Who Pays for War? The Fiscal Machinery Behind Military Power

Military power is sustained not only by soldiers and equipment but by fiscal systems capable of financing enormous expenditures over extended periods of time. A state may possess the most sophisticated weapons technology on earth, but if its treasury cannot sustain the cost of deploying and replacing that technology at the tempo of modern attrition warfare, its military advantage is time-limited. The battlefield determines who wins particular engagements. The treasury determines how long a nation can fight, and therefore, ultimately, who wins the war. This is not a new insight. It is one of the oldest principles of statecraft. What is new in 2026 is the degree to which the financing of war has become entangled with the broader architecture of the global financial system, making fiscal capacity and financial access as decisive as any weapons programme.

Throughout American history, from the War of 1812 through Korea and Vietnam, the United States financed its wars primarily through taxes and war bonds. Presidents raised top marginal tax rates to extraordinary levels during wartime mobilisation: President Truman temporarily raised the top rate to 92 per cent during the Korean War; President Roosevelt exceeded 90 per cent during the Second World War; President Johnson raised it to more than 77 per cent to fund Vietnam. These were not merely fiscal decisions. They were political acts that distributed the economic burden of conflict across the population, maintaining what might be called the democratic accountability of war. Citizens who paid higher taxes knew, directly and immediately, that their nation was at war. The financial cost was visible, personal and present.

The post-September 11 wars in Afghanistan and Iraq broke this precedent entirely and permanently. Rather than raising taxes, the Bush administration cut them for the wealthiest Americans at the precise moment military operations were expanding. The wars were financed almost entirely through debt, using emergency supplemental appropriations that kept war costs off the regular defence budget and therefore out of the normal appropriations process. According to Brown University's Costs of War Project, the United States appropriated and obligated an estimated $8 trillion for the post-September 11 wars from 2001 through fiscal year 2022. This figure encompasses not only the direct operational costs but the expanded base Pentagon budget, homeland security spending, veterans' healthcare and disability compensation, and the interest costs on the borrowed funds. Over $1 trillion in interest has already been paid. By 2050, interest payments alone on the war borrowing are forecast to exceed $6.5 trillion, even if all war spending had theoretically ceased in 2019. The post-September 11 wars will ultimately be the most expensive military operations in human history, and the majority of their cost has not yet been paid.

The structural consequences of this shift from tax-financed to debt-financed war are profound and largely unacknowledged in mainstream strategic debate. Debt financing makes war invisible to the public in the present tense: citizens do not feel higher taxes, do not buy war bonds, and therefore have no immediate financial feedback mechanism connecting their daily lives to the military operations being conducted in their name. The political accountability that wartime taxation once provided has been severed. Future taxpayers bear the cost of decisions made by electorates who experienced none of the financial burden. Between 2020 and 2024, $771 billion in Pentagon contracts went to just five firms: Lockheed Martin, RTX, Boeing, General Dynamics and Northrop Grumman. The entire diplomacy, development and humanitarian aid budget for the same period was $356 billion, less than half. These are not incidental numbers. They are a precise expression of what the United States has chosen to value, and how it has chosen to pay for those choices.

The historical and contemporary record reveals three distinct models through which states have financed large-scale military operations, each with different implications for democratic accountability, economic sustainability and inter-generational equity. Understanding how a government chooses to finance its wars tells you as much about its political economy as its strategic objectives.

Russia's fiscal model for financing the Ukraine war is particularly instructive about the limits of resource-based war finance. Moscow has relied heavily on oil and gas export revenues, which accounted for 32 per cent of all federal income even under the pressure of Western sanctions. The strategy worked initially: Russian GDP grew by more than four per cent in both 2023 and 2024 as defence sector spending stimulated industrial output. But the model has structural limits that are now becoming visible. The National Welfare Fund, Russia's sovereign buffer, has seen liquid assets fall by a third to $34 billion, with $10 billion set aside to shore up the banking system. Experts assess this reserve could be fully depleted by 2026. The arms manufacturers who have benefited from state-directed lending have accumulated an estimated $180 billion in bank debt that they may be unable to repay. Russia's non-defence civilian economy contracted by an estimated 5.4 per cent in 2025 as resources were systematically diverted to the military. The war machine is still operational, but its fiscal foundations are narrowing.

