The Imperial Overdraft

Key Takeaways

• “Major Combat Operations”: President Trump confirmed in an 8-minute Truth Social video that the US has begun “major combat operations in Iran.” Not limited strikes. Not a targeted assassination. A war, in his own words, that nobody in Congress voted for.
• Ferguson’s Threshold: US interest payments ($270.3 billion) now exceed defense spending ($266.9 billion) for the first time. Every dollar spent on this war is borrowed money that makes the next dollar more expensive.
• Triple Downgrade: All three credit agencies have cut US sovereign debt. S&P in 2011. Fitch in August 2023. Moody’s in May 2025. An unfunded war accelerates the next notch cut.
• Smart Money Is Leaving: UBS downgraded US stocks from Overweight to Neutral on February 27, the day before the strikes. US equities trade at a 35% premium to international peers. UBS warns of an 8-10% correction.
• The Fear Tax: Oil carries a $5-7 per barrel risk premium. Tanker rates have tripled to $206,000 per day. The Strait of Hormuz fear economy is extracting $100-140 million daily from global trade.

The Morning the Credit Card Got Drafted

Early on February 28, 2026, explosions rocked Tehran. Air raid sirens blared across Israel. Defense Minister Yisrael Katz declared an immediate state of emergency throughout the country, and the Transportation Ministry shut Israeli airspace to all civilian flights. The US Embassy in Qatar told Americans to shelter in place.

Then the president posted a video.

In an eight-minute address on Truth Social, Trump confirmed the US has begun “major combat operations in Iran,” describing it as a “massive and ongoing operation” to “prevent this very wicked, radical dictatorship from threatening America.” He pledged to “destroy their missiles and raze their missile industry,” “annihilate their Navy,” and “ensure that the region’s terrorist proxies can no longer destabilize the region.”

Those are not the words of a limited, proportional response. Those are the words of a war.

This is also not the first time. In June 2025, Israel launched Operation Rising Lion against Iranian nuclear facilities. The US followed days later with its own strikes on sites including Fordow, Isfahan, and Natanz. Iran retaliated by firing missiles at Al Udeid Air Base in Qatar, one of the largest US military installations in the Middle East. The February 28 operation, officially designated Operation Lion’s Roar by the IDF, is the second major round in eight months, an escalating military campaign conducted entirely without Congressional authorization.

An Israeli security source confirmed to the Times of Israel that this was a joint US-Israeli operation, targeting “sites from which Iran could attack Israel,” including an Iranian presidential facility. The IDF said strikes on Iran’s missile infrastructure, including launchers and arrays, would continue.

Here is what Congress had ready: a War Powers Resolution, co-sponsored by Representatives Ro Khanna and Thomas Massie, scheduled for a House vote on March 5. A companion bill introduced in the Senate on January 29 by Tim Kaine, Chuck Schumer, and Adam Schiff. Both explicitly designed to force the president to seek Congressional authorization before striking Iran.

The bombs arrived seven days ahead of the ballot.

The Constitutional Black Hole

The War Powers Resolution of 1973 requires the president to notify Congress within 48 hours of committing armed forces and limits deployment to 60 days without explicit authorization. Every president since Nixon has objected to it. Constitutional scholars called Trump’s 2020 assassination of Iranian General Qasem Soleimani “illegal and unconstitutional.” No consequences followed.

The pattern is brutally consistent: the president strikes first, Congress complains, and the legal challenge dies because lawmakers lack the two-thirds supermajority needed to override a veto. The War Powers Resolution is a law that exists on paper and evaporates on contact with reality.

But the 2026 Iran campaign introduces a variable that previous unauthorized actions did not: a fiscal crisis compounded by escalation. This is no longer a one-off strike. This is the second round of major operations in eight months. Trump himself used the phrase “major combat operations” and described an objective set that includes destroying an entire navy, dismantling an entire missile industry, and neutralizing proxy networks across the region. That is a war by any definition, with open-ended duration, open-ended cost, and zero Congressional appropriation.

Congress controls the purse. If Congress does not authorize the war, it does not fund the war. And this operation requires sustained logistics, refueling, munitions resupply, and the continued deployment of what the Armed Conflict Location and Event Data Project (ACLED) describes as the “largest US military buildup in the Middle East since 2003,” consuming 40 to 50 percent of deployable American airpower.

