The US Department of Defense is facing a severe budgetary shortfall driven by the escalation of the war with Iran, according to current and former American officials cited by The Washington Post.

Officials noted that funding for several critical areas could be completely exhausted in the coming weeks. Budgets allocated for this year’s operations of the Navy and Air Force, which have deployed warships and aviation assets to the Middle East, are projected to run out by the end of July.

To cover the funding deficit expected before the start of fiscal year 2027 on October 1, the Pentagon is internally redirecting its budgetary resources. Under this approach, military exercises and training sessions designed to maintain troop combat readiness are being scaled back or canceled. Additionally, funds originally allocated for the maintenance and repair of military equipment and facilities are being transferred to operational expenses.

In recent weeks, the Department of Defense requested permission from Congress to shift $4.3 billion—initially allocated for personnel training and weapons procurement—to cover emergency requirements. However, no decision has yet been made regarding this request.

The White House has also requested that Congress allocate $67 billion in emergency supplemental funding to cover military expenditures. Despite this, the House of Representatives plans to begin a one-month recess on Thursday, which will delay any decision on the funding for at least several weeks.

“Everyone needs to look at this situation and shake off the complacency,” said Representative Pat Harrigan, a Republican from North Carolina, commenting on the development.

Pentagon Spokesperson Sean Parnell emphasized the critical importance of defense funding, stating that Defense Secretary Pete Hegseth will do everything necessary to maintain the combat readiness of the armed forces.

Secretary Hegseth and the Chairman of the Joint Chiefs of Staff, General Dan Caine, are scheduled to present the justification for the funding allocation at an upcoming hearing before the Senate Appropriations Committee. Russell Vought, the Director of the White House Office of Management and Budget, is also among those scheduled to testify before the committee.

Vought stated last month that the cost of the war had reached approximately $30 billion. However, this White House calculation did not include the cost of rebuilding and repairing US bases damaged as a result of Iranian attacks in the Middle East.

Current and former officials warn that if Congress fails to act, military leadership will soon be forced to make even deeper compromises.

In closed-door discussions, Pentagon officials are expressing more profound anxieties. They emphasize that supplemental funding is urgently required to replenish munitions stockpiles, which are vital for deterring adversaries such as Russia and China.

The US defense budget for this year stands at approximately $1 trillion. This figure includes $150 billion in one-time funding approved by Congress last year for various priority goals, ranging from designing advanced weapons systems to stimulating the domestic defense industry. Meanwhile, the Donald Trump administration has requested a $1.5 trillion defense budget for 2027.

Internal Pentagon assessments indicate that when accounting for base repairs, the replacement of destroyed aircraft, and the replenishment of munitions stockpiles, the total cost of the Iran war could rise to between $80 billion and $100 billion, according to reporting by NBC. Sources state that the repair costs for US military facilities in Bahrain alone could reach $1 billion.

Senators are expected to question Hegseth on the collapse of the ceasefire, rising war costs, and the American service members who lost their lives in Jordan, Bloomberg reported.

Yemen’s Houthi movement announced on Monday that it will impose a naval blockade on Saudi Arabia, a move that raises the prospect of a new front opening in the US-led war with Iran and poses fresh threats to global energy supplies and trade stretching far beyond the Gulf.

The escalation followed one of the bloodiest periods of the war for American personnel. On Monday, the Pentagon released the identities of two US service members killed in an Iranian attack on a US base in Jordan on Friday. Officials also reported that unidentified remains had been recovered, which are believed to belong to a third service member previously listed as missing in the clash. In a separate incident, a fourth American soldier was killed in northern Iraq during the “controlled demolition” of unexploded ordnance left by a downed Iranian one-way attack drone.

Following the Houthi blockade declaration, the Saudi-led coalition in Yemen announced in a statement that it would respond to the move with force. The coalition also stated that it has begun implementing measures to protect its vessels transiting the Bab al-Mandab Strait, which has become a critical export route for Saudi crude after the de facto closure of the Strait of Hormuz.

The Houthis made their announcement after mutually hostile strikes rendered a fragile temporary agreement, signed last month between Tehran and Washington, non-functional. Nevertheless, both sides also signaled an openness to negotiations. The Iranian Ministry of Foreign Affairs indicated that diplomatic contacts are continuing, noting that mediators had presented certain “proposals” to Tehran, though it did not share specific details.

Oil prices rose briefly following the Houthi announcement but subsequently fell back as investors maintained hope for a diplomatic solution. However, insurance costs for transporting goods through the Red Sea increased due to the heightened risks facing commercial shipping.

Iran had previously requested that the Houthis close the Bab al-Mandab Strait, which opens into the Red Sea, should the US continue its attacks on Iran’s energy infrastructure.

A complete closure of the strait could reduce global oil supplies by 7%, as the bulk of Saudi Arabia’s oil exports would be blocked from leaving the region. This disruption would add to the major supply contractions caused by the Gulf war, which have already disrupted shipments equivalent to 10% of global supply.

In statements issued by their armed forces, the Houthis declared that they were imposing “a naval embargo against the criminal Saudi enemy, effective immediately on an eye-for-an-eye basis,” in response to what they termed the “unjust and cruel siege” imposed on Yemen by Saudi Arabia.

