The Balance Sheet of Economic Wars: The Example of the Iran War

Impact on the Countries Involved

Iran suffered the greatest losses in this war, including in economic terms. A report by the Foundation for Defense of Democracies (FDD), which contains a preliminary assessment of the war’s effects, predicts that Iran’s economic losses from the 2026 war could reach $300 billion, roughly 40 percent of pre-war GDP.[1] According to estimates by the Iranian government, even before ceasefire talks began in April 2026, economic losses had already exceeded $270 billion.[2] The latest estimates put the total economic damage suffered by Iran at approximately $347 billion.[3] Inflation in Iran has risen above 77 percent, and the UN forecasts that the Iranian economy will shrink by 6.1 percent this year. The continuous devaluation of the Iranian rial places an additional burden on consumers, who have already been struggling with an economic crisis for years.[4]

Iran’s Islamic regime believes that an agreement with the United States would save the country’s economy and provide resources for the so-called “resistance economy,” which in reality functions as a survival or wartime “model.” However, the 2015 Iran nuclear deal did provide resources to Iran and lifted sanctions, which the regime ultimately used to finance and arm Shia militias. Under the control of the IRGC, Iran’s economy has remained feudal in character, while the Iranian population has continued to face economic hardship. The decisive question, therefore, is whether Iran is willing to change its international, domestic, and regime policies in order to avoid triggering a new conflict in the region in the near future. Iran’s integration into the global economy, and avoiding the “rogue state” label — a designation that has so far mainly benefited China — can only be achieved through drastic political and economic reforms.

After Iran’s economy, the economies of the Arab Gulf states have been most negatively affected by the current Middle East conflict. Particular attention should be paid to the fact that, despite sanctions, the economies of Iraq, the United Arab Emirates, and Qatar remain closely linked to Iran’s shadow economy. Qatar, the world’s largest exporter of natural gas, will suffer the greatest damage in the region, facing a GDP decline of up to 9 percent (-$32.3 billion). Iran and Qatar jointly own the world’s largest gas field, which was attacked during the war. The UAE’s GDP loss ranges between -3 percent (-$30.2 billion) and -8 percent (-$80.5 billion). Kuwait’s GDP loss is expected to range between -5 percent (-$14.2 billion) and -10 percent (-$28.3 billion). These three Gulf states have suffered the greatest damage and will need more time to recover than the other countries. Saudi Arabia has proven more resilient. Its GDP loss ranges between -3 percent (-$86.8 billion) and -6 percent (-$173.7 billion), as it uses alternative routes for its oil exports (mainly via the Red Sea). Oman and Bahrain have the lowest GDP losses. For Oman, the loss ranges between -2 percent (-$4.9 billion) and -5 percent (-$12.4 billion), while Bahrain’s GDP loss may range between -5 percent (-$5.8 billion) and -10 percent (-$11.6 billion). As for Iraq, its losses range between -4 percent (-$26.8 billion) and -8 percent (-$53.6 billion), similar to those of the Arab Gulf states, even though it has found a way to export its oil via Turkey.[5]

Estimates of the economic costs of this war for the United States vary. According to some sources, the cost of the war has exceeded $200 billion.[6] The US consumer price index rose by 0.5 percentage points in May 2026, reaching a record 4.2 percent over the preceding 12 months — the highest level since April 2023. The price of heating oil and gasoline rose by 59 percent and 40 percent respectively, and the prices of food and other consumer goods also increased significantly.[7] According to some estimates, American citizens have lost more than $1.4 billion per day because of the war.[8] Looking at the stock markets, most economic sectors lost value. In the first weeks of the war, approximately $5.4 trillion in market capitalization was wiped out (total US stock market value is approximately $73-75 trillion).[9] Nevertheless, the World Bank still expects the US economy to grow by 2.2 percent in 2026, somewhat higher than its January estimate of 2.1 percent for 2025.

As for Israel, estimates suggest that the Iran war cost the Israeli economy $3 billion per week during the six weeks of active hostilities.[10] Israel’s total GDP loss ranges between -4 percent (-$24.4 billion) and -7 percent (-$42.7 billion).[11] However, the Bank of Israel forecasts an economic recovery in 2026, with growth of 3.8 percent.[12] The reason the American and Israeli economies have performed better than other Western economies lies in their diversity and dynamism, as well as their better access to energy supplies compared with Europe.[13] In addition, a number of American economic sectors — such as the oil and gas industry, major banks, and the arms industry — are profiting significantly from the war, thereby helping to keep the American economy thriving.[14]

Impact on the Global Economy

This short war (February 28 – April 8, 2026) turned into a campaign of economic coercion. In addition to the economic sanctions imposed on Iran’s economy, the United States introduced a blockade of the Strait of Hormuz, thereby choking off Iran’s illegal oil-exporting fleet. Since Iran was unable to strike American energy facilities, it blocked energy exports from the Arab Gulf and attacked the energy infrastructure of these states. In order to extract foreign-policy concessions from the other side, both sides attempted to restrict or threaten to halt their oil or natural gas exports.

Since China is the primary consumer of cheap Iranian oil, the United States also used the blockade of the Strait of Hormuz to pressure China into leaning on Iran and forcing it to make concessions. Every party suffered enormous losses in this war, some of which will only become visible in the years to come.

Closely linked regional economies, such as those of Egypt and Jordan, have already been severely affected. The global economy, too, is suffering huge losses. In many respects, the impact is comparable to the economic crisis caused by the COVID pandemic. Just as the global economy was beginning to recover from the consequences of COVID-19, the extremely costly war in Ukraine began in 2022, followed by an equally costly war in Iran.