The 60-day War Powers clock started ticking on February 28. Every oil futures contract, tanker charter, and marine insurance policy written in the Persian Gulf now embeds a constitutional bet: Will Congress authorize? Will Congress block? Or will Congress, as usual, do nothing, creating the most expensive form of uncertainty in global finance?

Ferguson’s Threshold: The Math That Ends Empires

Historian Niall Ferguson articulated a simple rule: great powers that spend more on debt service than on military defense lose great power status. The United States crossed that line in fiscal year 2025.

The numbers are no longer debatable. In the first quarter of fiscal year 2026 (October through December 2025), net interest payments on the national debt reached $270.3 billion. Defense spending over the same period was $266.9 billion. The Treasury is now paying more to service past borrowing than the Pentagon spends on current operations.

And it compounds:

$\text{Interest}_{2026} \approx \$1\text{T} \quad \rightarrow \quad \text{Interest}_{2036} \approx \$2.1\text{T}$

Over the next decade, cumulative interest payments will total $16.2 trillion, according to the Peter G. Peterson Foundation (PGPF). The Congressional Budget Office (CBO) projects the debt-to-GDP ratio climbing from 101% in 2026 to 120% by 2036, surpassing the post-World War II record of 106%. The federal deficit already exceeds 6% of GDP, and the International Monetary Fund’s (IMF) February 2026 Article IV assessment called for fiscal consolidation equivalent to 4% of GDP just to stabilize the trajectory.

That was the baseline before an unfunded war.

The Triple Downgrade Timeline

The credit agencies have been issuing warnings for fifteen years. The market ignored all three.

Agency	Action	Date	Reason
S&P	Downgrade to AA+	August 2011	Debt ceiling brinkmanship
Fitch	Downgrade to AA+	August 2, 2023	Near-default on debt ceiling
Moody’s	Downgrade to Aa1	May 16, 2025	Rising debt, higher interest ratios

The United States had held a perfect Moody’s Aaa rating for over a century. That streak ended nine months ago. In February 2026, Fitch published a note observing that a government shutdown “underscores polarization amid high fiscal deficits.” S&P Global warned that “credit quality is not likely to strengthen further in 2026.”

An unauthorized war that Congress has not funded is precisely the kind of fiscal governance failure that triggers the next notch cut.

The Feedback Loop: How War Spending Compounds the Spiral

The danger is not the direct cost of the strikes. Even a sustained Iran campaign might cost $5-10 billion per year in operational tempo, which is a rounding error against $38.5 trillion in national debt. The danger is the indirect cost, the feedback loop where each node in the chain amplifies the next.

Node 1: Energy Price Spike. Before the strikes, crude oil already carried a $5-7 per barrel geopolitical risk premium. Brent was at $72.48 and WTI at $67.02, both at multi-month highs. Iran produces roughly 3.3 million barrels per day and is one of OPEC’s largest producers, with exports reaching 2.2 million barrels per day in February 2026. Active strikes on its territory push the risk premium higher. The Center for Strategic and International Studies (CSIS) modeled full Strait of Hormuz disruption at $130-150 per barrel Brent. Even partial disruption scenarios show a $10-20 per barrel spike.

Node 2: Inflation Surprise. The January 2026 Producer Price Index (PPI), released on February 27, already shocked the market before the first bomb fell. Final demand wholesale inflation came in at 0.5% month-over-month versus the 0.3% consensus, with the services component surging 0.8%. Higher energy costs pour gasoline on this fire.

Node 3: Delayed Rate Cuts. The Federal Reserve’s baseline projects the federal funds rate reaching 3.25-3.5% by end-2026. Rising inflation and energy costs delay or eliminate those cuts. The 10-year Treasury yield has surged toward 4.5%, which UBS called “psychologically and mathematically damaging for equity valuations.”

Node 4: Higher Debt Servicing Costs. If Treasury yields stay elevated because inflation stays elevated because energy stays elevated because the war continues, the $1 trillion in annual interest payments grows. This is the compound interest trap: the war makes borrowing more expensive, which increases the deficit, which makes the next war dollar cost more.

