Investors priced in a 6-week Iraq War but it lasted 8 years and cost $3 trillion. They’re doing it again

As oil topped $120 a barrel Monday and Iran named a new Supreme Leader, Wall Street is still betting this war will be short—the same bet investors made about Iraq in 2003, when a conflict predicted to cost $60 billion ultimately consumed $3 trillion. Those trillions ultimately showed up as higher deficits, higher borrowing costs, and a decade of elevated geopolitical risk—a path markets never modeled in 2003.

The parallels are not subtle. When the U.S. invaded Iraq in March 2003, Defense...