(Financial Times Europe, FT Reporters, 12 May 2026)
The conflict in Iran is costing the American economy hundreds of billions of dollars, with a direct impact estimated by the Pentagon at $25 billion for missiles and interceptors, but the real consequences are much broader. Gasoline prices have risen to $4.55 per gallon and diesel to $5.66, adding $35 billion in extra costs for consumers. This energy shock adds to tariffs and supply chain bottlenecks, pushing inflation to 3.5% and making Fed rate cuts unlikely, with an estimated effect of $200 billion in lost output solely due to the inability to ease monetary policy.
Taxpayers are paying not only for military operations but also for rising energy and food costs, while delayed effects on food prices due to more expensive diesel and fertilizers will be felt in the coming months. The poorest households have already reduced gasoline consumption by 7%, while farmers face fertilizer price increases of 25-50%. All this erodes purchasing power and strengthens discontent towards the Trump administration, with 58% of voters disapproving of the handling of inflation and the cost of living.
The war is also increasing the costs of financing public debt and risks further destabilizing federal accounts, already under pressure as debt interest absorbs 15% of the budget. Economists warn that the announced $25 billion is only the tip of the iceberg and that cumulative effects on growth, inflation, and public finances will be lasting, with negative repercussions on investments in infrastructure and education that would have had a greater economic multiplier.
Direct costs of the war
“The Pentagon has estimated the direct cost of the war at $25 billion for missiles and interceptors used, but economists believe the real bill for taxpayers will be much higher, with effects felt over time on growth, inflation, and public finances.”
Impact on consumers
“Gasoline prices have risen to $4.55 per gallon and diesel to $5.66, with an extra cost of $35 billion for consumers. The poorest households have reduced fuel consumption by 7%, while price increases on diesel and fertilizers will soon translate into higher supermarket prices.”
Effects on inflation and the Fed
“Inflation has risen to 3.5%, the highest level in nearly three years, and the Fed has held rates steady for the third consecutive meeting. Economists estimate that the inability to cut rates will cost about $200 billion in lost output, worsening difficulties for families and businesses.”
Costs for families
“‘The total annual NASA budget is $25 billion, so we are already well beyond that. It screams what we could have done with this money instead of wasting it on extra fuel costs for a war that most Americans do not seem to want.’”
Risk of fiscal destabilization
“‘Government deficit financing costs are rising. In 2003, when we entered Iraq, we spent 4% of the budget on debt interest. Now we are already at 15%. This creates strong pressure when 15% of every tax dollar is already paid in interest, and then more is added.’”
(Excerpt from the newsletter by Giuseppe Liturri)
