It’s not about the cost of a missile against a drone, but the value of the ships that survive and keeping sea-lanes open.
The Russo-Ukraine war, coupled with Houthi rebels’ attacks on merchant shipping in the Red Sea, demonstrate the tremendous cost imposed by using advanced air defence systems to engage cheap attack drones. While it is true that defensive missiles are orders of magnitude more expensive than one-way drones, it is a fallacy to calculate the overall value of air defence through the lens of the tactical engagement, that is, the cost of the respective munitions or the “exchange cost” alone. Instead, a proper cost-benefit analysis should account for the value that is saved when a targeted asset is successfully defended, as well as the economic benefits of the long-term defence of vital sea routes.
Numerous media articles rightfully explore the cost-benefit of NATO’s defensive commitment in the Red Sea. After all, the high-end air defence capabilities developed by Western nations are expensive, so the question must be asked: are they worth the investment? Analysing the exchange cost between the US Navy’s Evolved Sea Sparrow (RIM-162, $2M) and Standard Missiles (SM-2 and SM-6, $2M/$3.9M+)1 versus Houthi rebels’ drones and cruise and ballistic missiles (cost estimates vary between $30K and $1M) results in an exchange cost ratio of 2:1 to 100:1 (NATO vs Houthi) per engagement. Looking at a single day, the 9th of January, the US and UK successfully defended against 24 Houthi missiles and drones, expending roughly $17M in defensive munitions that day.2 By one estimate, the Eisenhower Carrier Strike Group assigned to counter the Houthi threat expended over half a billion dollars in munitions from October 2023 to June 2024.3 These costs appear extreme as defensive systems typically cost twice as much as the offensive systems they are defending against, while the above costs far exceeded the expected 2:1 ratio. But is this comparison appropriate?4
Analysts should instead take a broader perspective and survey the cost savings involved when successfully defending an asset. In order to understand the potential cost, consider the following two examples of failure. First, the oil tanker Marlin Luanda, which the Houthis attacked. It caught fire and narrowly avoided sinking in January 2024. A replacement ship would cost its owners roughly $60 million,5 and its cargo was valued at approximately $60 million, using crude oil trading prices on the day it was attacked. Comparing the cost of a successful day defending several ships earlier in the month vs the potential cost of the Marlin Luanda and its cargo results in a cost exchange of 1:9.4 ($17M:$120M).6 Second, Houthis attacked the [tanker] Sounion on 21 August 2024, which was subsequently abandoned by the crew, seized by the Houthis for one week, and then set adrift in the Red Sea for three weeks prior negotiated safe recovery of the vessel. Sources indicate ’the Houthis appear determined to sink the ship and its cargo into the sea’,7 which risked spilling 1.1 million barrels of crude oil, four times as much as the Exxon Valdez and twice as much as the Prestige, so we could expect the ecological clean up to cost as much as €5 billion.8
Broadening the perspective even further, it’s important to consider the overall economic consequences of a threatened Red Sea, which historically accounts for 30% of worldwide merchant shipping traffic. The Houthis are attempting to close the Bab al-Mandab straits, disrupting the shortest trade route between the Middle East and Asia to Europe and the eastern United States. Since November 2023, over 55% of shipping has diverted to the longer route around Africa’s Cape of Good Hope, increasing transit fuel costs by 20% and delaying deliveries to Europe by roughly two weeks.9 While the true impact is difficult to calculate, the cost per shipping container has doubled, with an assessed 0.7% increase to global inflation.10 However, the cost of a Red Sea/Suez Canal closure, as evidenced by the MV Ever Given Suez Canal grounding, was estimated to cost the worldwide economy roughly $10 billion per day.11
Comparing the cost of a defensive missile engagement against the cost of cheap drones misses the true value of NATO’s ongoing Freedom of Navigation mission in the Red Sea and Gulf of Aden. Instead, analysts need to depict the cost-benefit in more holistic terms accounting for loss-prevented, including the merchant vessels, their cargo, and the economic impacts due to losing a vital sea line of communication, ecological disasters, and disruption to local economies. Through this lens, a successfully defended tanker results in a cost-avoided ratio of over 30:1 (vessel vs SM-6) per engagement. Taking a holistic view and accounting for the prevention of ecological disasters and continued day-to-day strategic sea-lane access, NATO easily achieves values of over 294:1 (estimated clean up vs 9 Jan expenditures) and 588:1 (Red Sea closure vs 9 Jan expenditures), respectively, based on a single successful day. Of course, we must look for more cost-effective and sustainable defensive measures in the age of proliferated low-cost threats. However, only comparing the direct cost of the threat vs the defensive system ignores the value of the defended assets and ensuring freedom of navigation in a strategic waterway.
