Iran War Has Cost U.S. Families $100B in Military Spending and Oil

Moody's Analytics has put a price tag on the Iran war for the U.S. consumer, and it isn't pretty. The hit comes to $750 a household, or $100 billion, so far. The bill is being driven by a mix of military outlays and oil supply shock, and the meter is still running.

Where the $100 billion comes from

Mark Zandi, chief economist at Moody's Analytics, said the cost passed on to households is the result of increased military spending and higher prices as a result of oil supply disruption out of the Middle East.

Since the U.S. and Israel launched action against Iran, Brent crude has topped $110 a barrel on multiple occasions. That energy spike is doing most of the damage to household budgets.

The Pentagon's tab keeps growing

On May 12, Acting Pentagon Comptroller Jules Hurst III told the House Armed Services Committee that the war had cost $29 billion. Outside estimates are running well above that.

Experts on defense spending say that number likely undercounts the real total by tens of billions of dollars, with independent assessments ranging from $50 billion to $100 billion. On Monday, the Department of Defense told senators it needed an additional $80 billion to cover the cost of U.S. involvement in the conflict, just weeks after warning that the military could potentially run out of money should Congress not pass a new spending bill.

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Households are feeling it at the pump

Gasoline prices, which averaged just under $3 a gallon when the war began, soared as high as $4.56 a gallon after that vital artery for crude oil was cut off, according to AAA.

At the peak, Americans were paying more than half a billion dollars a day in higher prices at the pump. While gas prices have cooled in recent weeks, the wartime surcharge is still adding more than $360 million a day in higher gasoline costs.

Goldman Sachs put a dollar figure on the damage, saying that as of mid-April, higher gasoline prices represented roughly $140 billion in annualized headwind to household incomes.

Why the consumer matters for the tape

The financial pressure is mounting quickly, Zandi added, particularly on already hard-pressed middle and lower-income households. With the saving rate about as low as it ever goes, unless the war ends soon and energy prices come down, households will have little choice but to rein in their spending, weighing further on the already sagging economy.

Translation for traders: discretionary names are squeezed, energy stays bid until the Strait of Hormuz situation fully normalizes, and defense primes continue to print on supplemental funding.

Options market and stocks to watch

Watch for follow-through across energy and defense, with consumer names on the other side of the trade:

• XOM: Watch for sustained flow tied to Brent levels and any Hormuz headlines.
• CVX: Another integrated major leveraged to elevated crude pricing.
• LMT: Watch for reaction to the $80B supplemental request and munitions replenishment.
• RTX: Tomahawk and missile-defense exposure puts it in focus on any new funding.
• WMT: Watch for signs that lower-income consumers are pulling back as the gasoline surcharge bites.

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