Iran war could add billions of dollars in interest payments to US debt: Report

The US-Israeli aggression against Iran could cost American taxpayers billions of dollars, as investors’ fears over rising inflation add to the US government’s debt burden, a report says.

According to a report published by the Financial Times (FT) on Monday, American taxpayers may be forced to pay billions of dollars in extra interest due to the US-Israeli aggression against Iran if the US Treasury yields remain elevated.

The report explained that "the government borrowing costs have reached their highest levels since 2007 in the 12th week of the US-Israeli aggression against Iran, as investors have sold off state debt in anticipation of higher inflation."

The yield for the benchmark 10-year US Treasury stands at 4.58 percent, up from 4 percent before the start of the war, and 0.45 percentage points higher than the 4.13 percent baseline set by the Congressional Budget Office (CBO), the federal fiscal watchdog, in February 2026, it added.

The report revealed that the 10-year is at its highest since January 2025, while the 30-year Treasury has reached its highest level since July 2007.

A yield of 4.58 percent for the remaining four months of the current fiscal year, which ends on September 30, would add around $8 billion to interest payments, according to calculations made by the FT using the CBO’s models. 

If the 10-year yield remained at 4.58 percent for the duration of the 2027 fiscal year, that would add just over $30 billion to the US interest bill, it stated.

“Yields rise as prices fall. The CBO’s baseline projections already showed interest payments more than doubling from $1 trillion, or 3.3 percent of projected GDP, in 2026 to $2.1 trillion, or 4.6 percent of GDP, in 2036, due to the expectations that US lawmakers would make little progress in reducing the ever-increasing deficit.”

The report mentioned that Treasury Secretary Scott Bessent has claimed that the CBO’s projections underestimate the US economy’s capacity to grow under President Donald Trump’s policies, as more growth would lessen the interest burden on US taxpayers.

But investors worry that the increase in long-dated yields could become self-fulfilling, as a rise in borrowing costs forces governments to borrow even more to service the growing debt bill, it observed. 

“We are still on a debt path that continues to rise and, in that way, it is a self-fulfilling cycle, and that is really what the markets are starting to tease out,” said William Campbell, a portfolio manager at DoubleLine Investment Firm, who noted that the political will to address the deficit is nonexistent. 

According to the report, the sharp rise in long-term interest rates has already sent mortgage rates spiraling, and was crystallized in a 5 percent yield on a 30-year debt sale for the first time since 2007.

“The auction was held shortly after the US reported that producer price inflation had risen to 6 percent in April, its highest level in four years.”

The surge in producer prices signals that US consumers will face rising costs in the coming months, it warned.

The report noted that in response to the data, investors sent market expectations for inflation in a year’s time over 4 percent, and launched the bond market sell-off that has persisted this week.

“Inflation fears have been exacerbated by a sense on Wall Street that the Federal Reserve may be inadequately prepared to raise interest rates if necessary.”

At its last meeting, the Federal Reserve maintained its “easing bias” in spite of the 50 percent increase in oil prices, though there were three Federal Reserve presidents who dissented on that language, the report concluded.

The criminal US-Israeli aggression against Iran began on February 28 with airstrikes that assassinated senior Iranian officials and commanders.

The Iranian armed forces and Islamic resistance movements across the region responded by launching daily missile and drone operations targeting locations in the Israeli-occupied territories as well as US military bases and assets across the region.

Furthermore, Iran retaliated against the strikes by closing the Strait of Hormuz, which resulted in a significant increase in oil prices and its by-products.

In addition to reconstruction and replacement fees, the war is estimated to have cost Washington between $40 billion and $50 billion.

Economists, meanwhile, say the economic cost of restrictions caused by the closure of the Strait of Hormuz may reach astronomical heights.

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