“The Price of a Protracted War of Attrition”: U.S. Confronts Depleted Arsenals and Mounting Fiscal Strain as Iran’s Economy Nears the Brink

U.S. sustains extensive losses of weapons and facilities in Iran war
War spending reaches tens of billions of dollars, with burden mounting as conflict drags on
Iranian economy pushed into a corner as inflation and currency turmoil imperil livelihoods

The United States has released its first official assessment of the damage it has sustained since the outbreak of the Iran war. Numerous U.S. military bases, aircraft and diplomatic facilities have reportedly been destroyed or damaged, while inventories of critical interceptor missiles and precision-guided munitions have been heavily depleted. Iran, the other belligerent, has likewise been saddled with the enormous costs of a prolonged conflict as the war and additional U.S. economic sanctions trigger a sharp contraction in crude exports, a currency collapse and soaring inflation.

U.S. Releases War-Damage Report

According to CNN on the 14th (local time; all subsequent dates are local), the U.S. Department of Defense Office of Inspector General released a special report on the Iran war jointly prepared with the inspector general offices of the Department of State and the U.S. Agency for International Development (USAID), providing the first official tally of U.S. losses between February 28, the first day of the war, and June 30. Citing U.S. Central Command (CENTCOM), the report said Iranian attacks had damaged or destroyed hundreds of buildings and structures at U.S. military bases in Kuwait, Bahrain, Qatar, the United Arab Emirates (UAE), Saudi Arabia, Iraq, Oman and Jordan. One F-35A advanced fifth-generation stealth fighter was damaged by enemy fire, along with four F-15E fighters and one A-10 ground-attack aircraft. Seven KC-135 aerial refueling tankers were damaged or destroyed, while seven helicopters and approximately 30 unmanned aerial vehicles, including MQ-9 Reapers, were also lost.

U.S. forces are also facing severe difficulties securing a support port. Bahrain Naval Base, a pivotal hub for U.S. naval operations, was destroyed by sustained Iranian missile and drone attacks from the outset of the war. Acting U.S. Navy Secretary Hung Cao went so far as to tell The Epoch Times that “Iran completely destroyed Bahrain.” U.S. forces have since begun using the Indian Ocean island of Diego Garcia as a new maritime logistics hub, but resupply cycles have lengthened to 14–18 days, exacerbating material shortages aboard U.S. Navy vessels operating in the Persian Gulf.

Weapons Stockpiles and Diplomatic Infrastructure Depleted

Damage to diplomatic facilities and personnel has also been severe. In March, two Iranian drones struck the U.S. Embassy in Riyadh, damaging even the Central Intelligence Agency (CIA) station inside the compound. Drone attacks also hit the U.S. Consulate General in Dubai and the U.S. Embassy in Kuwait, temporarily forcing both missions to suspend operations entirely. The report said attacks by Iran and its proxy forces caused $184 million in damage to U.S. diplomatic facilities in Iraq, Kuwait, Saudi Arabia and the UAE. As a result, as many as 3,500 U.S. diplomats, family members and other diplomatic personnel left the Middle East between late February and the end of June.

The report also found that inventories of critical interceptor missiles—including Standard Missile-3s (SM-3s) and Patriot Advanced Capability-3 (PAC-3) missiles—as well as precision-guided air-to-ground munitions such as Joint Direct Attack Munitions (JDAMs) had been severely depleted, and that restoring stocks to prewar levels would take at least three years. The assessment amounted to an official acknowledgment of the weapons shortages repeatedly highlighted by U.S. media. CNN reported last month that the U.S. military had expended approximately 80% of its Terminal High Altitude Area Defense (THAAD) inventory and roughly half of its Patriot interceptor and Tomahawk cruise missile stocks since the outbreak of the Iran war. The Center for Strategic and International Studies (CSIS), a U.S. think tank, likewise estimated that replenishing U.S. THAAD, Tomahawk and Patriot inventories to prewar levels would take at least three years.

Table 1. U.S. Losses in the Iran War

War Costs Mount by the Day

War spending has also been substantial. According to a report released on the 15th by the Congressional Budget Office (CBO), Congress’s nonpartisan budget-analysis agency, U.S. Department of Defense expenditures stemming from the military confrontation with Iran were estimated at $38 billion as of August 1. The figure encompasses the cost of replacing munitions expended in combat and equipment lost, additional flight-hour expenses, other operational costs and fuel. If future combat continues at the relatively low intensity seen in May and June, the CBO projects additional costs of $2 billion per month. If hostilities intensify to July levels, monthly costs are expected to reach $3 billion.

Like the inspector general report, the CBO also highlighted the large-scale depletion of U.S. munitions. Based on spending related to missile-defense interceptors and procurement volumes to date, the agency estimated that the United States may have expended between one-half and two-thirds of the relevant inventory since June last year. The CBO projected that the Department of Defense could require at least five years to replenish its interceptor missile stocks. It also warned that the severity of the shortage could become particularly pronounced in a conflict with an adversary such as China, which possesses substantial inventories of ballistic and cruise missiles.

Iran’s Economic Crisis Deepens

Iran has suffered an equally devastating shock. Its economy was already mired in a severe downturn before the outbreak of the war. According to the World Bank (WB), Iran’s real gross domestic product (GDP) contracted 2.8% last year, while consumer-price inflation reached 42.2%. The deterioration reflected the cumulative effects of prolonged U.S. sanctions, chronic fiscal and monetary instability and energy shortages. The war that erupted in late February poured fuel on the crisis. During the early stages of the conflict, the Iranian government introduced measures intended to calm financial instability, including raising bank-withdrawal limits and suspending penalties for delinquent small loans. The economic damage nevertheless spread rapidly as airstrikes, supply-chain disruptions and internet shutdowns converged.

Inflation and currency instability have also reached alarming levels. The dollar value of one unit of Iran’s currency has plunged from approximately $0.000001 a year ago to less than $0.00000046 recently, while the average inflation rate over the past 12 months has surged to 69.9% based on official data. Price inflation for food, beverages and tobacco, in particular, approached twice the overall average. Household hardship has likewise reached an extreme. The average Iranian worker earns just $125 per month, while the expenditure required to maintain a basic household has climbed to approximately $450 per month. The unemployment rate rose to 9.1% in the spring, while the number of employed people declined by approximately 450,000 from a year earlier.

Clouds Gather Over Economic Growth Outlook

The economic pressure intensified further after the United States announced the launch of its so-called “Operation Economic Outcast” on the 24th of last month, aimed at severing funding channels to the Iranian regime and military. Reuters reported on the 3rd, citing three senior Iranian officials, that U.S. economic pressure had intensified to a level the Iranian government was struggling to withstand. Successive U.S. financial sanctions have raised the operating costs of the smuggling networks Iran has long relied upon, including front companies and unregistered insurers. Intermediaries have consequently halted transactions or demanded higher fees, causing trade volumes to contract sharply. According to commodities analytics firm Kpler, shipments of Iranian crude had fallen to approximately 260,000 barrels per day by early this month, an 85% decline from 1.7 million barrels per day a year earlier.

The economic growth outlook is equally bleak. In its Global Economic Prospects report released in June, the WB estimated that Iran’s real GDP would contract 2.8% in the 2025/26 fiscal year. The figure represented a substantial downward revision from the 1.1% contraction projected in January. The WB said tougher sanctions against Iran, water and energy shortages and uncertainty stemming from the Middle East war were constraining growth. It also identified a widening fiscal deficit, currency depreciation and inflationary pressure as factors compounding the economic burden. The International Monetary Fund (IMF) likewise projected in its July World Economic Outlook update that Iran’s real GDP would contract 5.4% this year.