Who Pays the Price of the U.S. War on Iran? How Washington Exports the Cost of War to the World

Modern wars are no longer measured by the number of missiles alone, but by how their costs are distributed across economies. In the case of the United States, the key economic question is not just the direct cost of war, but who ultimately bears it. Washington enters any major confrontation with a privilege no other country possesses: its currency is the backbone of the global financial system, its bond markets act as a reservoir absorbing global savings, and its monetary policy sets the pace for other central banks. Therefore, when the cost of war rises for the U.S. Treasury, it does not remain confined within American borders; it spreads through three main channels: the dollar, energy, and interest rates. This is what makes the U.S. war on Iran a threat to the entire global economy, not merely a regional crisis.

The timing of this war is particularly sensitive from a financial perspective. According to the Congressional Budget Office, the U.S. federal deficit in 2026 is expected to reach approximately $1.9 trillion, while net interest payments on debt will approach $1 trillion this year. Publicly held debt stands at about 101% of GDP in 2026 and is projected to rise to 120% by 2036. These are not the figures of a comfortable economy entering a prolonged war without consequences, but of an economy already burdened by debt and deficits. Yet the United States does not face the same financing constraints as other countries, because the U.S. Treasury can still borrow from a deep global market, and dollar-denominated assets remain the primary safe haven for investors and central banks.

This privilege is inseparable from the status of the dollar. According to the Federal Reserve, the dollar accounted for 58% of officially disclosed global reserves in 2024, far ahead of the euro, yen, pound sterling, and the renminbi. IMF data also shows that despite a gradual decline from its historical peak, the dollar remains the dominant global reserve currency, while the renminbi remains relatively minor, with only 3.13% of global SWIFT payments in January 2026. This means that when Washington finances its war through borrowing and issuing more bonds, it does so within a global system that continues to recycle savings into dollar assets rather than away from them.

Here begins the first mechanism of exporting the cost of war: the debt and dollar channel. As the war increases the U.S. Treasury’s need for financing, bond issuance rises, and global sensitivity to U.S. Treasury yields intensifies. Treasury data illustrates the scale of this interdependence: Japan held approximately $1.225 trillion in U.S. Treasury securities in January 2026, while China held about $694.4 billion. Any sharp movement in bond prices or yields does not remain a domestic American issue; it translates directly into valuation losses and pressure on reserves in Tokyo and Beijing, as well as volatility in global currency and financial markets.

However, the greatest risk does not stem from financing alone, but from energy. The Strait of Hormuz is not merely a sensitive maritime route; it is one of the central arteries of the global economy. The U.S. Energy Information Administration estimates that 20 million barrels per day passed through the strait in 2024—around 20% of global petroleum liquids consumption. It also carried roughly 20% of global liquefied natural gas trade, most of it from Qatar, with 83% of that LNG destined for Asian markets. Therefore, the war on Iran, with its threat to navigation through Hormuz, does not only raise oil prices; it simultaneously disrupts gas security, shipping costs, insurance, and industrial production in both Asia and Europe.

Accordingly, market reactions have been severe. Reuters reported on March 25, 2026, that Brent crude stood at $98.41 per barrel, despite a daily decline of about 5% driven by ceasefire hopes. However, major investors warned that continued threats to Hormuz could mean oil prices ranging between $100 and $150 per barrel for years. In the same report, the International Energy Agency described the current disruption as the largest oil supply shock on record, with daily losses of nearly 20 million barrels due to halted flows through the strait. This indicates that the risk is no longer a temporary “geopolitical premium,” but a comprehensive repricing of risks associated with Gulf energy.

The problem is that the energy shock does not remain confined to oil markets. According to research by the Federal Reserve Bank of Dallas, a sudden 20% increase in crude oil prices translates into approximately a 10% increase in gasoline prices for U.S. consumers, raising the Consumer Price Index by about 0.3 percentage points, with relatively fast transmission within four weeks. The same research shows that oil also affects inflation indirectly through diesel, jet fuel, and industrial transport, and that 70% of increased energy costs for U.S. manufacturers are passed on to consumers in the short to medium term. This dynamic explains why oil shocks quickly evolve into broader inflation beyond the energy sector.

From energy, the shock spreads to agriculture and food. The World Bank’s Commodity Markets Outlook notes that natural gas prices were already rising in 2025, and that European markets were expected to face further pressure, while gas costs remain a key driver in fertilizer pricing. Since gas is a core input in nitrogen fertilizer production, any disruption in LNG supplies from the الخليج region quickly affects urea, ammonia, and agricultural supply chains. At this point, the crisis is no longer about “more expensive fuel,” but about more expensive food, higher crop costs, and increased expenses in transport, storage, and food processing.

This chain reaction is the essence of what is known as exporting inflation. The United States may absorb part of the shock thanks to its high domestic energy production, but it cannot prevent the global transmission of war-induced price pressures because the conflict is centered within the dollar-based energy pricing system. When oil, gas, and shipping costs rise in dollar terms, import costs for Europe, Asia, and emerging markets rise twice: once due to higher prices, and again due to a stronger dollar. As a result, consumers outside the United States pay for the war through fuel bills, food costs, and higher prices for imported goods and raw materials. This is not rhetorical; it is a well-established mechanism in international economics: dollar-based inflation spreads globally through trade and dollar-denominated pricing.

