eight THAAD batteries, which are in high demand to provide
in-theater ballistic missile defense.
Hon. Brendan F. Boyle
Page 7
support aircraft. To estimate the monthly cost of flying hours associated
with the conflict, CBO considered only flying hours that were above
normal peacetime averages for each particular month.
Using standard operating factors to calculate the cost per flying hour for
each type of aircraft, CBO estimates that as of August 1, 2026, the cost of
increased flying hours attributable to Operation Epic Fury amounts to
$10.4 billion. Of that total, roughly $3.4 billion was incurred by Air Force
tactical aircraft, $4.6 billion by Air Force bombers and support aircraft, and
$2.4 billion by Navy tactical aircraft operated from aircraft carriers and
amphibious assault ships.
Other Operations Costs. To estimate the additional costs of Navy ships
and Army ground units, CBO projected that those forces would incur
monthly costs that are roughly 10 percent greater than the costs to maintain
them during peacetime.7 The forces involved in Operation Epic Fury
included Army aviation, field artillery, and air-defense brigades, as well as
Navy aircraft carriers, surface combatants, and amphibious assault ships
(which carry Marine Corps units). CBO’s estimate of DoD’s other
operations costs, which is $1.5 billion, also includes the costs of mobilizing
reservists to support the operation as well as hostile fire pay, combat zone
tax exclusions, family separation allowances, hardship duty pay, and other
special pays that some military personnel receive.
Costs in the “other operations” category are modest for three reasons: The
number of units included in that category has been limited (compared with
the number of air units), those units tend not to incur additional costs during
their operations, and the initial, intense phase of the conflict was brief. The
costs of Operation Epic Fury have also been limited because DoD has not
mobilized a large number of reserve component personnel, which were one
of the larger cost components in other conflicts, such as Operation Iraqi
Freedom.
Increased Fuel Costs. Combat operations against Iran have increased fuel
prices economywide. The price of crude oil has increased because
shipments of oil through the Strait of Hormuz have been reduced. CBO
identified two pathways through which increased fuel prices have resulted
in elevated costs borne by DoD.
7
For the most recent estimates of costs to maintain combat units, see Congressional Budget
Office, “The U.S. Military’s Force Structure: Fiscal Year 2025 Update to Personnel Numbers and
Costs” (May 2025), www.cbo.gov/publication/61278.
Hon. Brendan F. Boyle
Page 8
First, in response to the increase in fuel costs, the Defense Logistics
Agency (DLA), which is responsible for purchasing fuel on behalf of DoD,
imposed a surcharge of $42 per barrel (in addition to the prices it was
scheduled to charge DoD customers). CBO estimates that from April to
June 2026, the surcharge increased energy costs throughout DoD by
$835 million. Second, in June, the Government Accountability Office
reported that it expected DLA to have a loss of $1,822 million in fiscal year
2026 on its fuel sales to customers. In other words, the $42 surcharge per
barrel would not cover DLA’s costs on fuel sales through the end of
September 2026. To manage the shortfall, DLA will have to draw down its
cash balances, raise future prices to offset its 2026 losses, or request
supplemental appropriations (or take some combination of those actions).8
Combining the increased costs borne by the military services ($835 million)
and DLA’s loss on fuel sales ($1,822 million), CBO estimates a cost to
DoD of $2.7 billion associated with increased fuel prices attributable to
Operation Epic Fury in fiscal year 2026. The effect on fuel costs for DoD
could be greater if the estimate of losses proves too low or if the conflict’s
effect on prices is larger or lasts longer than anticipated.
Repairing or Rebuilding U.S. Bases. CBO is unable to estimate the cost
of damage to U.S. bases and facilities in the Middle East for two reasons.
First, DoD has not provided CBO with information about the value of
damaged or destroyed equipment and property.9 Second, the extent of
repairs or rebuilding that DoD plans to undertake is unclear. And even if
the bases were fully repaired or rebuilt, a portion of the costs of doing so
could be paid by host nations.
Ongoing Costs of the Conflict for DoD
Projecting the costs that DoD would incur as the conflict continues is
challenging. Costs could increase slowly if the level of violence remained
low and sporadic, as it was in May 2026. Costs could increase more rapidly
if operations intensified, as they did during July.
