Iran War Could Last Until 2027? Analyst Warns of Escalating Economic Impact

President Donald Trump has suggested that the war in Iran could last about six weeks, but a Wall Street analyst warns that it could extend for six months or more. The conflict, which has already surpassed four weeks, appears to be on its way to escalating, even though Trump has backtracked on his threat to attack Iranian energy infrastructure. Byron Callan, an analyst at Capital Alpha Partners, noted that the war in the Middle East is widening and deepening. Callan estimates a 35% probability that the conflict will last until 2027.

The war has spread to Iraq, where US forces are battling Iranian-backed militias, and is likely to extend to Yemen, where Houthi militants aligned with Tehran are expected to threaten shipping in the Red Sea. This could cut off a critical outlet for cargoes and Saudi oil, giving Iran even more leverage over the global economy. Fighting has also reached the Caspian Sea, following the recent Israeli bombing of Iranian ports suspected of receiving arms shipments from Russia.

A prolonged war sets up a darker economic outlook as it’s only just starting to weigh on activity. The average price of gasoline is now $3.98 per gallon, up from $2.98 a month ago, according to AAA. This will cut into consumer spending elsewhere, which had stayed resilient even during Trump’s tariffs last year. The stock market selloff will also produce a negative wealth effect, dampening willingness to spend.

Inflation will heat up too, and was already under pressure before the war. Import prices shot up 1.3% in February, the largest month-over-month increase since March 2022, immediately after Russia’s invasion of Ukraine. The prospect of worsening inflation has also sent Treasury yields higher, lifting borrowing costs throughout the economy. That includes mortgage rates, which have jumped to the highest level since October. With home ownership now even more expensive, mortgage application volume plunged 10.5% last week from the prior week.

While about 5,000 Marines and 3,000 soldiers are headed to the Middle East, and 10,000 more US troops are reportedly under consideration, Callan is "very skeptical" that Trump can deliver a knock-out blow to Iran that will cause the regime to accept his peace terms. Still, he expressed 75% confidence that the U.S. will put boots on the ground to seize Iranian territory and try to fully reopen the Strait of Hormuz.

Such an operation could involve an attack on Kharg Island, from which 90% of Iranian oil is exported, or other islands near the strait. However, ground troops would face the risk of Iranian missiles and drones, which the U.S. has failed to prevent from inflicting extensive damage to its bases and embassies in the region.

Callan predicted that this could lead to a long-war scenario. Seizing Kharg Island seems a bit loopy, as an occupying force would probably have to deal with an extremely unpleasant environment created by the burning of oil in storage facilities. If the intent of seizing Kharg is to cut off Iranian oil exports, that could be done by simply stopping the tanker traffic carrying Iranian product. In fact, other analysts have also called for a naval blockade of Iran’s oil exports, saying it would be more effective and less risky than deploying troops, especially given that Iran has other hubs besides Kharg from which oil can be exported.

Callan sees the occupation of islands near the strait as the most likely use of U.S. troops and doesn’t expect a large-scale invasion deep into Iran, meaning the threat of drones will persist, as they can be launched from up to 1,500 miles away. Troops from the United Arab Emirates or Saudi Arabia might even participate, he added. That’s because Iran’s continued control of the Strait of Hormuz, through which one-fifth of the world’s oil and liquified natural gas flows, would be unacceptable to its Persian Gulf neighbors.

As a result, any agreement to halt fighting that leaves Iran as the effective gatekeeper of the strait would likely lead to further fighting. Indeed, the UAE recently hinted at an increasingly hardened position toward Iran that aligns more closely with the US and Israeli stance. "Our thinking does not stop at a ceasefire, but rather turns toward solutions that ensure lasting security in the Arabian Gulf, curbing the nuclear threat, missiles, drones, and the bullying of the straits," wrote Anwar Gargash, a senior UAE diplomat, on X last weekend. "It is inconceivable that this aggression should turn into a permanent state of threat."