War in Iran is Chewing Through American Missile Stockpiles

23:07And so the offensive strike capabilities is also even more important as a deterrent. And we are chewing those up by at least the many hundreds. And it may, I suspect, turn out to be thousands. And that's also part of the scary part. Can you give a little bit more detail on, I guess, the procurement process for different types of missiles? Because I'm very curious about the thinking that goes behind, you know, someone saying that we want to have this many long range offensive missiles versus this many, you know, maybe shorter range defensive missiles. How do those decisions actually get made? That's a good question.

23:46You know, it fundamentally comes down to an idea, an idea of the order of battle of how a conflict may play out. And so, you know, this is the job of the military planners and the joint staff to kind of think that through. And I hypothesize, this is how many missiles we would need to have in theater, how many aircraft, how many ships, and this is how we might be able to marshal a force. And conversely, how we think the other side might be able to marshal their forces. I will say that the Ukraine conflict especially made folks realize that our estimates of what we would likely need were dramatically too low.

24:25And so I'm just going to give one example, but I think you're going to see this. In fact, there are news developments over the past year that gratify this in different ways, that in April of last year, the U.S. Army quadrupled its objective acquisition number of how many Patriot Pac-3 missiles it needed to buy over the next coming years, quadrupled that number, from like 3 ,000 and something to 13 ,000 and something. And I think kind of behind the scenes, you're seeing a recognition, as we've seen the Ukrainians and the Russians use enormous numbers of projectiles or missiles of different kinds, kind of a sinking in that, oh, in an actual conflict, this would ramp up dramatically.

25:05And so even before the 12-day war last summer between Israel and Iran and our being involved, even before that, the Pentagon began to do a few things, some really important things. The Biden administration had been ramping up a number of missiles of offensive and defensive of various stripes. You probably remember the discussion about ATACMs and whether we could spare any ATACMs to give to Ukraine. And the Biden administration didn't at first, and then they eventually did. That was true with a lot of munitions over the past four years. Flash forward to last spring, incoming Deputy Secretary Steve Feinberg, who comes out of the private capital world, as you listeners no doubt know, came in and began to call in the CEOs of a number of defense companies.

25:57And I will say metaphorically, grabbed them by the lapels and shook them to say, we need to maximize production. You know, I respect his respect for hard power. And over the next six months, from a basically Memorial Day of last year, over the next six months, you began to see a lot of drills and a lot of figuring out of just how many tomahawks and all these offensive and defensive missiles and how much solid rocket motor production we could do on and on. And so over the past two months, since in January and February of this year, all that work was basically publicized, at least in press releases.

26:34It said that Raytheon would ramp up five munitions. There's more to come, by the way. Lockheed announced THAAD and Pac-3 Patriot that they were going to quadruple THAAD and go on the Patriot side from 600 a year to 2 ,000 a year in production. And we're going to go from, by the way, from Tomahawks cruise missiles from 57 requested last year, which is a pittance to their goal is a thousand a year of Tomahawks. And what I would say is that those are all very sensible moves, very belated, by the way, that are properly allowing the lessons of the past couple of years to be applied. Break. That was all before we went to war with Iran.

27:20And so now the ramp, it's called the munitions ramp, hasn't yet begun. And the other kind of scary thing is it hasn't begun because the money wasn't there. And the appropriations bill that came out in January, or I guess became law in early February last month, the report language said, oh, by the way, we know, we Congress, the appropriators know that this appropriation is$28.8 billion with a B short of what the Pentagon requested just for munitions. And so there's a couple of things going on here. One, we already had that$28 billion in change shortfall for FY26. And then, and because of that, we can't put things on contract adequately to start this seven-year process that is a good plan, very good plan.

28:07And now we have just gone and vaporized many billions of dollars and hundreds and probably thousands of missiles over the past two weeks. And so you put that together and it's not a very good picture. And so at the very minimum, Congress is going to have to step up, I believe, for ammunition supplemental in the very near term.