CBO estimates that if the intensity of the conflict was relatively low, each
additional month of conflict would cost DoD roughly $2 billion to
$3 billion. (The lower bound of that estimate includes costs for increased
8
For a description of how DLA sets and adjusts fuel prices, see Congressional Budget Office,
“Alternative Ways to Provide Fuel Within the Department of Defense” (July 2023),
www.cbo.gov/publication/58225.
9
Numerous public reports have stated potential costs associated with damaged or destroyed bases,
but CBO is unable to verify or replicate those costs.
Hon. Brendan F. Boyle
Page 9
flying hours and other operations costs similar to those experienced in May
2026.) Monthly costs would be higher if DoD used expensive munitions. In
June 2026, for example, the U.S. reportedly fired about 50 Tomahawk
missiles in a single attack. Since those are expensive land-attack cruise
missiles, a month that saw such expenditures would cost $200 million more
than a quiet month. Monthly operating costs could be even higher if the
conflict intensified, as it did during July 2026, when DoD's operating costs
were about $3 billion, CBO estimates.
Comparison of CBO’s Estimate With the Administration’s Estimates
The Administration has, in effect, released two estimates of DoD’s costs of
the conflict with Iran. On June 24, 2026, the Administration requested
supplemental funding of $87.6 billion that included resources for operations
in the Middle East and various other purposes, of which $67.1 billion was
intended for DoD. On July 22, 2026, in testimony about that request,
Secretary of Defense Pete Hegseth stated that the cost of combat operations
was $37.5 billion.
Several factors may explain why CBO’s estimate of DoD’s cost for the
conflict—$38.1 billion—differs from the Administration’s estimates. Some
of the difference is attributable to items in the Administration’s request for
supplemental funding that CBO did not include in its estimate because their
associated costs are not directly related to Operation Epic Fury. The rest of
the difference may be attributable to diverse methods and dates used to
estimate costs.
Request for Supplemental Funding. This past June, the Administration
requested $87.6 billion in supplemental funding for Operation Epic Fury
and some other purposes.10 The Administration provided the following
breakdown of costs for a request of $67.1 billion for DoD:
• $1.7 billion for readiness,
• $17.3 billion for operational costs,
• $0.8 billion for National Guard support,
• $1.5 billion for fuel costs,
• $1.2 billion for Administration priorities,
• $21 billion for munitions,
• $5.1 billion for cybersecurity and autonomy,
10
Russell T. Vought, Director of the Office of Management and Budget, letter to the Honorable
Mike Johnson, Speaker of the House of Representatives, concerning supplemental funding (June
24, 2026), https://tinyurl.com/5n7msmcz.
Hon. Brendan F. Boyle
Page 10
• $2.4 billion for drones,
• $4 billion for Airborne Moving Target Indicator and Space Data
Network Backbone, and
• $12.1 billion for other classified programs.
The remaining $20.5 billion of the request for supplemental funding was
for other departments and purposes with varying degrees of connection to
Operation Epic Fury.11 (The largest portion of that remaining amount is
$11.1 billion for the Department of Agriculture.)
The main difference between CBO’s estimate of DoD’s costs for Operation
Epic Fury and the Administration’s request for supplemental funding is that
the Administration sought funding for DoD activities that do not appear to
be direct results of the conflict (although those activities may be related to
operational needs or deficiencies identified during the conflict). The
Administration also requested classified funding that CBO has not
analyzed. Requests to provide supplemental funding for previous conflicts,
such as the military operations in Afghanistan and Iraq, have not included
such a large proportion of classified funding.
In the Administration’s request for supplemental funding, the amount of
funding in categories that appear to be directly related to the conflict totals
$42.3 billion (see Table 3). Comparing CBO’s estimate ($38.1 billion) with
the Administration’s request for supplemental funding is complicated by a
lack of information in the latter; however, the estimate and the request are
broadly similar in their costs for replacing expended munitions and for fuel.
The difference between CBO’s estimate and the Administration’s request
for funding that appears to be directly related to the conflict results almost
entirely from the latter’s inclusion of $17.3 billion for “operational costs.”
