Political Report 1/7/19

 In Political Report

Main Story: Budget Implications for Escalating Conflict With Iran

The sequence of events that culminated in the killing of Qassem Soleimani, the head of Iran’s Islamic Revolutionary Guards Corps Quds Force, are likely to have major implications for the DoD budget. This includes both FY2020 (which is ongoing) and FY2021 (for which the President’s Budget Request is due next month). Given this column’s focus on the defense budget and the Congressional process, here are some thoughts on the potential budgetary implications of the decision to kill Soleimani and potential further escalation in the Middle East. It’s important to note that the situation remains fluid, making predictions difficult.

In the near term, the deployment of additional US personnel and resources to the region and preparation to potentially engage in military action will drive increased spending from the Operations and Maintenance (O&M) and military personnel accounts. In response to the heightened threat levels following the drone strike, the US military is deploying thousands of additional troops to the region. Such a build-up will undoubtedly be accompanied by additional air and maritime assets in the region. Rising tensions have also led to an increase in the price of oil, which will drive the DoD’s fuel costs beyond what was planned. Given the need to enhance security against Iran-prompted terror attacks on US targets at home or abroad, we could see additional expenses accrue to the Department of State and the Department of Homeland Security (DHS). Security at US embassies in the Middle East and worldwide could require near-term funding increases for technology and personnel.

Making predictions about longer-term requirements is particularly difficult, given the lack of clarity regarding how Iran may respond. In terms of the timing, location, and the nature of a revenge attack, it is nearly impossible to predict how Iran will act. Attacks on US military forces or commercial interests, proxy terrorist attacks against allies or the US, or even cyber-attacks on US critical infrastructure are all viable options. Iran has many options available, each with their own complications in terms of US vulnerability and likelihood of armed response. While the Trump administration has stated it has no intention of pursuing regime change, the possibility of escalation moving beyond limited exchanges cannot be dismissed.

For FY2020, there is a significant prospect that the DoD will issue a supplemental funding request, even with the fiscal year only now entering its second quarter. For FY2021, this could be handled through the normal budgeting process. While the 2019 Bipartisan Budget Agreement (BBA) settled on a figure for the DoD’s Overseas Contingency Operations (OCO) account in FY2021, heightened tensions with Iran make it likely that we will see an OCO request in the FY2021 President’s Budget that exceeds the BBA figure.

As noted above, near-term costs are likely to focus mainly on operational costs in the O&M and military personnel accounts. But to judge from other recent periods of heightened tensions, both near- and longer-term requirements could involve marginal spending increases in strike assets (precision-guided munitions, targeting equipment), air-and-missile defense (interceptors, radars, sustainment services), and force protection measures (barriers, ISR services, security services). One could also expect increases to flow toward State and DHS spending on security. Given the indeterminate nature of the future US presence in Iraq, there could be a boost in military construction spending as troops and equipment redeploy in the region. In particular, the sudden addition of combat operations or even heightened patrolling and deployments could undercut existing plans to improve readiness levels. The DoD may request additional O&M and military personnel spending simply to maintain its existing readiness for FY2020.

Overall, rising conflict with Iran could have major implications for the defense budget, but it is too early to make confident predictions about what that may look like. Regardless of one’s position on the wisdom and efficacy of the policy process that is driving this activity forward, this will be an area of focus for the next few weeks.

House Activity

The House will take up legislation requiring the Environmental Protection Agency to regulate Per- and polyfluoroalkyl substances (PFAS) chemicals.

Senate Activity

The Senate will continue to work on judicial nominations while awaiting impeachment articles from the House.

Congressional Defense Activity

  • HFAC
    • No hearings scheduled
  • SFRC
    • No hearings scheduled
  • SASC
    • No hearings scheduled
  • HASC
    • No hearings scheduled
  •  SAC-D
    • No hearings scheduled
  •  HAC-D
    • No hearings scheduled
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