Pete Hegseth’s $25bn estimate on cost of Iran war ‘totally off’

The US will continue its naval blockade of Iran as the Pentagon says the war has cost about $25 billion so far, while oil has surged above $119 a barrel and Strait of Hormuz transits have fallen to 35 for the week of April 20-26 from 78 the prior week. Iran’s rial is at a record low and peace talks have stalled, increasing supply-risk pressure on energy markets and global trade routes. The article also highlights a potential War Powers Act deadline, a proposed $200 billion Pentagon replenishment request, and growing domestic political risk around the conflict.

Analysis

The biggest second-order effect is not just higher crude, but a forced repricing of the entire Middle East logistics stack. A prolonged blockade keeps a persistent risk premium embedded in tankers, marine insurance, and any asset whose economics depend on uninterrupted Strait of Hormuz throughput; that matters more than a one-off spike because charterers will start paying up for routing optionality and redundant inventory. The more transit volumes remain depressed over the next 2-6 weeks, the more this turns from an energy shock into a working-capital shock for global industry.

The market is underestimating how quickly higher oil can become a non-oil earnings headwind. At these levels, the winners are not just producers but upstream services, select defense, and any balance sheets with hard asset inflation pass-through; the losers are airlines, chemicals, truckers, and consumer discretionary names with weak pricing power. A delayed congressional fight adds a fiscal overlay: if the war budget and stockpile replenishment accelerate, the trade shifts from “higher oil only” to “higher rates / larger deficits / steeper curve,” which tends to punish duration-sensitive equities and long-end bonds.

The most important catalyst is political, not military. If the blockade is formally extended past the 60-day war-powers threshold, legal and coalition risk rise sharply, and that could force either a tactical de-escalation or a broader escalation depending on whether Trump chooses domestic optics or strategic pressure. Conversely, any credible path to reopening Hormuz would unwind a large part of the risk premium quickly, especially if shipping transits normalize before refinery outages or supply destruction propagate.

Consensus appears too linear on oil: the market is treating this as a clean supply shock, but the larger near-term vulnerability is demand destruction and policy reaction. The first place this shows up is not in headline inflation, but in margin compression for transport, plastics, and freight-linked cyclicals over the next quarter. If crude stays elevated for another 4-8 weeks, expect a second wave of earnings downgrades in sectors that have not yet fully marked to the energy shock.

Key Decisions for Investors

• Go long XLE vs short JETS on a 4-8 week horizon: energy retains direct upside from sustained blockade risk while airlines face immediate fuel-cost pressure and weak fare pass-through. Use a 2:1 risk/reward target with a trailing stop if crude falls back below the prior breakout level.
• Initiate a bullish position in tanker exposure (FRO or TNK) for 1-3 months: prolonged Strait of Hormuz friction should lift spot rates and insurance-driven routing demand. Risk is a rapid diplomatic thaw; size smaller than a standard cyclical long.
• Short KSU/CSX/UNP on any rally or buy put spreads 1-2 quarters out: higher diesel and industrial input costs typically lag into freight demand and margin compression. Best entry is after the first 5-10% move higher in oil, when consensus still expects pass-through.
• Long defense beneficiaries with replenishment exposure via LMT or NOC on pullbacks, 3-6 months: the munitions restock cycle and higher Pentagon funding create a multi-quarter order tailwind. Use call spreads to cap valuation risk.
• Reduce duration exposure through TLT puts or a steepener expression if blockade headlines persist: larger war-related fiscal spending plus sticky energy prices raise the odds of higher term premium. This is a macro hedge, not an outright rate-call.