The name of that category of funding implies that it includes costs that are
similar to those that CBO estimated for replacing equipment lost in battle,
increased flying hours, and other operations costs, which total $13.7 billion
in CBO’s estimate. Whether the Administration’s requested funding for
operational costs includes the costs of repairing or rebuilding facilities
(which CBO could not estimate) is unclear.
11
For example, the $10 billion (of the $11.1 billion) requested for the Department of Agriculture
to provide temporary economic assistance for row and specialty crops is mainly intended to offset
the higher prices for fuel and fertilizer attributable to the closure of the Strait of Hormuz to
commercial shipping and is thus connected to the decision to initiate hostilities. The $1 billion
requested for the Department of Transportation to assist in the design and construction of Penn
Station is not connected to the decision to initiate hostilities.
Hon. Brendan F. Boyle
Page 11
More-detailed information is needed to understand the difference between
the supplemental funding requested for DoD’s operational costs (of
$17.3 billion) and CBO’s estimate (of $13.7 billion). CBO’s estimate is
based on standard cost factors for flying hours and the agency’s past work
on the cost to operate and maintain forces. Those factors do not result in an
estimate for Operation Epic Fury that is as large as the supplemental
funding the Administration requested for DoD.
DoD’s Estimate on July 22, 2026. On July 22, 2026, Secretary of Defense
Pete Hegseth testified before the Senate Armed Services Committee that
the costs of operations against Iran through September 2026 would be
$37.5 billion. DoD later provided the committee’s staff with the following
information about the components of those costs:
• $1.3 billion for the Department of the Army,
• $1.5 billion for the Department of the Navy,
• $4.7 billion for the Department of the Air Force,
• $0.5 billion for Special Operations Command,
• $0.1 billion for other DoD organizations,
• $25 billion for expended munitions, and
• $4.3 billion for replacing equipment lost in battle.
Two weeks later, DoD updated the committee’s staff with information in
the same format that showed similar costs, except for the cost of expended
munitions, which the department cited as $27.7 billion.
Those cost components appear to be roughly consistent with CBO’s
estimates of costs in each category, except for higher costs reported for
expended munitions in the information provided to the committee’s staff. It
is possible that those higher reported costs reflect the ongoing expenditure
of munitions.
Comparison of CBO’s Estimate of DoD’s Costs With Other
Organizations’ Estimates
Several nongovernmental organizations have published estimates of DoD’s
costs for Operation Epic Fury that tend to be larger than CBO’s estimate.
Those other estimates may be larger than CBO’s for several reasons:
• They may include costs that CBO did not estimate, such as imputed
costs from economic disruptions, higher debt-service costs
attributable to increased outlays, greater costs for veterans’ health
Hon. Brendan F. Boyle
Page 12
care, or other factors. (Some of those costs are discussed below as
economic effects of the conflict.)
• They may extrapolate spending rates gleaned from DoD or press
reports early in the conflict. Because DoD incurred especially high
munitions costs in the early days of Operation Epic Fury, such
extrapolations would result in much higher costs than CBO
estimates.
• They may rely on different methods than the ones CBO used. For
example, CBO focused on the incremental costs of the conflict for
DoD. Thus, the agency’s estimate includes costs for incremental
flying hours rather than total flying hours.12 And when estimating
the cost of equipment lost in battle, CBO did not include the cost of
equipment that was already slated for replacement.13
DoD’s Opportunity Costs
So far, the main opportunity cost of Operation Epic Fury for DoD has been
the high expenditures of missile defense interceptors. To thwart the large
number of ballistic missiles fired at U.S. and allied targets, DoD used a
significant portion of its inventory of Patriot, THAAD, SM-3, and SM-6
interceptors. Significant quantities of some of those munitions were used to
defend Israel against Iranian ballistic missile attacks during the Twelve-Day
War in June 2025; Operation Epic Fury has reduced those inventories
further.
Missile defense interceptors are expensive, ranging from roughly $4 million
for Patriot and SM-6 interceptors to $12 million for THAAD interceptors
and $28 million for the most sophisticated SM-3 interceptors. Moreover,
missile defense interceptors are in short supply because they have been
produced at relatively low rates; thus, DoD’s inventory of such missiles
was limited before Operation Epic Fury and the Twelve-Day War that
preceded it. Both of those operations have demonstrated that the United
States can rapidly expend large quantities of missile defense interceptors in
12
Thus, CBO estimated the number of flying hours above the average number that occurred for
the previous three years during March, April, May, June, and July—the same months of Operation
Epic Fury that CBO’s estimate covers. If all flying hours during those months were attributed to
the conflict with Iran, the estimated cost of flying hours would be much greater. CBO used a
similar approach for ships and ground forces.