28:26Tracy Alloway:So let's talk about the binding constraints to really ramping up production because there's clearly the political constraint. And by political, I mean appropriations. Votes have to happen to say we're going to allocate these dollars to defense. OK, we understand that part. There's politics that's difficult. Let's talk about the binding physical constraints. So when you say, OK, you want to go from 57 to 1 ,000, what are we talking about in terms of the facilities that we have, the natural resources? I imagine rare earth metals and certain key commodities may be choke points or bottlenecks in this process.

29:04Tracy Alloway:We all would love, I presume, to have an infinite number of missile defense capabilities, etc. We would like to not have to choose between Korea and the Middle East or the Gulf allies and so forth. But what are the physical constraints as you see them to ramping up production? Yeah, well, you mentioned there unlimited supply. If I'm not mistaken, there was a presidential tweet the other day saying that we had a virtually unlimited supply. And I would just say that that is a statement that is problematic. to say the least relative to reality so so look you just listed off facilities long lead items for production i go like uh supply chain issues there's also people uh there's also the workforce you know there's basically one facility in tucson arizona that cranks out uh tomahawks for instance there's a small number of things so actually when you start looking at the the supply chain it is in surprising degree, and there's been a number of papers written on this, although there's a lot more to ascertain, is there's a lot of bottlenecks, so there's a lot of sole source for some widget.

30:15And to the Pentagon's credit, over the past several years, there's been a lot of, I would say, navel-gazing is a bad term, but a lot of introspection, trying to figure out and understand, to at least truly intellectually understand what is the supply chain. And there's still some opacity to that. But nevertheless, the primes, the defense prime companies, and the department have been looking into this, and I think has been illuminating in terms of the bottlenecks and sole source issues. And so you've seen, for instance, a, I would say, a series of experiments trying to, A, get private capital involved, the Office of Strategic Capital.

30:55When that was first being stood up, I asked the guy in charge of it, I said, I really want to know one thing. Are you going to be big enough to matter? You know, America's asymmetric advantage, to use that phrase, America's asymmetric advantage is we're a wealthy country, but we have to leverage that private wealth. And I think there's a number of initiatives on that front that will direct and are helping to direct private capitals to the supply chains for things that matter to defense. The other thing, a couple of experiments going on here are investment in, for instance, new solid rocket motor producers.

31:28Everybody knows SpaceX and Space Launch side of the things. There's also a lot of kind of new startup companies for solid rocket motors. I think this is good. I think this is necessary. And if they are big enough to matter, then we should absolutely be doing all that. At the same time, there is the risk that we're kind of, I like to say, fiddling with the bass and the treble knobs and not turning up the volume. And that essentially means there's two big companies that do SRM, solid rocket motors. And one of them just got a billion-dollar equity stake investment by the Pentagon. That is L3 Harris that had Arrowjet as a subsidiary.

32:08The other big one, of course, is Northrop Grumman, which owns an assumed overall ATK in the past. And so on the solid rocket motor front, there's these experiments going on and these investments. The Biden administration put$216 million into Aerojet in Camden, Arkansas, which is actually one of the handful of places where we kind of keep it away from polite society. You don't want big things blowing up near cities, which is one of the challenges of production as well. A third type of experiment, and this is coming out of Steve Feinberg in particular, is that in this plan, this initiative to get this munitions ramp, he's doing something very different, which is he's asking the primes to lean in on their own dime.

32:55And when I say lean on their own dimes, I mean a lot of dimes, because we're talking about double-digit billions. He's basically asking the companies to pony up out of their internal funds, publicly traded companies again, to on spec begin to invest in these facilities. Now, if you're a publicly traded company, that's sticking your neck out. And there has been the customer here. DOD is a monopsony in terms of buying things that blow up. The customer has not been very reliable over the years. And of all the things DOD buys, munitions has been a sine wave up and down, lots of, very cyclical. And so that hurts the certainty of industry to be able to invest and hire and buy long lead items, et cetera.

33:44And that's why you need multi-year procurement. That's why you need a seven-year window. And that's why this whole munitions plan makes sense if we can get it off the ground.

