A view of the war in Iran by Cato Institute budget and Entitlement Policy Analyst Dominik Lett suggests that the burgeoning cost of the conflict is creating long-term fiscal impacts that will trickle down to many, including the CRE industry. Then there is a second set of results and implications that could reverberate through consumers, based on gas prices and souring expectations.
Lett wrote that the cumulative cost of the war could "easily sail past $300 billion," adding together the $200 billion in supplemental war spending the Pentagon asked from Congress and "borrowing costs associated with a new deficit-financed spending package."
Separately, the administration has requested a $1.5 trillion defense budget, although top Republicans on the House Appropriations Committee have seemed dubious, as The Hill reported. Part of the big ask is supposed to replace the large number of multi-million dollar missiles the administration has burned through.
As Lett warned, the federal balance sheet and budget are in trouble. U.S. debt held by the public has crossed the threshold of topping 100% of GDP.
"With debt now above 100% of GDP, it's only a matter of time until we pass the all-time record of 106% reached in the immediate aftermath of World War II," Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in prepared comments at the time.
That comes after net interest payments on the debt crossed the trillion-dollar mark last year.
The conditions, which are being exacerbated by the Iran war, are driving debt to keep growing faster than the economy, leading to the need for higher taxes, spending cuts or growing inflation that could diminish the value of government debt. The latter historically requires the least political will and is the one Washington has typically taken.
The path of inflation also means driving up interest rates, making financing more expensive and impacting everyone from home buyers to the CRE space.
Then comes the daily consumer stress. More than 80% of people say they are "feeling pain at the pump," according to an NPR/PBS News/Marist Poll national survey of 1,322 adults that was released earlier this month. A third said it was a major strain on their household budget, 48% called it a minor and just 19% reported no strain at all — a potentially troubling sign for the broad economy.
Current gas prices are up 61.9% over those of mid-January 2026. Brent crude has been up 73.2% since early January and West Texas Intermediate has been up 77.7%.
While gas accounts for 3% of the average household's expenditure, the spike is eye-opening, which is pushing down consumer confidence and expectations, a major factor in rising inflation and weaker spending. It's also direct pressure on retail and multifamily rent affordability, as well as indirect pressure on office demand.
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