13
For example, the Air Force lost four F-15E fighter jets during Operation Epic Fury, but CBO
attributed no financial cost to those losses because the F-15E is slated to be replaced by the F-
15EX in upcoming years. The battle losses simply changed the order in which specific F-15Es
would be retired.
Hon. Brendan F. Boyle
Page 13
a conflict with an opponent that relies heavily on ballistic missile attacks.
Although DoD does not reveal the number of munitions it has on hand, a
comparison of the reported expenditures of missile defense interceptors
with the total numbers that DoD has purchased to date indicates that the
United States has probably used between one-half and two-thirds of its
inventory of those munitions since June 2025.
That reduction in the inventory of missile defense interceptors would be
relevant in a conflict with the PRC. The PRC has many more ballistic and
cruise missiles than Iran had at the onset of Operation Epic Fury. The PRC
also has a significantly larger economic base than Iran and can produce
such missiles more rapidly. An armed conflict with the PRC could therefore
place greater stress on U.S. missile defense capabilities. Having used a
large portion of its missile defense inventory in combat operations against
Iran, DoD now has fewer interceptors on hand to use in a potential conflict
with the PRC.
Given the number of missile defense interceptors that DoD has recently
used, their currently low production rates, and the historical difficulty of
scaling up their production, rebuilding DoD’s inventory of interceptors
would probably take at least five years—even if production was increased.
Boosting missile production has historically been a slow process with lags
of three to five years between the placement and delivery of new orders.
After production was increased, several more years would be required to
replace the missiles that have been used in the conflict with Iran.
Operation Epic Fury also saw high expenditures of DoD’s land-attack
cruise missiles, which are also expensive and produced at relatively low
rates. DoD had comparatively larger stocks of those missiles on hand
before the conflict with Iran and thus is proportionately less limited in its
ability to use them in the future. However, if DoD continues to expend
land-attack cruise missiles during the conflict, such expenditures could lead
to a reduction in stocks that could limit their future use.
Economic and Budgetary Effects
In CBO’s assessment, the conflict with Iran will affect a variety of
economic factors that will, in turn, affect the federal budget.
Effects on Prices and Inflation. In CBO’s estimation, the conflict with
Iran affects the U.S. economy mainly through its impact on prices. The
price of crude oil has increased because shipments of oil through the Strait
of Hormuz have been reduced and not fully replaced by other shipments.
Brent crude prices rose from $64 a barrel in the fourth quarter of 2025
Hon. Brendan F. Boyle
Page 14
(before the conflict) to a peak of $103 a barrel in the second quarter of
2026.
In CBO’s updated projections of crude oil prices (which reflect information
through August 17, 2026), the price of Brent crude falls to $84 a barrel by
the end of 2026 and $76 a barrel by the end of 2027. The price of Brent
crude is now expected to be 41 percent higher this year than the agency
estimated in its February 2026 economic forecast, with that gap shrinking
to 16 percent by the end of 2027. In addition, the costs of refining
petroleum have increased, further boosting prices of gasoline, diesel fuel,
and jet fuel. Although the conflict has led to higher natural gas prices for
many U.S. trading partners, prices in the United States have not increased
significantly, because of domestic production.
Higher oil prices contribute to inflation directly, by increasing gasoline and
other fuel prices, and indirectly, by increasing the cost of producing and
transporting other goods and services in the economy. CBO estimates that
by the first quarter of 2027, the conflict with Iran will increase the level of
the PCE price index by 0.6 percent and the level of the core PCE price
index by 0.3 percent, in relation to the agency’s February 2026 economic
forecast. As a result, in the first quarter of 2027, the year-over-year inflation
rate for the PCE price index will be 0.5 percentage points higher, and the
year-over-year rate for the core PCE price index will be 0.3 percentage
points higher, than previously projected.
