The Navy's top ballistic missile interceptor comes with a heavy price tag, but the US can't afford to go to war without it

• The US Navy's SM-3 has been a key interceptor to defend Israel from Iranian attacks this year.
• SM-3s are expensive, ranging from $10 to $30 million per missile, and plans for procurement are low.
• The Standard Missile series could be crucial in a war against China.

One of the US Navy's best ballistic missile interceptors, the Standard Missile-3, got a workout in the Middle East this year, eliminating Iranian missiles headed for Israel.

These engagements weren't cheap, though. The SM-3 has a heavy price tag, almost $30 million on the high end and almost $10 million on the low end. That's a high cost per intercept, especially if more than one interceptor is fired for each target.

In a world of fixed budgets, that cost raises questions about sustainability, both in the moment and in a higher-end fight. Archer Macy, a retired Navy admiral and missile defense expert, told Business Insider this is definitely "a problem" because "you've got a finite amount of money that is appropriated by Congress. So either Congress has to provide more money, or the Navy has to stop buying other things."

That steep cost could mean less money for ships, training, or any number of other things the Navy needs. It could also limit interceptor availability if the Navy instead takes funding away from procurement.

Right now, there are concerns the Navy isn't buying anywhere near enough of these interceptors to prepare it for future threats, such as those from China's formidable missile force.

US Navy warships first used the SM-3 to shield Israel from Iran's unprecedented mid-April attack, which included a mix of over 300 missiles and drones. It was then fired a second time during Iran's massive early October barrage, during which Tehran launched more than 180 ballistic missiles at Israel.

In both cases, the SM-3 "showed its value in spades," Tom Karako, director of the Missile Defense Project at the Center for Strategic and International Studies, told BI.

The Navy said that an unspecified number of interceptors successfully engaged Iranian missiles.

After Iran's April attack, Secretary of the Navy Carlos Del Toro told lawmakers that the sea service needs more SM-3s to counter potential future threats in the Indo-Pacific, such as China.

"I truly believe that the SM-3s will be needed in greater numbers in the future," Del Toro said. "I think given the future threat and our deterrence mission of the Indo-Pacific, we are going to need more SM-3s in the future."

Why the SM-3 is so expensive

The SM-3 is an interceptor made by RTX and, for the newer Block IIA variant, Mitsubishi Heavy Industries, and it is an element of the Navy's highly advanced Aegis Combat System.

The weapon uses a kinetic kill vehicle to destroy short- to intermediate-range ballistic missiles during their mid-course phase of flight. The newest variant has demonstrated a kill capability against intercontinental ballistic missiles.

Lt. Cmdr. Jason Tross, a US Naval Forces Europe spokesperson, told BI that the SM-3 "serves as the world's best deterrence" against medium-range ballistic missiles.

There are multiple variants of the SM-3. The SM-3 Block IIA costs just under $28 million, while the Block IB is over $9 million.

One reason for the high costs is that to procure the specific microchips, sensor arrays, and other technologies for these missiles, the Navy has to rely solely on contractors who have previously built the materials to fulfill the designs, many of which are older and involve certain bespoke technologies, said Bryan Clark, a former naval officer and a senior fellow at the Hudson Institute.

The industry process, coupled with the exquisite capability of the missile to intercept ballistic missiles, raises the cost of the interceptor.

RTX, the missile's lead manufacturer, did not respond to requests for comment from Business Insider.

Analysts said that the Navy needs these weapons regardless of the cost if it is to be prepared for high-end conflict, adding that recent expenditures and plans for the arsenal are troubling.

The proposed fiscal year 2025 defense budget cut the procurement of SM-3 IBs over the next five years from 153 to zero in an effort that saved just under $2 billion. That leaves only 12 SM-3 IIAs being produced annually over the next five years. Both analysts and Navy officials say that's not enough.

Karako said buying more interceptors would bring the price tag down per missile. "It's like with everything else: You buy the absolute minimum sustaining rate numbers, then they're going to be more expensive. You buy more and mass-produce them, then the cost can go down." 

A potentially massive missile fight in the Pacific

In a war with China, the Navy could find itself up against China's Rocket Force, the crown jewel of its military, which has seen exponential growth in missile stockpiles, launchers, and capabilities over the past few years despite grappling with shake-ups and corruption scandals.

Against China's anti-ship ballistic missiles and other threats, US warships would need a deep arsenal of SM-3s and other interceptors in the Standard Missile family, like the SM-2 and SM-6 — both of which the Navy has expended during its ongoing counter-Houthi campaign.

The Navy wants increased production of SM-6s, and the newest variant is designed for more effective cruise, ballistic, and potentially hypersonic missile defense. These interceptors cost around $4 million per unit.

The "SM-3 is not the only answer," said Macy, a non-resident senior associate with the Center for Strategic and International Studies' Missile Defense Project. The Navy has to balance its priorities, but analysts and service leadership both recognize the need for a larger stockpile of these high-end interceptors.

"To do those harder jobs, it just costs money," Macy said, explaining that the Navy has to pay the high costs if it's going to be ready for the kind of warfare these missiles were made for.

For now, the most likely adversary for the SM-3 is Iranian ballistic missiles, given the ongoing Middle East conflict and the high tensions between Tehran and Israel. Still, the US is closely watching China's growing arsenal as the threat of a Pacific fight looms.

"The SM-3 missile remains 'mission ready' to deter Iran or any other state actor seeking to employ ballistic missiles as part of a terror campaign," said Tross, the Navy spokesperson.