The EU’s economies were directly and severely affected by the energy crisis stemming from the Iran war. Growth in eurozone output slowed from 1.3 percent in 2025 to 0.9 percent in 2026, and is expected to grow by 1.2 percent in 2027 in the event of a peace agreement. This growth rate is too weak to enable a genuine economic recovery, let alone to compete with China or the US. As a result, the optimism that the EU’s economies would quickly recover after the war in Ukraine evaporated rapidly. EU economic growth has fallen to its lowest rate in more than two and a half years — since 2023, when the EU felt the impact of the war in Ukraine. Rising living costs have suppressed demand in major service sectors and pushed price inflation to its highest level in three and a half years. As a result, the eurozone recorded an inflation rate of 3.0 percent in April 2026 and 3.2 percent in May 2026 (exceeding the 2.0 percent target).[15]

From an economic standpoint, the Iran war has been a failure for every party. Although Iran suffered the greatest losses and will have a harder time recovering than the others, the losses suffered by most Western economic sectors, as well as by the Western and Middle Eastern populations, are incalculable and will be felt for a long time to come. Moreover, as a result of the war — the expropriation of Venezuelan oil and the blockade of oil exports from Iran to China — the United States was unable to economically surpass China. Once an agreement is reached between the US and Iran, China will continue to outperform the American economy and will restart its economy at full speed. Therefore, negotiations between the US and China could lead to a mutually beneficial agreement on a new global economic order (similar to GATT 1994), one that would protect American interests while preventing further Pyrrhic wars.

In the first quarter of 2026, China’s GDP grew by 5 percent, demonstrating remarkable resilience. Despite rising energy prices and supply-chain disruptions stemming from the war against Iran, this exceeded forecasts.[16] China becoming the world’s number-one economy is inevitable, since, measured by GDP at purchasing power parity (PPP), the Chinese economy is already the largest in the world, although the United States still leads in nominal GDP. Forecasts for 2026 suggest that China’s PPP-based GDP will exceed $35 trillion, compared with the United States’ $28.8 trillion, while in nominal GDP terms the United States continues to lead China, with $28.8 trillion versus $17.8 trillion.[17] Nor will these wars prevent China from overtaking the United States in nominal GDP in the coming years. In any case, the agreement with Iran will not be able to change the Islamic regime, so Iran will continue its strategic partnership with China, and cheap Iranian oil will keep flowing into Chinese ports.

Summary

Economic wars tend to produce Pyrrhic victories, even though their effects on the warring parties may vary, because the losses are so enormous that no gain can compensate for the risks. The Iran war may cost the global economy $3.5 trillion in 2026. It may have benefited certain economic sectors — the energy and arms industries — but it has caused enormous human and economic losses. Iran’s Islamic regime believes that any loss is acceptable as long as it survives, and as long as its neighbors or enemies suffer losses too. Political nihilism serves neither trade, nor the economy, nor living standards. Because of globalization, economic wars cannot be won; they are extremely expensive and their effects ripple out into nearly everything else. “Rogue” states (as Iran’s case shows) may resort to economic coercion, but this ultimately proves ineffective, since it plunges them into an even deeper economic crisis. And wars waged against them are too costly to force real change.

Economic Balance Sheet of the 2026 Iran War

The 2026 Iran war (February 28 – April 8) escalated from a few weeks of military conflict into a war of coercion centered on energy, the Strait of Hormuz, and the reorganization of global geoeconomics. All parties involved suffered enormous losses — the war illustrates the Pyrrhic nature of global economic wars: the price of victory exceeds the gains.

Key figure: $3.5 trillion — the potential cost of the Iran war to the global economy in 2026. This is equivalent to the United Kingdom’s entire annual GDP.

Losses by Affected Country

Iran — the biggest loser:

• Total economic damage: ~$347 billion (~40 percent of GDP)
• Inflation: risen above 77 percent
• GDP change in 2026: -6.1 percent (UN forecast)
• Continuous devaluation of the Iranian rial places further strain on consumers
• An economy structurally feudal under IRGC control — recovery is structurally limited

Critical question: Is Iran willing to undertake genuine political and economic reform?

Lesson from the Iran nuclear deal (2015): the resources that were freed up were ultimately used to finance militias.

Gulf countries: 

USA — large loss, but a flexible economy:

• Military and economic cost: >$200 billion
• Consumer price index in May 2026: 4.2% (highest since April 2023)
• Gasoline price +40%, heating oil +59%
• Stock-market loss in the first weeks of the war: ~$5.4 trillion in market capitalization
• World Bank forecast: the US economy will nonetheless grow 2.2% in 2026
• Winning sectors: oil and gas, major banks, the arms industry

Israel:

• Weekly loss during the war: ~$3 billion
• GDP loss: between -4% and -7% (between -$24.4 billion and -$42.7 billion)
• The Bank of Israel nonetheless forecasts 3.8% growth for 2026

Why more resilient?

• The diversity and dynamism of the US and Israeli economies, and their better access to energy supply, explain their more favorable performance compared with other Western economies.

Impact on the Global Economy

EU:

• Eurozone growth: 1.3% (2025) → 0.9% (2026) → 1.2% (2027, if peace holds)
• Eurozone inflation: 3.0% (April 2026), 3.2% (May 2026) — well above the 2% target
• Rising living costs have suppressed demand in services
• Hopes for a post-Ukraine recovery evaporated quickly

China:

• Q1 2026 GDP growth: +5% — exceeded expectations despite rising energy prices
• PPP-based GDP: >$35 trillion (US: $28.8 trillion) — China already the largest
• In nominal GDP the US still leads: $28.8 trillion vs. $17.8 trillion
• Cheap Iranian oil continues to flow to China — the US failed to economically outpace China

Geopolitical lesson: Through the Iran oil blockade, the US also sought to put pressure on China — but China proved resilient, and the Iran-China strategic partnership will continue after the settlement.