The conflict elevated energy prices in the first quarter of 2026, which
affects the year-over-year inflation rate in the first quarter of 2027. But
those elevated prices do not affect the total change in the level of the PCE
price index in that first quarter of 2027 in relation to CBO’s February 2026
baseline projections—which explains the small difference between the
estimated effect on the PCE price index and the estimated year-over-year
increase in PCE inflation in that quarter.
The timing of price increases resulting from the conflict differs for various
categories of products. For example, prices of gasoline, jet fuel, and diesel
fuel changed quickly in response to the supply disruptions caused by the
conflict. In CBO’s assessment, the conflict’s effect on those consumer
energy prices peaked in the second quarter of 2026 and will weaken over
time, consistent with the agency’s updated projections of crude oil prices.
For other products, such as durable goods, price pressures are expected to
build more gradually as higher energy costs work their way through supply
chains. And those price effects are also more persistent. In the agency’s
estimates, by early 2027, roughly 40 percent of the total change in the PCE
Hon. Brendan F. Boyle
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price index attributable to the conflict with Iran is driven by changes in the
price of gasoline and other fuels, whereas the remainder comes from
indirect increases in the prices of goods and services, excluding energy.
Effects on Interest Rates. In CBO’s estimation, the conflict with Iran
boosts short-term and long-term interest rates. Short-term interest rates,
which largely reflect the anticipated short-run path of monetary policy, are
expected to be higher because of the higher rates of inflation. Short-term
rates increased quickly and by the second quarter of 2026 were roughly 0.2
percentage points higher than CBO projected this past February; such rates
are now expected to remain higher for several quarters. As the rate of
inflation returns to the rate that CBO projected in February, short-term
interest rates follow suit. Long-term interest rates, which reflect the
anticipated path of short-term rates and other factors, are expected to be
somewhat higher as well.
Effects on Output. The net effect of the Iranian conflict on U.S. economic
output is unclear at this time. Higher prices erode the purchasing power of
U.S. households and businesses, dampening consumption and investment
growth. Conversely, supply disruptions increase demand for U.S. energy
exports, spurring additional domestic energy production.
Budgetary Effects. In CBO’s assessment, the increases in inflation and
interest rates resulting from the conflict would boost both revenues and
spending. Those effects would be modest relative to the size of the U.S.
economy and essentially offsetting in their impact on the agency’s
projections of deficits over the fiscal year 2026–2036 period:
• Higher prices and the resulting increase in nominal income, such as
higher salaries and wages, would increase federal revenues;
• Higher interest rates would increase net outlays for interest by
increasing the government’s borrowing costs;
• Higher inflation rates would increase federal outlays for mandatory
programs, chiefly because the costs of many of those programs are
indexed to inflation; and
• Higher inflation would increase CBO’s baseline projections of
discretionary spending because such projections are required by law
to incorporate adjustments for inflation.
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Actions taken by lawmakers to provide additional funding for the conflict
would increase spending relative to CBO’s baseline projections. Actual
spending for discretionary programs—programs whose spending is
controlled by appropriation acts—is determined by lawmakers.
That assessment of budgetary effects does not incorporate any effects that
the conflict might have on real gross domestic product (that is, the nation’s
economic output adjusted to remove the effects of changes in prices), such
as the effects of higher interest rates or higher inflation on employment or
real consumer spending.
I hope this information is useful to you. Please contact me if you have
further questions.
Sincerely,
Phillip L. Swagel
Director
cc: Honorable Jeffrey A. Merkley, Honorable Elizabeth Warren,
Honorable Charles E. Schumer, Honorable Richard J. Durbin,
Honorable Tammy Duckworth, Honorable Chris Van Hollen,
Honorable Richard Blumenthal, Honorable Kirsten Gillibrand,
Honorable Peter Welch, Honorable Angela D. Alsobrooks,
Honorable Michael F. Bennet, Honorable Edward J. Markey,
Honorable Cory A. Booker, Honorable Ron Wyden,
Honorable Mark Kelly, Honorable Christopher S. Murphy,
Honorable Alex Padilla, Honorable Tim Kaine,
Honorable Jon Ossoff, and Honorable Andy Kim
Hon. Brendan F. Boyle
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Table 1. [Return to Text]
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Table 2. [Return to Text]
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Table 3. [Return to Text]