The Economic Cost of the Iran Conflict: GDP, Oil Prices and the Federal Deficit

ABOUT THE EPISODE Professor Kent Smetters, faculty director of the Penn Wharton Budget Model, outlines the economic costs of the escalating conflict with Iran, estimating direct federal expenses between $40 billion and $95 billion, with a central projection of about $65 billion largely tied to munitions replenishment and deployment. He projects a potential GDP hit of roughly $115 billion over a couple of months due primarily to higher oil and gasoline prices, calling it a negative supply shock that raises inflation, dampens output, and makes the Federal Reserve less likely to cut interest rates.

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