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36:55They'll help your business grow with individual guidance and convenient digital tools all in one place. With that guidance and your determination, you can take your business farther and help build a brighter future for your community. Learn more at chase.com slash business. Chase for business. Make more of what's yours. The Chase mobile app is available for select mobile devices. Message and data rates may apply. JPMorgan Chase Bank N.A., member FDIC. Copyright 2026, JPMorgan Chase and Company. Joe, I was going to say we should sound the monopsony klaxon, but I don't think we want any loud noises on a podcast about missiles.

37:33Tom, what about if we can't ramp up production really quickly? There are existing missiles out there, although to your point, there's a dwindling stockpile. But are missiles like, I don't know, shoes or a jacket? Can you just like tap your allies and say, well, we loaned you a missile. Can we have it back and use it now? And then if so, what does that actually mean for some of our allies who are still engaged in conflict like Ukraine? I see there's a headline out there right now saying that in recent weeks, Ukraine's F-16 jets have been starved of U.S.-made missiles. And now we have other allies like the Gulf states who need some of their missiles more than ever.

38:15So you raise a really good point. And I'll tell you, if I had a nickel for every time the Trump administration, 1.0 or 2.0, said to our allies, hey, you need to spend more on defense. You need to be buying more American. There was just an executive order a couple of weeks ago saying, you know, we shall use the sale of American weapons to our allies as an instrument of foreign policy. We've always kind of done that basically since forever. But it was, you know, a little bit of chest beating and saying, hey, you, you, our friends need to buy more American made products. And there's good reason for that.

38:47America makes the best of the kind of exquisite crown jewels, capabilities for seekers and things that hit bullets with bullets, to be sure. But there is also a problem. There are 18 countries, there used to be 19, now 18 countries that operate the Patriot missile defense system globally. And the Biden administration had to suspend the deliveries of Patriot missiles to basically everybody a couple years back because they had to send more to Ukraine. right so in terms of our allies it's actually that on the one hand we're telling them buy more of american stuff and then the second thing is oh but we might not be able to fulfill your orders of the things you already bought like that's the problem that's that that's one of the big reasons why this ramp needs to happen is not merely for u.s needs but also to provide this the deliveries that we want our friends and allies to to be equipped with and we want them to to buy it not not just because we have some commercial interest, a lot of times U.S.

39:50taxpayer ends up footing the bill for some of these things, but because we want interoperability. We want Australia and Japan to be operating Tomahawk Aegis destroyers so that our Aegis destroyers and our Tomahawk weapon system, they can all work together and the whole be more than the sum of its parts. So there has been a lot of leaning on the Europeans to send stuff to the Ukrainians. And look, it is their backyard, So it kind of makes sense for them to be ponying up for their security. You know, the Poles, Poland remembers the Soviet boot quite well. And they and a handful of other countries have been especially at the tip of the forefront to help the Ukrainians.

40:32So this is very much a global phenomenon. And there are, to your point, a lot of entangling relationships in terms of the deliveries of systems, the acquisition of systems. You know, Denmark, for instance, just decided they were going to buy a French Samp-T air defense system rather than Patriot. Not because Patriot was better, and frankly, it wasn't because of the whole Greenland thing. It was because of schedule, because there's a long queue of partners that want that stuff. And sometimes you need stuff sooner as opposed to the best.

41:08Tracy Alloway:Can you talk about, you know, at the very beginning, we talked about the asymmetry of these very ostensibly very cheap drones and very expensive missile defense. And you just think if they're really if the drones are as cheap as advertised, there could just be quite a lot of them. And you can chew through that missile defense. How do you talk to us about that math? How real are these numbers that you see, like$20 ,000 drone versus$4 million defense missile? Because that seems pretty brutal. But how do you see that equation? I have to say that has to be the most repeated cliche that's put out the most repeated headline.

41:48You know, I think the Iranians' heads are a little bit more than 20 ,000. Of course, there's lots of really super small, short-range stuff. But when they're talking about going a couple of thousand kilometers, I think the number is quoted somewhere between 50 and 80 ,000. There's some poetic justice that we captured some of those heads in an American company, reverse engineered them. They're called Lucas, Lucas drones. And we sent some of them back at Ukraine. And the quoted cost for that, I think, was$30 ,000. So that's good. You need affordable masks. You need a tritable mask. And so that phenomenon, look, Ukraine is producing millions, millions per year of, now many of them are very, very small, but millions of drones.

