Wars are often presented as strategic necessities abroad. Their economic consequences, however, are eventually paid at home. The Trump administration is now asking Congress to approve another USD 95 billion of spending, including USD 73 billion directly linked to the war against Iran. The package also includes USD 12 billion of additional support for farmers and USD 10 billion for election-related measures. Politically, this combination is revealing. Washington is not only financing the military campaign. It is already compensating the domestic constituencies it hurts. This is how the true cost of war begins to appear.

The military expenditure is only the first layer. Higher oil prices, more expensive transport, disrupted fertiliser supplies and rising insurance costs are already feeding into household budgets and corporate margins. Brent crude has moved back above USD 85 per barrel, while the renewed closure of the Strait of Hormuz has again threatened one of the world’s most important energy routes. The administration is therefore spending tens of billions to prosecute the war while simultaneously spending more to offset its economic consequences. That is not a temporary contradiction. It is the policy’s structure.

The White House argues that the additional funding is necessary to support American troops and maintain pressure on Tehran. Militarily, the campaign is intensifying. US forces have conducted strikes for several consecutive days against Iranian missile sites, air defences, surveillance systems and coastal infrastructure. President Trump has promised to continue until Iran stops attacking commercial vessels and accepts the reopening of Hormuz. Iran, however, shows little sign of conceding. Tehran’s position is equally straightforward: either regional energy exports remain accessible to everyone, or they remain accessible to no one. By threatening shipping, closing parts of the Strait and retaliating against American bases across the Gulf, Iran is demonstrating that it still possesses the capacity to impose global economic costs even after suffering significant military damage. This is precisely why the war is becoming politically dangerous in Washington. The military objective is becoming harder to define. The original justification centred on Iran’s nuclear programme and regional military capabilities. The immediate focus has now shifted towards freedom of navigation in Hormuz. Meanwhile, negotiations continue intermittently, sanctions are being tightened again, and the ceasefire framework has effectively collapsed. The United States is therefore bombing Iran, blockading its ports and negotiating with it at the same time. This may be described as strategic pressure.

To voters, it may increasingly look like strategic confusion. The political arithmetic is already becoming difficult. The Republican leadership can afford to lose only a handful of votes in the House if Democrats remain united in opposition. Fiscal conservatives object to another unfunded spending package. Moderates fear the electoral consequences of supporting an unpopular war while household living costs continue to rise. Democrats, unsurprisingly, intend to link every vote on military funding to petrol prices, inflation and the broader cost-of-living crisis. According to recent polling, a clear majority of Americans believe the war was not worth fighting. That matters more than any tactical military success. Foreign policy becomes electorally toxic when citizens begin to associate it with higher food bills, more expensive petrol and larger public deficits. This is especially true ahead of mid-term elections, when voters traditionally punish the party in power for economic discomfort regardless of its origin.

The inclusion of USD 12 billion for farmers illustrates how quickly those economic pressures are spreading. Agricultural producers are being squeezed by higher energy, transport and fertiliser costs, while trade tensions have already weakened export visibility. Supporting them politically may be understandable, but the need for additional aid itself is evidence that the conflict is spilling over into the domestic economy. The same logic applies to the broader budget. The United States is already running historically large fiscal deficits. Public debt continues to rise, interest expenditure is consuming an increasing share of federal revenues, and Treasury issuance remains enormous. Adding another USD 95 billion may appear manageable relative to the size of the US economy, but repeated emergency packages are gradually becoming permanent fiscal policy. The war therefore creates a dangerous feedback loop. Military escalation increases energy prices. Higher energy prices increase inflation. Higher inflation keeps interest rates elevated. Higher interest rates raise the cost of servicing public debt. The government then borrows more to finance the war and compensate those affected by it.

At some point, the market will begin to ask whether this remains sustainable. This is also where the Federal Reserve becomes trapped. If the conflict continues to support inflation through oil, freight and food prices, the Fed will struggle to ease monetary policy. Yet raising rates aggressively would further increase the government’s financing costs and intensify pressure on households and businesses. The result is likely to be the monetary regime we have repeatedly highlighted: relatively high nominal rates, inflation remaining above target and real rates staying close to zero. For financial markets, that environment is not necessarily catastrophic. It is simply much less forgiving.

Cash and short-duration assets remain attractive. Floating-rate strategies benefit from elevated nominal yields. Highly leveraged companies and long-duration assets remain vulnerable. The dollar may continue to receive short-term support from higher rates and global demand for liquidity, but the war’s long-term fiscal consequences reinforce structural concerns about the currency. The most important point is that the war is no longer confined to the Gulf. It is moving into the federal budget, household finances, agricultural policy, monetary policy and the electoral campaign. Washington may still describe the conflict as a matter of national security. American voters are increasingly likely to experience it as a cost-of-living issue. And once a foreign war becomes a domestic economic problem, political support can disappear much faster than military objectives are achieved.