There was a time when American wars were financed by the American public. Income taxes were increased (WWI, WWII, Korea) and war bonds were sold to the public (at very low rates of return). But since America needed that money from war bonds, they needed the public to see their purchase as patriotic gestures (thus the posters showing Uncle Sam, the Lady Liberty, and US soldiers amongst other imagery). The US public had skin in the game, and our representatives were not going to go to war without overwhelming support.

Even when George W. Bush initiated the war in Iraq, he and his administration spent considerable effort to convince the public (and the world) that it was worth it. He even went to Congress to get authorization (as required by the War Powers Act) – and made four speeches to the public before we went to war (and dozens of speeches to the public after we got mired in it). Essentially, war is not a one-man show – it is a collective commitment, and once that commitment is lost, your objectives are lost as well (ie Vietnam).

President Trump went to war with Iran with no warning to the public (and certainly not Iran, as we were actively negotiating with them a couple of days prior to the initial assault). And as I wrote last week about the varied reasoning for the pre-emptive war, we have heard very little from him about the logic of the war since (just an 8 minute pre-recorded speech posted to his Truth Social platform on which only 150,000 users are active). All that being said, we are at war and we are all paying the price.

Wars are costly – not simply in lives lost, damage done, and reputations burnished (both good and bad), but also in dollars and cents. Just because your taxes haven’t gone up doesn’t mean you are not going to pay for it. This war is in a particularly strategic part of the world, where oil and natural gas are produced and shipped, where large amounts of urea (used to make fertilizer) is produced and shipped. Americans have already indicated a low tolerance for inflation – they ain’t seen nothin’ yet!

Let’s start with gas prices. Twenty percent of all crude oil goes through the Strait of Hormuz. Thus when traffic in the Strait is disrupted (Iran has hit container ships in the Strait, in addition to fuel storage tanks across the region), the price of oil rises. This hits the price of gasoline in the US (as oil markets are global) – up 23% already. Without oil being shipped, oil production will be stopped (there is no place to store the oil otherwise – it must be shipped). Starting it back up will take time, in addition to repairing the depots damaged in the war. Bottom line – the price increases we are seeing are not temporary. If prices remained where they are now, each American household would pay an additional $530 for gas this year.

The release of oil from the Strategic Petroleum Reserves will do little to lower prices. World consumption is a bit over 100 million barrels a day – the release worldwide is only 5 days worth. And that release is of crude oil – our refineries operate at near capacity, so we will not be getting excess supply from the release. But what the release will do is cost the US government $16B to replenish – that’s purchased on the US credit card, costing us an additional $640M a year in interest payments (another $5 a household).

But those increased oil prices don’t simply impact our gasoline bills. They make their way through the entire economy. According to Vanguard, the potential impact to overall inflation could be somewhere between .4% and .8% for the year. With every .1% costing the average household between $60 and $80, that means $240 – $640 in increased expenses for the year. That would be like raising everyone’s tax rates by 1% – that doesn’t sound popular, does it? And none of this is likely to lower interest rates – since the war began, the 10 year Treasury (which is what mortgage rates are keyed to) has risen by .3%. That isn’t the Fed’s doing – that is the message from global financial markets that US bonds are riskier than they were before the war.

And the direct costs of the war are not immaterial either. The Penn Wharton model currently estimates the daily cost at $800M per day. The Trump Administration is expected to ask Congress for an additional $50B to wage the war (if only to replenish the pricey munitions that they’ve been burning through and keep up the appearance of solving a problem in the Middle East). That’s $375 per American household and another $15 of interest on the US debt in perpetuity. Perhaps they could have found the $50B in the bloated Defense Department budget, had they not spent millions of dollars in September on lobster tails, rib-eye steaks, donuts, and billions on purchases from foreign manufacturers (I guess American manufacturers aren’t great yet).

Yes, war is costly. Thirteen American soldiers are dead and about 150 soldiers have been injured thus far – the cost to them and their families is not quantifiable. Thousands have died in Middle Eastern countries, and more will likely die as this conflict continues. The Iranian regime is still intact and successors have already been named for those killed early on. No nuclear material has been removed from the country (and none is likely to be removed). The two-thirds of the Iranian people who live under a dictatorship that they do not choose are suffering and will likely continue to suffer. I am unclear where the American people will see a return for their investment in this escapade. The shorter the war the better.

And the national disgrace continues…