42:34I mean, it's darkening the sky, as it were. Most of them don't last very long. Most of them may only fly once, for instance. And so that is certainly a phenomenon, a major trend. But going back to the cost per round, people like to count the cost of a missile because it's kind of easy to count. The things that are harder to count that are frankly bigger is often the massive quantities of jet fuel that are used to drop much cheaper gravity bombs. And so I think it is actually rather misleading to just look at the cost of the Patriot or the cost of the standard missile or what have you. If you had to throw a thousand drones to have the same effect as one 1 ,200 kilometer range Tomahawk missile, you might not even be able to get there.

43:24Tomahawk missiles are longest range missile and it's got 500 pound warhead. These drones don't have that kind of warhead. So therefore they don't have the kind of effect. So there's a, it really comes down to what is it you're trying to do. And oh, by the way, it's the platforms and it's the whole operational cost that matters, including by the way, the cost of operational failure. You know, I'd like to say, and I've had plenty of admirals say this on stage with me at CSIS over the years, because I always ask this point, a ship captain, when he sees a cruise missile coming into his ship is not going to pull out his slide rule or his pocket calculator and say, what's the cost of that Houthi drone and what is the cost of the missile?

44:03We're going to do that. No, they're going to protect the ship. They are going to go for mission success. And so now you say, well, that's value versus cost. And that's true. But the cost, the real cost of the Iran operation is not going to be the munitions. It's going to be the enormous steaming of the USS forward from Venezuela to the Middle East. It's going to be the people and all in the jet fuel and all of these other things. And by the way, the facility repair, those things are going to eclipse the cost of the munitions. So nevertheless, defense is hard. It is hard to hit an incoming screaming re-entry vehicle from 1 ,200 kilometers away, for instance.

44:46And so defensive interceptors are going to be more expensive than offensive ones. That's just a fact. And that's, again, why missile defenses won't win a war. They can only buy you time to end the threat by other means. And that's why you have all these other things as well. As I like to say, you could throw a thousand cheap UAVs into the sky and it won't do the job of a single Patriot interceptor. Capability matters too. So you mentioned ending the threat just then. And this is the other big question that I and I imagine a lot of other people have at the moment. With a ground conflict, you can kind of envision an end point where, you know, an army comes marching into a state capital, and that's pretty much the end of the conflict.

45:32With missile warfare, it seems like it can go on for a very long time. And I'm not quite sure what the defining point is at which two sides basically say, okay, we're done now. Someone's won and someone's lost. Yeah, well, and that was the case in the 1980s between Iran and Iraq, for instance. Lots of missiles going back and forth. So you've hit on a couple important points there. One, as is often observed, it's really hard to do everything with air power. It's hard to know if you have destroyed things on the ground without being there. And that's why I said, you know, there is at least going to be the need, whether that need is met or not, there's going to be the need to have some forces on the ground.

46:20Could be special forces, could be partners from other countries, but there's going to be that felt need to figure out, did we hit that underground missile city, for instance. Point two, you know, everybody, myself, other folks were getting nervous when day by day would go on and the Iranians kept launching. So the good news is that the curve is flattening. You have a phrase from the COVID years. You have to flatten the curve of the rate of fire. And so you take a look at the press conferences. That's a very good development. They've gone from hundreds a day to smaller numbers. That reflects that we are somehow doing something, hitting the launchers, hitting the missiles, hitting the command and control, or at least the commanders, or perhaps decentralized commanders, that is a good sign.

47:11And add to that, that we've now gotten, this is the two most important words from one of the recent press releases from Chairman General Cain, is he said the words munitions transition, which is to say, we don't have to keep using 1 ,000-kilometer range tomahawks because the Iranians don't have air defenses anymore. We can use gravity bombs, of which they are plentiful. Still have to fly back and forth and that's not cheap, but you can fly back your JDAMs, your small dam or bombs. And there was a press release, I think over the weekend that we were transferring a bunch of munitions to Israel. And when you look at it and you look what's in that list, it was gravity bombs.

