Last month we wrote that the Iran war was settling into duration rather than resolution. That now appears to be the assumption inside the White House. The President’s advisors have privately told him the conflict could run through the end of his term, even as he continues to say that it will end shortly after the midterms.
Iran is not the only front where the pressure is rising. Moscow spent the past month probing American alliances. Putin made the first visit by a Russian head of state to the Southern Kuril Islands, which are also claimed by Japan, and Russia ran a live missile exercise off the islands the following week. In Europe, drones have become the centerpiece of Russia’s “below-threshold” attack doctrine. A failed drone attack on Leipzig’s airport and a Romanian fighter intercept of a naval drone in the Black Sea are the latest in hundreds of drone incursions into NATO territory over the past two years. This week a Russian drone hit a Kyiv to Warsaw train two kilometers from the Polish border, at a station where former CIA Director David Petraeus and a delegation of Western officials were waiting.
While the demand signal abroad is loud, the incremental funding needed to meet it is constrained for now. As expected, Congress passed a continuing resolution that funds the Department of Defense at current levels through December 11 and pushes the appropriations fight past the midterms, while the reconciliation package meant to carry a large share of the administration’s defense priorities is remains uncertain. For our companies, the mechanics matter more than the politics: a CR blocks new program starts and delays new multiyear contracts. Two of the larger priorities in the balance are worth a closer look in this context.
Low-Cost Entrants Are Now Part of the Magazine
Seven months of war have consumed roughly half of the prewar U.S. inventory of missile interceptors while Russia alone produces more than 100 ballistic missiles a month. The clearest read on the munitions rebuild comes from the Pentagon’s budget. Roughly 49 percent of the munitions units requested for FY27 cost less than $600,000 apiece, and that share is projected to climb above 70 percent by FY31. Exquisite interceptors and cruise missiles are still being bought, but the unit count is tilting toward systems built by new entrants. Low-cost systems delivering over the next 18 to 24 months are now a core component of U.S. magazine planning.
That shift is the product of a new contracting model. Over the past year the Pentagon has signed a series of multiyear framework agreements with industry that commit to production volumes in exchange for private investment in capacity. Our portfolio companies Anduril and Castelion each hold one. Castelion’s is for Blackbeard low-cost hypersonic missiles; Anduril’s covers the Barracuda family of low-cost cruise missiles.
Golden Dome Under the Midterm Microscope
Golden Dome is getting scrutinized more closely as the midterms elections approach. The technical challenges of a space-based interceptor layer are severe, the Congressional Budget Office puts the cost at more than $1 trillion, roughly six times the administration’s budget, and political support in Congress is lukewarm. Congresswoman Betty McCollum, a senior Democrat on House Appropriations, has said that she refuses to “provide a blank check to the Pentagon.” Much of the conversation centers on whether the effort survives the end of this term.
Industry is making a different calculation. Primes and new entrants alike are committing balance sheet capital to a program with an uncertain political future, because participation in the highest-profile national security effort of the decade is worth the risk, and because much of the technology being developed for Golden Dome has broad applicability in other programs. Our view is more nuanced. We remain skeptical of the durability of Golden Dome in its current form given the political headwinds. But even if the broader initiative ultimately flounders, many of the underlying technologies and certain programs built around them will persist as the space domain becomes increasingly contested.
The articles below take each thread in turn, starting with a longer piece on how the Iran war has impacted global perception of U.S. deterrence capabilities.
Further Reading
Is America Still Capable of Enforcing the World Order? As the Iran war drains vital stockpiles of missile interceptors, American allies increasingly question Washington’s capacity to wage multi-front conflicts.
See How Drones Are Infiltrating NATO Territory in Europe Almost every week this summer brought new reports of drone incursions over the alliance’s eastern frontier, the airspace over which is now a front line.
How Quickly Can the DOD Rebuild and Recast the Munitions Industrial Base? The Pentagon’s FY 2027 budget request and subsequent initiatives reinforce the shifting DOD priorities within its munitions portfolio toward more affordable weapons.
The Holes in Trump’s Golden Dome The president says a missile shield stretching from Earth into space can be built for $185bn. But formidable engineering, financial and political obstacles stand in the way.