Node 5: Credit Contagion. The cracks are already visible. Blue Owl Capital restructured its $1.6 billion OBDC II fund into a permanent run-off vehicle in February after redemption requests overwhelmed the fund’s quarterly cap, triggering a class action lawsuit. Its shares are down 29% year-to-date. The KBW Bank Index dropped 6% on February 27, its worst single day since April 2025. Goldman Sachs and Zions Bancorp fell 8%. Wells Fargo, Citigroup, and Morgan Stanley fell more than 6%. The $2 trillion private credit market is showing stress at precisely the moment a war needs funding.

Node 6: The Dollar Paradox. Normally, war triggers a flight to the dollar as a safe haven. But the dollar is no longer an unambiguous safe haven when every credit agency has downgraded it and interest payments exceed defense spending. As covered in the Lead-Backed Dollar analysis from January, the currency is shifting from a fiat system backed by domestic credibility to a neo-mercantilist system backed by naval force projection. The Iran strikes are the Lead-Backed Dollar thesis made kinetic.

Smart Money Already Left the Building

On February 27, 2026, the day before the strikes, UBS downgraded its US stock market outlook from Overweight to Neutral. This is one of the world’s largest wealth managers telling its clients: stop betting on American equities.

The reasoning was structural, not tactical:

• US equities trade at a price-to-earnings (P/E) ratio 35% higher than international peers
• Returns from the US stock market are roughly half those available in Europe
• The AI capital expenditure (capex) boom is slowing, with wage-push inflation moving faster than AI-driven cost savings
• S&P 500 full-year earnings growth projections were trimmed from 15.5% to 15.1%
• UBS warned of an 8-10% S&P 500 correction if inflation does not retreat by Q2 2026

That was the assessment before unauthorized strikes on a country that sits on the Strait of Hormuz, through which roughly 20% of the world’s petroleum liquids and a comparable share of its LNG shipments flow daily.

The Hormuz Fear Tax

Even if the Strait of Hormuz stays open, the cost of transiting it has already restructured global commerce.

Very Large Crude Carrier (VLCC) tanker rates have tripled in 2026, reaching $206,141 per day on the benchmark Middle East-to-China route. A single round-trip voyage through the Gulf now costs approximately $8.25 million at current rates. Saudi Aramco’s shipping arm Bahri locked in March charters at Worldscale 190-191, a rate that prices in sustained conflict.

Marine war risk insurance has surged. Baseline premiums in the Persian Gulf run at roughly 0.125% of vessel value. The escalation pushed them to 0.25-0.5%, with US-affiliated vessels paying even more. For a $100 million tanker, that premium swing means hundreds of thousands of dollars per transit that did not exist six months ago.

$\text{Fear Tax} = \$5\text{-}7/\text{bbl} \times 20\text{M bbl/day} = \$100\text{-}140\text{M/day}$

That is $100-140 million per day in embedded war premium extracted from global trade, whether or not a single additional shot is fired. The Iran Sanctions Act created a sanctions regime. The Hormuz deployment created a tax regime. The difference is that nobody voted for this tax either.

Meanwhile, 290 million barrels of Russian and Iranian crude sit trapped on tankers in floating storage, nearly double the year-ago level. These “shadow” barrels are too sanctioned to sell openly but too valuable to dump. They are Schrodinger’s oil, simultaneously priced into the market and excluded from it, creating a two-tier pricing system that fragments the global crude market into compliant and non-compliant lanes.

The Historical Parallel: Suez, Not Baghdad

The mainstream comparison is Iraq 2003. It is the wrong one.

The correct parallel is Suez 1956. Britain and France launched a military operation against Egypt to seize the Suez Canal without adequate financial backing or international consensus. The operation was militarily successful: they took the canal. It was financially catastrophic: the United States, under Eisenhower, refused to support the pound sterling, triggering a run on the British currency. Within weeks, Britain was forced into a humiliating withdrawal. The crisis is widely considered the moment the British Empire admitted it could no longer afford military projection.

The 2026 Iran strikes share the Suez structure:

1. Military success with fiscal fragility: The strikes may destroy their targets. The fiscal position cannot absorb the consequences.
2. No democratic mandate: Suez bypassed Parliament’s effective oversight. The Iran strikes bypassed Congress.
3. Currency exposure: The pound collapsed because Britain could not defend it and fight a war simultaneously. The dollar faces a similar, if less acute, test: three downgrades, interest exceeding defense, and a 9.4% decline on the Dollar Index (DXY) in 2025.
4. Imperial overstretch made visible: Suez revealed that Britain’s military reach exceeded its economic grasp. The Iran strikes raise the same question for the United States.