47:50And the reason that we've gotten there is we no longer have to do the standoff stuff. That's good. We can now do the stand in, you know, flying over top and dropping things. But to your point, it's still hard to do all that from the air. And there is going to be that uncertainty, which is why, frankly, you're not going to have perfect military certainty from the air. To really end this, you're going to have to have, I would say, a political change.

48:12Tracy Alloway:Tom Carrico, thank you so much for coming on. I learned a lot from this. Really appreciate you taking your time. Thanks, all. Really enjoyed it.

48:33Tracy Alloway:I never heard that, Trey, going Winchester. That comes up in movies. I'm Winchester. You know, my dad, he flew B-52 bombers in Vietnam. So, yeah, I have very mixed feelings about all of this. Defense procurement strikes me as an extremely difficult, I don't know, game theory equilibrium problem to get right. And, you know, you because you have the monopsony buyer, it's a monopsony buyer, but it's also political and the political winds are going to change. You have, you know, companies that are naturally profit seeking and profit maximizing. And many of them, and he alluded to this, we didn't talk about it that much, are monopoly sellers.

49:16Tracy Alloway:Right. Like if there's one component, if they're in, we know all about how with advanced supply chains of complicated things, you might have millions or thousands of parts that go into it. And some of these parts may be produced by one company. Maybe there's like a shiny mirror or something somewhere that is only produced by one optical factory somewhere in the United States. Then you have the Buy American requirements. So that further narrows supply chains, et cetera. So you have monopolies and monopsonies facing off. And then, you know, how do you get sustained spending, sustained procurement through the ebbs and tides of war?

49:52Tracy Alloway:Extremely difficult challenge. It's such a weird ecosystem of players in military procurement. And the other thing is like most of the time what you're planning for is a hypothetical conflict, right? If an actual conflict emerges, then I guess you have some more certainty to a degree about what you need to actually fight it. But, you know, if just a few years ago, if you're sat there and you're going like, should we be buying stuff for war with Iran? Should we be buying stuff for China doing something with Taiwan? Like, these are very different theaters of war. And I imagine that if you're a procurement officer, like, the temptation must be to, you always want to have the best, like, newest, shiniest stuff.

50:36And so I'm just fascinated by how people actually make those decisions in the face of both monetary limits and physical reality and political reality as well, which we kind of we glided past, but for obvious reasons.

50:49Tracy Alloway:Have you seen the photos? I mean, there are photos of the U.S. packing up THAAD missile defense systems from South Korea. I have not seen that. Yeah. If you just search for it, it's kind of it feels very when you see the photos, you do not feel like, oh, we are major superpowers. power. It's like, oh, here are these missiles. Sorry, we're taking, we have to move them elsewhere because we don't have enough right now. It's pretty, it's pretty shocking, but you know, like it's, it's hard, it's hard to argue against the fact that we seem to be spread very thin these days. The war in Ukraine continues to go on.

51:27Tracy Alloway:Obviously there's this new war in Iran. And then as you mentioned, you know, at least since the Obama administration, they've been talking about the pivot to Asia and so forth. And that keeps not happening, but there are obligations on the ground there. The whole thing seems to spread very thin. War is logistics and a racket. Yeah. Shall we leave it there? Let's leave it there. All right. This has been another episode of the All Thoughts podcast. I'm Traci Allaway. You can follow me at Traci Allaway. And I'm Jill Weisenthal. You can follow me at The Stalwart. Follow our guest, Tom Carrico. He's at Tom Carrico.

52:01Tracy Alloway:Follow our producers, Carmen Rodriguez at Carmen Armand, Dashiell Bennett at Dashbot, and Kale Brooks at Kale Brooks. And for more OddLots content, go to Bloomberg.com slash OddLots for the daily newsletter and all of our episodes. And you can chat about all these topics 24-7 in our Discord, discord.gg slash OddLots. And if you enjoy OddLots, if you like it when we talk about where missiles actually come from, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there.

52:37Thanks for listening.

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