Blain’s Morning Porridge, March 27th, 2026 – The Economic Implications of the Iran War
“Armchair generals talk about tactics. Soldiers worry about logistics.”
The cost of Trump’s War on Iran is extraordinary – $1 bln a day plus. War Stocks are being consumed at incredible speed. A request for an additional $200 bln of DOD funding is in the works. The nature of war has changed – it could prove phenomenally destructive, expensive and ruinous to winners and losers alike. Meanwhile the economic outcomes of the war remain in the balance.
When I was a very young man the global bond markets were a single column buried deep in the second section of the Financial Times…. On Monday my boss reckoned the Euromarkets could see a $ 1 bln issuance week. It happened. We were stunned. Such a huge number. Unimaginable.
Now we throw $1 trillion around like its normal.
One writer on financial markets to whom I pay attention to is Torsten Slok of Apollo. Earlier this week he wrote the ballooning $2 trillion US budget deficit, plus the $10 trillion of US debt to be rolled over, plus rising hyper-scaler AI infrastructure issuance, means investment grade supply of over $14 trillion dollars this year. That poses the risk of a bear squeeze on rates and credit spreads as supply overtakes demand at a time when the Fed is thinking about pre-emptive rate hikes against inflation and the Hormuz Energy shock threatens global recession.
If you want to horrify yourself, open the scariest page on the internet – the US Debt Clock. Play around with the time machine function. 125% debt to GDP. Ouch.
120 years ago, the UK was the dominant global power. Today, the OECD sees the UK as the most vulnerable economy to the current energy shock – hence most likely to see a bond crisis, which already threatens to metastasize through the economy. (And before you start blaming Energy Secretary Ed Milliband… the UK’s energy insecurity is a result of long-term folly, not short-term mistakes.)
There could be global trouble ahead.
When bond markets wobble… everything else tends to fall. A global financial crisis would play straight into Iran’s war objectives.
Alongside the energy shock, the inflation risk, and worries about deeper geopolitical conflict, the war in Iran is costing the USA about $1 bln per day in war-stock munitions. According to the WSJ, over $2 bln in expensive equipment, including three F-15s (shot down by an overly keen Kuwaiti pilot), a damaged F-35, K-135 tankers and 2 very expensive radar systems taken out by Iran missiles, has been written-off. That number will rise as the pace of operations continues to run hot and planes and pilots get tired. The exhausted 9-month deployment USS Gerald R Ford has been under repair in Crete for the last few days after an internal fire left much of the crew with nowhere to sleep. (Fascinating story on the carrier’s multiple problems on Bloomberg.)
The US military has requested $200 bln of additional funding to fight the war – ringing alarm bells in Congress and Wall Street. That cost will like rise even higher when Trump commits ground forces. (This morning’s news of a 10-day period before energy infrastructure attacks are resumed is to give time to surge further troops to the region.)
While the pace at which the US and Isreal have burned through offensive war stocks has been extraordinary, even more dramatic has been the increased demand for Patriot and THAAD missiles to defend the Gulf States.
Having the most effective military on the planet, and then using it, is proving very expensive for America – and that has consequences. Its also worth remembering there are few examples of wars being won from the air – Japan in 1945 (which involved a sea blockade) and Kosovo in the 1990s are among the few.
Iran is fighting a highly asymmetric war. It is broke – dependent on Russian and Chinese largesse. It can’t challenge the Americans for air supremacy, on the oceans, or, as we may discover soon, on land. If the Marines and 82nd Airborne assault Kharg Island… they will do so with shock and fury, and overwhelm whatever Iran is prepared to sacrifice.
The IRGC has limited options but to fight and has adopted a Fabian strategy: sopping up the bombs, attritting US war stocks and, keeping markets nervous in the hope economic damage will cause the Americans to back down. There are concerns they are hoarding their more sophisticated missiles – biding their time to strike harder blows should Trump declare victory.
There is a rising consensus that to win all that Iran has to do is not lose.
Not everyone agrees. Iran is anything but a perfect state – the regime is riddled with corruption, perhaps its greatest vulnerability. There are senior US figures (not all of whom are Trump supporters) who believe the regime is close to collapse. Some expect a mutiny by the army – the Artesh. Some think the dramatically worsening economic situation into the summer will trigger the people to rise-up and overthrow the regime. Or maybe a hard line IRGC pragmatist will seize control and do a Venezuela deal whereby he gets the oil money to keep paying the Revolutionary Guards, and Trump gains effective control of the Gulf.
None of these would be bad outcomes. Removing Iran’s state sponsorship of regional terror could enable to long-awaited golden age of Middle East prosperity.
Unfortunately, it now appears the Iran war is binary. If Iran caves – great news all around. But, if Iran does not cave, we have a long-term energy shock. The outlook for the Middle East is particularly bleak.
If the Iran regime doesn’t break and remains entrenched, it could raise serious doubts as to the sustainability of some Arab states in the light of their domestic spending excesses, and infrastructure vulnerabilities to attacks on communications and especially water facilities. Thus far I’ve not seen much commentary on how vulnerable Dubai’s property markets would be to a wounded but unbeaten Iran, or how Saudi’s ownership of global sports plays out if Iran decided to provide extra fireworks for an F1 race?
What happens if Trump decides he’s won and leaves the region? Would China step in to broker a peace and cheap oil with the Gulf states, thus securing them as allies? That’s, perhaps, the real threat to Europe – it’s long-term vulnerability to Middle East oil and gas could take a decade to correct.
What we do know is the Iran war is not anything like the spectacularly clinical special forces raid on Venezuela’s presidential palace. The whole nature of modern warfare has changed, as the Russians discovered in Ukraine. If we see boots on the ground, the Americans will experience just how much drone warfare has changed the equation – especially in terms of First Person View (FPV) suicide drones.
The Americans are discovering a modern war is phenomenally expensive. And that’s going to change the way the war is fought.
Last year, when my colleagues David Murrin and Tony Bienstock were setting up Spitfire Strategic Capital they gave it a very simple mission: “to invest venture and growth capital into innovative, adaptive, next-generation defence platforms that accelerate the development, production and swift deployment of decisive war-winning weapons and support systems that tip the battlespace in favour of the West and allied nations with the ultimate goal of reestablishing full-spectrum deterrence.”
Spitfire understood the new rules of logistics: use what is good enough and can be delivered today. Today the American’s are learning from the Ukrainians, introducing an internal drone market where warfighters can order what they need from an Amazon like market!
The result will be a massive shift in military demand – good is now good enough. It’s a matter of systems and weaponry that can be delivered fast enough to do that job that needs done now. It takes months to build a Tomahawk, a Patriot or a THAAD – if something cheaper and swifter to deliver can be found now – then cheap is good enough.
That changes the defence investment equation, and to be in front of it, you need to be talking to Spitfire (naked self-promotion I know, but I mean it!).
Earlier this year the US Department of Defence identified 6 critical tech area where they will “sprint” to deliver advanced capabilities to warfighters rapidly and at scale. They include applied AI, bio-manufacturing, contested logistics tech, quantum and battlefield information dominance, scaled directed energy and scaled hypersonics. They aim to “deliver the greatest impact, the fastest results and the most decisive advantage on the battlefield.”
At Spitfire we have our own list of priority investments, and if you want to find out more about defence investment is changing and how to address the costs of avoiding war by being prepared to fight it without exhausting the economy (!), then give me a shout.
Out of time, back to the day job and have an excellent weekend!
Bill Blain
Author of the Morning Porridge
Advisor – Spitfire Strategic Capital
