$38 billion and counting: CBO warns Iran war could cost $3 billion more each month

The US military's conflict with Iran cost the Department of Defense approximately $38 billion between the start of the conflict in late February and August 1, according to a new analysis by the nonpartisan Congressional Budget Office (CBO).

The estimate covers the cost of replacing weapons used in combat, equipment lost during operations, additional military activity and higher fuel expenses.

The CBO said the monthly cost could vary depending on the intensity of the fighting. Operations at the levels recorded in May and June would cost about $2 billion per month, while the higher intensity seen in July would cost around $3 billion per month. Costs could rise further if military operations intensify.

The estimate is close to the $37.5 billion figure Defence Secretary Pete Hegseth provided to Congress in July.

Munitions account for largest share

Replacing expended munitions was the largest individual component of the Pentagon's costs, with the CBO estimating the replacement bill at $21.7 billion through August 1.

The conflict has also reduced US stocks of certain weapons, particularly missile-defence interceptors.

The CBO said comparisons between reported interceptor expenditures and the total number purchased suggest that the US may have used between half and two-thirds of its inventory of those munitions since June 2025.

Rebuilding some of those stocks could take five years or more, according to the analysis. The depletion could also reduce the military's available capacity to respond to another conflict involving extensive use of ballistic or cruise missiles.

Pentagon estimate exceeds CBO figure

A later Pentagon estimate reportedly put the cost of the conflict at more than $42 billion as of August 13, according to congressional information cited by The Hill.

That figure is higher than the CBO's $38 billion estimate because it covers a later period and uses a different accounting basis.

The Pentagon comptroller's office has provided Congress with multiple updates covering operational costs, obligations and unfunded costs associated with replacing weapons and equipment. Its latest update was reportedly sent to lawmakers on August 28.

Energy disruption adds to inflation pressure

The economic consequences extend beyond direct military spending.

The CBO said disruptions to energy shipments, including through the Strait of Hormuz, have pushed up oil and natural gas prices. Higher energy costs can feed into prices for petrol, diesel, aviation fuel and other goods and services.

The agency now expects headline personal consumption expenditures inflation in the first quarter of 2027 to be about 0.5 percentage points higher than it had projected in February.

Core PCE inflation, which excludes food and energy prices, is expected to be 0.3 percentage points higher than the earlier forecast.

Higher inflation could also put upward pressure on Treasury interest rates and complicate decisions by the Federal Reserve as it weighs inflation against weaker economic activity.

Additional defence funding sought

The White House requested more than $87 billion in additional funding in June, including about $67 billion for the Defence Department to replenish munitions and cover military operations.

The administration has also sought a proposed $1.5 trillion defence budget for fiscal 2027.

Congress has faced further pressure over funding for the conflict. The House passed a roughly $95 billion package in July covering the Iran war and other administration priorities, although the measure had not advanced in the Senate according to the information provided.

What the CBO estimate does not include

The CBO stressed that its $38 billion figure does not represent the conflict's full economic cost.

The estimate excludes certain expenses incurred by other federal agencies as well as some longer-term costs. The agency also noted uncertainty because the Pentagon did not provide all the information requested for its analysis.

The report was prepared following a request from Brendan Boyle, the top Democrat on the House Budget Committee, and other Democratic lawmakers.

The CBO assessment highlights several separate financial effects of the conflict.

• Direct military spending: The immediate Pentagon bill includes weapons replacement, equipment losses, additional operations and fuel costs.
• Weapons depletion: The cost is not limited to money already spent. Rebuilding depleted missile-defence stocks could require substantial future spending and take years, creating a longer-term defence-planning issue.
• Energy prices: Disruption around major oil and gas shipping routes can transmit the effects of the conflict into the wider US economy through higher energy and transport costs.
• Inflation and interest rates: The CBO's revised inflation projections indicate that the economic effects could persist beyond the battlefield. Higher inflation can affect Treasury borrowing costs and the Federal Reserve's monetary-policy environment.
• Different cost estimates: The CBO's $38 billion figure covers costs through August 1, while the later Pentagon figure of more than $42 billion reportedly covers a subsequent period and reflects a different estimate. The figures therefore should not be treated as directly identical measures.
• Continuing fiscal exposure: If the conflict continues at the intensity described by the CBO, an additional $2 billion-$3 billion a month would translate into roughly $24 billion-$36 billion over a year, before accounting for any increase in the intensity of operations or longer-term weapons-replenishment costs.