The second mechanism emerges here: interest rates. As war fuels inflation, the Federal Reserve becomes less able to cut rates and may be forced to keep them elevated for longer. The IMF had already warned, even before this war, that new disruptions in commodities and supply chains—especially in the Middle East—could complicate the global economy’s “soft landing,” and that much of the previous decline in inflation was due to falling energy and commodity prices rather than the disappearance of risks. If inflation becomes entrenched again due to war, persistently high U.S. interest rates will draw global liquidity toward the dollar and force other central banks to maintain high rates to defend their currencies. In this way, the U.S. war becomes a financial burden on other economies, even if they are not directly involved.

The third mechanism is supply chain disruption. The IMF has clearly indicated that tensions in the Middle East and rising shipping costs between Asia and Europe following Red Sea disruptions have demonstrated how a single maritime route can strain the global economy. If the Red Sea alone has already raised transport costs and disrupted supply chains, then Hormuz is far more critical, as it carries energy, gas, and raw materials simultaneously. A Dallas Fed study confirms that increased trade costs for intermediate inputs raise inflation by about 0.3 percentage points initially, but with more persistent effects than shocks to final goods, since more expensive inputs raise costs throughout the entire production chain. In other words, when energy, shipping, and insurance costs rise together, not only consumers suffer—factories themselves are hit, and inflation becomes more entrenched.

This explains why concerns about stagflation are now serious. Business surveys reported by Reuters on March 24, 2026, showed that the eurozone economy was nearly stagnating, with the composite PMI falling to 50.5, while S&P Global warned of “stagflation alarm bells.” In the United States, the composite index dropped to 51.4, its lowest level in 11 months, with rising input and output prices and declining private employment for the first time in over a year. In the UK, manufacturing input costs rose at the fastest pace since 1992, while Japan slowed and India recorded its weakest private sector growth in three years. This is the very definition of stagflation: slower growth, higher prices, tighter margins, and more difficult monetary policy choices.

Notably, the United States itself is not immune. While it produces large volumes of oil, its economy remains highly sensitive to gasoline prices and consumer confidence. According to Reuters, the war has driven oil prices up by more than 30%, increased average gasoline prices in the U.S. by about $1 per gallon, and led companies to anticipate inflation returning to around 4%. This matters because consumer spending is the primary engine of the U.S. economy, and any pressure on households quickly translates into weaker demand and growth. Thus, while Washington may successfully shift part of the war’s cost abroad, it cannot eliminate the domestic burden entirely—it simply ensures that the world shares it.

Europe faces perhaps the clearest dilemma: slower growth, higher energy costs, and declining industrial competitiveness. Data from France, Germany, and Italy this week showed downward revisions to growth forecasts and declining business confidence due to the war and rising energy prices. In Italy, Confindustria warned that prolonged conflict could reduce growth to zero or push the economy into contraction. Asia, meanwhile, is the most exposed in terms of energy dependence: about 83% of LNG passing through Hormuz goes to Asian markets, and countries like India rely on imports for about 90% of crude oil and roughly half of their gas needs. This explains the rapid slowdown in activity and the sharp rise in costs across the region.

In this sense, the U.S. war on Iran is not merely additional military spending in the American budget; it is a mechanism for redistributing economic losses globally. The U.S. Treasury borrows from a system that still trusts the dollar, dollar-priced energy becomes more expensive for everyone, the Federal Reserve keeps borrowing costs elevated worldwide, and supply chains transmit the shock from ports to factories to consumers. This is the essence of the American advantage: transforming war from a purely national burden into a globally distributed one.

However, this mechanism is not without limits. Each time Washington uses the dollar’s dominance and financial depth to absorb a new shock, it simultaneously accumulates doubts about the sustainability of this system. For now, no currency is capable of displacing the dollar in the near term. Yet the persistence of debt-financed wars, cross-border inflation shocks, and the use of the financial system as a geopolitical tool are pushing more countries to gradually diversify their reserves and payment systems. This does not signal the imminent end of dollar dominance—but it does mean that every new war financed this way carries a deferred political and monetary cost for the system itself.

Conclusion

The real question is no longer whether the American taxpayer pays for war, but how much they pay alone, and how much the world pays with them. Yes, the U.S. consumer bears part of the burden through higher gasoline prices, inflation, elevated interest rates, and slower growth. But the impact does not stop there. Europe pays through energy and industry, Asia through oil, gas, and supply chains, and emerging markets through a stronger dollar, imported inflation, and higher financing costs. The longer the war lasts, the greater the risk that the global economy will fall into a stagflation trap: higher prices, weaker growth, and shrinking policy space for governments and central banks. In this sense, the cost of the U.S. war is not calculated in Washington alone—it is deducted from the wallets of consumers, factories, farmers, and central banks around the world.

References

• Federal Reserve: The International Role of the U.S. Dollar – 2025 Edition
• IMF: Dollar Dominance in the International Reserve System: An Update
• IMF: Global Economy Approaches Soft Landing, but Risks Remain and World Economic Outlook Update (January 2024)
• U.S. Treasury: Treasury International Capital (TIC) data
• Congressional Budget Office: The Budget and Economic Outlook: 2026 to 2036
• U.S. Energy Information Administration (EIA): Strait of Hormuz data
• World Bank: Commodity Markets Outlook – April 2025
• Federal Reserve Bank of Dallas: Oil Price Shocks and Inflation and Trade Costs and Inflation Dynamics
• Reuters: Reports (March 24–25, 2026) on global economic impact and energy markets