Diplomatic initiatives to restore the ceasefire

A senior Iranian official told Reuters on Monday that Tehran had received a proposal from mediators for a 10-day ceasefire. The initiative is reportedly aimed at saving the temporary agreement, which was intended to pave the way for a deal that would permanently end the war that began on February 28 with US and Israeli strikes against Iran.

Neither the Iranian Foreign Ministry nor the official who spoke to Reuters provided details regarding the reported ceasefire talks under discussion.

Meanwhile, two sources in the Pakistani government said that Iranian Interior Minister Eskandar Momeni had requested that Pakistan resume its role as a mediator in the conflict. Momeni subsequently traveled to Islamabad for new talks.

The diplomatic maneuvers came after a fresh overnight round of US strikes on Iranian cities and subsequent attacks by the Islamic Revolutionary Guard Corps (IRGC) targeting American military assets in the region. US Central Command announced that it had launched a new wave of strikes against Iran on Monday afternoon, US time.

Facing mounting domestic political pressure due to rising gasoline prices—which have climbed steadily since the outbreak of the war and Iran’s de facto closure of the vital Strait of Hormuz—US President Donald Trump defended the latest strikes against Iran as retaliation for the American soldiers killed in recent Iranian attacks.

“Whenever Iran kills an American soldier, they will pay the price many times over! This instruction has been conveyed to Secretary of Defense Pete Hegseth, Chairman of the Joint Chiefs of Staff Daniel Caine, and all commanders in the military,” Trump said in a post on his Truth Social account on Monday.

Iran: Tankers exploded

The IRGC announced that two oil tankers exploded while attempting to transit the strait via an “unsafe” route. On Sunday, the Revolutionary Guards had reported that two vessels were involved in an “accident” in the same area. It remains unclear whether the two incidents are connected.

Reuters was unable to independently verify the incident. The IRGC statement did not provide details regarding the identities of the vessels or any casualties.

Separately, the United Kingdom Maritime Trade Operations (UKMTO) agency reported that a vessel was struck by an unidentified object off the coast of Oman, overlooking the Strait of Hormuz.

In Iran, explosions were reported in Tabriz, Chabahar, Konarek, Bandar Mahshahr, and Bandar Imam Khomeini. According to the state news agency IRNA, one person was killed and several others were injured southwest of Tabriz.

The Revolutionary Guards announced that they had targeted American aircraft at Jordan’s Aqaba Airport with ballistic missiles. The statement added that military assets at Camp Adiri and Ali Al Salem Air Base in Kuwait, as well as several positions in Syria, were also struck.

Sirens sounded across Bahrain throughout Monday, while the Kuwaiti military announced early Tuesday morning that its air defense systems had once again intercepted Iranian drones.

Oil prices have risen above $90 a barrel for the first time in more than a month after the United States launched a new wave of strikes against Iran and the American military death toll from the conflict increased.

Brent crude, the international benchmark, rose by 2.5% to $90.30 a barrel in early Asian trading on Monday. Prices have advanced by more than 23% this month, putting oil on track for its largest monthly increase since March, when hostilities were at their peak.

Oil last traded above $90 a barrel on 11 June.

The surge in prices follows an escalation in retaliatory strikes between the US and Iran. Washington confirmed over the weekend that it had suffered further military casualties, whilst Tehran targeted critical energy and water infrastructure in the region. At least three US service members have been killed in attacks since Friday, with officials stating that remains recovered in Jordan may belong to a fourth soldier.

In an assessment published on Monday, commodity analysts at ANZ noted that tanker traffic through the Strait of Hormuz had “collapsed” due to heightened security anxieties. The analysts added that rising production in the US has been insufficient to offset shipping disruptions in the Gulf, whilst Washington’s blockade of Iranian ports has further disrupted global energy supplies.

The US has launched strikes against Iran for a ninth consecutive night. Washington stated that the operations targeted various military facilities, coastal surveillance stations, and communications networks in an effort to degrade Tehran’s capability to attack commercial vessels in the Strait of Hormuz.

Iran’s Islamic Revolutionary Guard Corps (IRGC) reported late on Sunday that two oil tankers attempting to navigate the “unsafe” southern route of the strait had been “blown up and halted.” In a statement published on social media, the Revolutionary Guards emphasised that the US had “provoked” the attack.

“This is our territory,” the statement said, declaring that there was no “legal” basis for the intervention of the US military, which had travelled thousands of kilometres. The IRGC added that no oil, natural gas, or fertiliser would be permitted to pass through the strait as long as hostile US activities in the region continued.

In a separate statement, the Revolutionary Guards announced that they had targeted US military C-17 transport aircraft and P-8 reconnaissance aircraft at Aqaba Airport, acting on “intelligence” provided by Jordanian citizens.

British maritime authorities reported on Monday that a fire had broken out on board a vessel north of Oman. The United Kingdom Maritime Trade Operations (UKMTO) stated that “the cause of the fire cannot be confirmed at this stage,” advising vessels in the area to navigate with caution.

Markets outside of the oil sector remained relatively stable. The dollar was flat against a basket of currencies of its major trading partners, whilst the yield on the 10-year US Treasury note was unchanged at 4.55%. S&P 500 and Stoxx Europe 600 futures also traded flat, while Asian equity markets presented a mixed picture.

US officials maintained that the primary objective of the current military strikes is to secure the safe passage of energy shipments through the Strait of Hormuz.