Pentagon Runs Low on Cash Despite Nearly $1T Budget

The Department of Defense is nearly out of cash even with a budget close to a trillion dollars, and it is pressing Congress for a supplemental infusion to bridge the gap. The shortfall is being driven largely by the cost of the war with Iran and depleted munitions stockpiles.

The cash crunch

The Defense Department was funded with a budget of nearly a trillion dollars, but it is running out of cash, according to three U.S. officials, a former defense official, outside experts and two congressional staff members.

Defense officials asked Congress for an infusion of more than $67 billion in supplemental funding to ease the shortfall until the new budget in October, but Congress is wary of approving the funding even as the cost of the war with Iran swells.

That means there is little money to purchase new munitions or repair bases in the Middle East that were severely damaged by Iranian retaliatory attacks. Some training has been canceled, and some military base repairs are delayed, the officials said.

Readiness is already being cut

A former defense official told NBC News the military is “parking jets and turning off exercises” because of the money shortages.

Leaked internal documents cited by ABC News revealed broad spending cuts to make up for what one U.S. official described as a shortfall of between $4 billion and $6 billion. The cuts have triggered abrupt cancellations of training courses, reduced aviation readiness, and intensified scrutiny over Army spending months before the fiscal year ends on Sept. 30.

The reductions reportedly included cutting roughly half of the III Armored Corps’ budget and reducing pilots’ flight hours to minimum mandatory levels. The Army also canceled several training programs and an artillery course that was scheduled to begin Monday at Fort Campbell, Kentucky.

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What is driving the shortfall

ABC News reported that major drivers behind the shortfall included costs associated with the Iran war and the Trump administration’s mission to secure the southern U.S. border. Large National Guard deployments are also contributing to the strain, including the ongoing Washington, D.C., deployment, which the Congressional Budget Office projected would cost roughly $1.1 billion this year.

Pentagon estimates on Tuesday placed the cost of the Iran conflict at $29 billion, up from an estimate of $25 billion issued at the end of April, though internal estimates reportedly place the figure closer to $50 billion.

The bigger ask on the table

The Pentagon’s base budget request for Fiscal Year 2027 clocks in at roughly $1.15 trillion, a 28 percent increase over this year’s base budget of about $900 billion. Then there’s the $350 billion boost the Pentagon is demanding through what would be this Congress’ third round of budget reconciliation, aptly referred to as Reconciliation 3.0. This brings the Pentagon’s request for FY2027 to $1.5 trillion, a 45 percent increase over this year’s overall Pentagon budget.

The demands have gridlocked Congressional Republicans, who are facing tough reelection bids in the upcoming midterms, and are wary of dumping billions more into Trump’s deeply unpopular Iranian quagmire.

Not everyone agrees the Pentagon is actually starved for cash. Taxpayers for Common Sense argues the Pentagon is awash with cash, and has roughly $100 billion left from last summer’s reconciliation bill, which the Pentagon is now rushing to spend to avoid losing a portion of it at the end of the fiscal year.

Munitions restocking timeline

Tomahawk Land Attack Missile (TLAM), Terminal High Altitude Area Defense (THAAD), and Patriot — heavily used in this war — will take three or more years from today to return to prewar inventory levels. Standard Missiles (SM-3 and SM-6) will take around two years.

That is a multi-year replenishment cycle that flows directly through prime contractors, and it is the part of this story with the clearest read-through to the tape.

Options market and stocks to watch

Defense primes and munitions makers are the obvious names to keep on the radar if a supplemental deal comes together, and to the downside if Congress digs in.

• LMT: Lockheed Martin is the maker of THAAD, PAC-3 and JASSM. Watch for flow around any supplemental headlines given the multi-year restock cycle.
• RTX: RTX builds Patriot, Tomahawk, SM-3 and SM-6 — all named as depleted. Any $67B supplemental would flow heavily through this name.
• NOC: Northrop Grumman is levered to munitions and strategic programs; watch for reaction to FY2027 topline signals.
• GD: General Dynamics has exposure to ground systems and combat vehicles that could be squeezed if training and readiness cuts persist.
• BA: Boeing’s defense arm is tied to munitions and aircraft sustainment; base repair delays and parked jets are worth tracking. For more, see other market news.

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