As documented in the Caracas Capex Trap, the Iraq 2003 precedent proves that seizing physical assets does not generate returns fast enough to fund the seizure. “Oil will pay for it” was the promise. A $2.2 trillion bill over twenty years was the reality.

What’s Next: The 60-Day Clock

The Immediate Term (0-60 Days)

The War Powers clock defines everything. Congress has until late April to either authorize or force withdrawal. Markets will price three scenarios:

• Authorization: Unlocks defense appropriations, provides legal certainty, allows insurers and banks to price a known conflict. Paradoxically, this is the least volatile outcome.
• Forced withdrawal: Would crater defense stocks but provide a relief rally for energy-exposed sectors and the dollar. Historically unprecedented; Congress has never successfully forced a withdrawal.
• Institutional paralysis: Congress does nothing. The war continues in legal limbo. This is the most likely outcome and the most expensive one, because undefined legal status means undefined financial duration.

The Medium Term (2-6 Months)

Watch the credit agencies. A sustained unauthorized military operation funded through deficit spending is exactly the kind of “fiscal governance erosion” that Fitch flagged in its February 2026 note. A further notch cut, or even a negative watch, would widen corporate bond spreads and tighten credit conditions across the private credit market that is already showing stress.

Watch Iran’s response. The IRGC demonstrated Strait closure capability during live-fire drills dubbed “Smart Control of the Strait of Hormuz” in mid-February. Iran may not close the Strait outright, but it can make transiting it expensive enough that the insurance market does the blocking for it.

The Long Term

Ferguson’s Law is not a prediction. It is a pattern observed across every great power that outspent its fiscal capacity on military projection: Rome debased its currency. Britain lost Suez. The Soviet Union collapsed under the weight of Afghanistan plus economic stagnation.

The United States is not Rome. It holds the reserve currency, the world’s most capable military, and unmatched technological capacity. But it is also carrying $38.5 trillion in debt, paying $1 trillion per year in interest, fighting an unauthorized war in the most oil-sensitive corridor on Earth, and watching its largest trading partners quietly diversify out of the dollar.

The question is not whether the bombs hit their targets. The question is whether the Treasury can keep writing checks that the economy cannot cash.

What This Means for You

If you are an investor:

• The 60-day War Powers clock is now the most important variable in global finance. If Congress authorizes, expect defense and energy to rally and broader markets to stabilize. If Congress does nothing, expect sustained volatility.
• Monitor 10-year Treasury yields. UBS identified 4.5% as the pain threshold for equity valuations. War-driven inflation could push yields past that level.
• Watch credit agency statements. A negative watch or further notch cut on US sovereign debt would ripple through corporate bond markets and private credit funds.

If you are a consumer:

• Energy prices will rise. The $5-7 per barrel risk premium will expand, not contract, while strikes are active. That translates directly to gasoline and heating costs.
• The broader cost is invisible: higher shipping insurance raises the price of everything that moves through the Persian Gulf, which handles roughly 20% of global petroleum liquids consumption and a significant share of global LNG trade.

If you are a citizen:

• The War Powers Resolution exists to ensure that the decision to send Americans into combat belongs to the people’s representatives, not to one person. That law was bypassed. The House vote on March 5 is the first test of whether Congress will reclaim the authority the Constitution granted it, or whether the blank check has become permanent.

The Overdraft Notice

The United States can project force anywhere on Earth. That has been true for eighty years. What has changed in 2026 is the price tag. The interest on past force projection now exceeds the cost of current force projection. Three independent credit agencies have examined the books and concluded that American sovereign debt is no longer the safest bet on the planet. And the largest wealth manager in the world just told its clients to reduce their bet on American equities.

Into that fiscal reality, the president went on Truth Social, looked into a camera, and announced “major combat operations” against a country that controls the most strategically sensitive waterway on Earth. Not a surgical strike. Not a proportional response. A stated objective to destroy an entire navy and raze an entire missile industry. The second major escalation in eight months. All without a single Congressional vote.

The bombs were real. The threat of a nuclear Iran is not imaginary. But the check was blank, the credit card was already downgraded, and the board of directors found out the same way the rest of the world did: from an eight-minute video on social media.

The imperial overdraft is here. The interest is compounding.

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