Cost and Value in Air and Missile Defense Intercepts

With numerous missile defense engagements in the Red Sea, a common framing for news reporting has been the relative cost of the interceptor and the missile or drone it intercepts. These data points are frequently used to illustrate the gap between the two costs, which can lead to the impression that defenses are too expensive to sustain. Multiple media outlets have, for instance, highlighted the U.S. Navy’s use of a $2 million Standard Missile-2 to intercept $2,000 Houthi drones. It makes for a good headline, but the simplistic comparison can be misleading. While analysis of these adverse cost exchange ratios is a tempting and sometimes useful framework, it obscures both the complexity of air and missile defense engagements and the complicated value of air and missile defense.

The Insufficiency of the Cost Exchange Ratio

The “cost exchange ratio” framework is attractive because it is rooted in some truth: air and missile defense interceptors are relatively expensive. Budget documents for FY2024 suggest that U.S. defensive missiles are, overall, roughly twice as expensive as offensive missiles (see table below), when averaging all-up-round unit costs. Highly capable U.S. offensive missiles are also likely more expensive than less sophisticated missiles provided to the Houthis by Iran, though there is some evidence of underestimating the cost of these systems.

This asymmetry is mostly due to the significant technical demands of air and missile defense interceptors. While offensive missiles have gotten more precise, their requirements for precision targeting and maneuvering capability still pale in comparison to defensive interceptors. To successfully intercept an attacking missile, air and missile defense interceptors must possess exceptional speed, range, and sophisticated guidance. This is what makes missile defense “the ultimate precision guidance challenge.”

Despite these technical challenges, a careful look suggests that the U.S. Navy has had some success in reducing interceptor costs over time, when considering inflation and different missile variants. These trends are visible for the average unit cost of Standard Missile-6 (SM-6), Standard Missile-2 (SM-2), and Evolved Sea Sparrow Missiles (ESSM) in inflation-adjusted dollars (see graph below). These figures show that interceptor costs often fall over time, while cost jumps are associated with the introduction of new, more capable variants. The 2024 spike in SM-6 unit costs stemmed from procuring the new Block IB variant, which features a new second stage rocket motor to extend the interceptors’ range. But between 2018 and 2023, when the U.S. Navy was purchasing a mix of Block I and IA SM-6 missiles, the unit cost declined every year on an inflation-adjusted basis, a trend also evident in the unit costs of the ESSM Block II missile.

Operational Complexities Affect Intercept Decisions

Two other aspects of the usual cost exchange ratio comparison should also be considered. In the first instance, the difficult decisions made by air and missile defense operators cannot be captured by a simple accounting exercise of comparing the cost of the weapons being fired. Air and missile defense engagement decisions are far more complex than choosing an interceptor that is of similar cost to the attacking missile. All else being equal, operators on the ship are likely to choose the cheapest possible option to successfully engage a threat. But the complexity of air and missile defense can often render cheaper interceptor options ineffective or create unnecessary operational risk to U.S. assets.

To defend shipping in the Red Sea, U.S. naval assets must defend larger areas, rather than a specific point target. This requires interceptors with longer ranges to increase the area of protection of any individual ship. Shorter-range interceptors are cheaper, but also can only provide defenses to a smaller area around the ship. These cheaper interceptors are useful for defending the ship itself from attacks but cannot provide the area-wide coverage to also defend shipping vessels.

The constraints of ship-based air defense also introduce unique challenges that may require the use of a more expensive interceptor. Ships deploy with the missiles they were loaded at port. These loadouts are overwhelmingly tailored to defeat the most stressing threats. The need to intercept more capable threats like anti-ship cruise missiles or ballistic missiles (both of which have been fired by the Houthis) means more expensive interceptors must be part of the deployed inventory. But if a less expensive munition, like a drone, is the only threat, this could lead to the use of a more expensive interceptor for a less capable threat. No loadout is perfect, but a ship commander must defend the ship and its crew. The alternative mistake, having too few expensive interceptors for a more challenging threat, could invite catastrophe. Commanders likely err toward greater capability relative to expected missions in selecting defensive interceptor loadouts, increasing the cost of interceptors on board.

Interceptor Cost versus Value of Defended Assets

A second problem with typical media reporting is that it does not consider the value of the defended assets, and thus the relationship between cost and the value of the assets defended. In the case of engagements with Houthi missiles, U.S. interceptors have been protecting commercial ships in the Red Sea that accounted for about 10 percent of global seaborne trade in 2023. While global shipping costs have risen in response to Houthi missile attacks, those costs would likely be higher if they were consistently hitting commercial vessels.

In addition to defending commercial shipping, air and missile defenses protect the value of the U.S. ships deployed to the region. The recent air defense engagement by the USS Gravely (DDG 107) illustrates the potential risk of overemphasizing the relative cost of interceptors. In that engagement, the Gravely used its Phalanx Close-In Weapon System (CIWS) to engage an incoming anti-ship cruise missile. The 20-millimeter (mm) rounds fired by the CIWS were likely cheaper than the anti-ship cruise missile they engaged. The cost of using these cheaper interceptors, however, was operational risk, allowing the missile within a mile of the roughly $2 billion ship and all of the sailors on it before it was shot down.

To be sure, the entire value of air and missile defense can be hard to quantify. A decision not to defend international shipping from Houthi attacks could call into question the U.S. desire or capability to defend freedom of navigation more broadly. The utility of air and missile defense, however, is clearly profound in today’s threat environment. In the words of deputy assistant secretary of defense for space and missile defense, John D. Hill, “Integrated air and missile defense is why Ukraine remains sovereign.” It is difficult to place a direct dollar value on international freedom of navigation or Ukraine’s sovereignty, but protecting these intangible assets remains a worthy goal of U.S. national security policy.

Toward Better Valuation

The impulse toward efficiency and cost consciousness in defense spending is important in spending taxpayer money effectively. However, the goal of the Department of Defense is not to have the most favorable accounting balance, but to provide a military capable of supporting U.S. national security priorities. Over the long term, the United States cannot afford to play catch against every Houthi missile attack in the Red Sea. Air defenses buy time to find another means to end the Houthi threat to shipping lanes. In this light, the important issue is not whether a single interceptor costs more than the missile it defeated, but rather whether those interceptors successfully allowed the United States to pursue its goals in the region effectively. If so, the employment of air defense interceptors in the Red Sea represents funds well spent.

Wes Rumbaugh is a fellow with the Missile Defense Project at the Center for Strategic and International Studies in Washington, D.C.