Finance has always been a tool of geopolitical competition, but the post-2022 weaponisation of the Western financial system against Russia has accelerated a structural transformation in the global monetary architecture whose consequences extend well beyond the immediate conflict. The decision to freeze approximately 260 billion euros in assets held by Russia's Central Bank, to disconnect major Russian banks from SWIFT and to impose layered sanctions on Russian energy revenues represented the most aggressive use of financial power in the post-war era. The ruble fell more than 30 per cent in the weeks following the initial sanctions. Capital flight accelerated. International investors were forced to confront exposures that had previously seemed manageable.

Russia's response has been systematic and, in important respects, operationally successful. The country accelerated the use of SPFS, its domestic alternative to SWIFT developed after the 2014 Crimea sanctions, which by 2022 connected over 550 financial institutions across 24 countries. China's CIPS cross-border payment system processed 6.6 million transactions worth approximately $17 trillion in 2023, a 27 per cent annual increase, with over 1,600 direct and indirect users. The shadow fleet of tankers, now numbering close to 600 vessels according to EU sanctions lists, continues to move Russian oil to markets in Asia and beyond, largely outside the Western financial system. Oil and gas revenues remained high enough that Russia could continue financing the war, refute initial predictions of economic collapse, and demonstrate to every non-Western government watching that the Western financial system can be partially circumvented by a state willing to absorb the transition costs.

The implications of this financial fragmentation extend far beyond Russia. Every government that has watched the Western financial system weaponised against Moscow has drawn the same conclusion: dependence on dollar-denominated settlement, SWIFT connectivity and Western banking infrastructure constitutes a strategic vulnerability. The accelerating growth of China's CIPS system, the expansion of bilateral local-currency trade arrangements across the Global South and the efforts of multiple states to develop sovereign payment infrastructure outside the Western architecture are not primarily motivated by economic efficiency. They are motivated by strategic risk reduction. The war in Ukraine has, paradoxically, done more to accelerate financial multipolarity than decades of academic debate about de-dollarisation ever achieved.

The fiscal burden of military spending falls with particular force on developing economies, where security challenges often arise precisely when fiscal capacity is most constrained. Countries facing internal conflicts or regional security threats in the Sahel, the Horn of Africa and across South Asia are frequently compelled to allocate large shares of national budgets to defence at the direct expense of infrastructure, healthcare and education. This is not a choice between good and bad policy. It is a forced allocation driven by genuine security requirements, often in contexts where state failure or territorial loss would make all other development objectives moot.

The financing options available to developing economies are considerably narrower than those available to major powers. Access to international bond markets at sustainable rates requires credit ratings that security crises tend to destroy. Foreign borrowing to finance military expenditure often comes with conditionality from multilateral lenders who are institutionally reluctant to support defence spending, creating an additional layer of fiscal constraint precisely when security needs are most acute. External military assistance, including grants and concessional financing from major powers, provides an alternative but introduces its own strategic dependencies and political conditionalities. The guns-versus-butter dilemma is not abstract in these contexts. It is a daily operational reality for finance ministries across the Global South, and the terms on which it is resolved shape developmental trajectories for decades.

Taken together, the fiscal dynamics of modern war reveal something that purely military analysis consistently fails to capture. War is not only a military phenomenon. It is an economic system whose sustainability is ultimately determined by the strength, depth and resilience of the financial architecture that sustains it. The United States could project military power globally for two decades in Afghanistan and Iraq because its bond markets were deep, its dollar was the world's reserve currency and the political cost of debt-financed war was invisible to the electorate in real time. Russia has sustained the Ukraine war for four years because oil and gas revenues provided fiscal headroom that sanctions could constrain but not eliminate. Ukraine has sustained its defence for the same period because Western financial transfers, worth hundreds of billions of dollars, functionally substituted for the fiscal capacity its own economy could not generate.

None of these models are indefinitely sustainable. American war debt will eventually impose fiscal constraints on future strategic choices. Russia's National Welfare Fund is approaching depletion. Western public support for Ukraine financing faces persistent political pressure. The financial foundations of every major military operation currently underway are under strain, and the resolution of those strains will shape the strategic landscape as directly as any battlefield development. The map of modern war is drawn with supply chains, as The Meridian has argued elsewhere. But beneath the supply chains lies the ledger. And the ledger, in the end, determines everything.