Ryan Knudsen (2:12)

Welcome to the Journal, our show about money, business and power. I'm Ryan knudsen. It's Wednesday, March 11th. Coming up on the show, the U.S. munitions shortage and what it means for Iran, Ukraine and the rest of the world.

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Ryan Knudsen (4:15)

Before the war in Iran began, what was the state of the war between Russia and Ukraine?

Bojan Panchevsky (4:21)

Basically, the war in Ukraine has been reduced to a stalemate, the like of which we'd seen in the First World War. The front line is frozen, so to speak. It's changed extremely little in the past two to three years since the front

Ryan Knudsen (4:36)

lines on the ground are frozen. The skies above Ukraine have become the most important battlefield in the war.

Bojan Panchevsky (4:42)

Russia has been producing huge amounts of attack drones and missiles, and this is the biggest problem for Ukraine. They're being bombarded pretty much every day, day in, day out. And the targets of this bombardment are not necessarily military targets, but they are essentially critical nodes of the infrastructure that keeps the country running, heating electricity, gas, oil and stuff like that, which are extremely important for the civilian population.

Ryan Knudsen (5:13)

To defend against these attacks, Ukraine has relied on a highly specialized weapons system manufactured in the United States. It's called the Patriot interceptor system. The Patriot system was developed over half a century ago during the Cold War,

Bojan Panchevsky (5:29)

and essentially it's able to detect an incoming rocket very early, to engage it with its radar system, and then it fires missiles towards it that shoot it down and prevent it from destroying its target. The Patriot system essentially fires missiles into incoming missiles. Experts describe this process as hitting a bullet with a bullet.

Ryan Knudsen (5:54)

The interceptor system, which includes the radar, the launcher, and the computers, is made by a defense company called Raytheon. The actual Patriot missiles are made by Lockheed Martin. Both are U.S. companies. In Ukraine, Patriot missile interceptors form the backbone of the country's defenses. Throughout the war, Russia has been firing barrages of drones and ballistic missiles. According to Ukrainian and Western intelligence, Russia can manufacture around 80 ballistic missiles every month.

Bojan Panchevsky (6:26)

Ballistic Missiles are the biggest and most dangerous menace coming out of Russia. These are rockets essentially that fly high up in the atmosphere of the Earth and then fall down at many times the speed of sound. And they're extremely difficult to intercept and they're extremely damaging when they hit a target. So it's practically impossible for Ukraine to defend itself from them unless they have enough Patriot missiles.

Ryan Knudsen (6:55)

Over the past year, Ukraine has become desperate for more Patriot interceptor systems. And its allies in Europe have been buying more from the US on its behalf. But the American companies that make these systems aren't making enough. In 2024, Germany ordered eight new Patriot systems for about 2 billion euros apiece. Systems it plans to transfer to Ukraine. But German officials say they haven't gotten them yet and they have no idea when they'll arrive. As for the missiles themselves, last year Lockheed Martin produced around 600 of its most advanced Patriot missiles. That works out to about 50 missiles a month. Ukraine says it needs around 60 missiles per month to keep up with Russia. So even if every new missile went to Ukraine, it still wouldn't be enough. What is causing these delays? Why aren't Raytheon and Lockheed Martin producing more if there's so much more demand?

Bojan Panchevsky (7:52)

Trouble is, the United States have not been commissioning these companies to produce enough of these missiles. And the military industrial complex in the United States works in a way that it's kind of reliant on government contracts, basically thrives on taxpayer money. And if there's no sort of prospect of long term contracts, these companies don't tend to invest into expanding their production. And if the government doesn't order stuff, no matter how many other orders they get from other countries, and they do get tons of orders at the moment, ever since the war started in Ukraine, they're not going to move until they get this kind of long term, secure, safe contract.

Ryan Knudsen (8:38)

But wouldn't for these companies though, I mean, even though they are government contracts, wouldn't these companies see that there's a lot more demand and so therefore we should invest in our ability to make more? I mean, isn't this just capitalism?

Bojan Panchevsky (8:48)

Well, you would have thought that would work like that, but apparently it doesn't in this particular case. It's an interesting kind of paradox. It's a bit of a conundrum because the military industrial complex in a way is this kind of small boutique, very sophisticated like manufacturing where, you know, it's difficult to increase production.

Ryan Knudsen (9:10)

Production of a single Patriot missile can cost millions of dollars and take months. They're made by hand with components that come from all over the US and from as far as Spain.

Bojan Panchevsky (9:20)

And Lockheed told us that they are working hard to overcome these issues, that they have already expanded production manifold, which is true. They are now at 600 a year, as we said, just over 600. And they were making a lot less than that two, three years ago.

Ryan Knudsen (9:37)

Lockheed Martin says it's working to boost production of its patriot interceptors to 2,000 a year by the end of 2030. For Ukraine, though, time is ticking. Raytheon's parent company, RTX, didn't return a request for comment about the missile launchers. Last week, President Trump met with the CEOs of Lockheed Martin, RTX and other defense industry leaders at the White House. After the meeting, Trump posted on social media that the companies had agreed to quadruple production. The situation in Ukraine was already dire, and that was before the war with Iran started.

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President Trump says the US And Israel have launched major combat operations. Donald Trump says the objective is to defend the American people by eliminating imminent threats from the Iranian regime.

Ryan Knudsen (10:29)

How did leaders in Ukraine react to the outbreak of war in Iran and what that might mean for its defense systems?

Bojan Panchevsky (10:35)

Well, I mean, the president of Ukraine, Volodymyr Zelenskyy, held a cabinet meeting which was televised and issued a statement there saying that these Patriot missiles are a matter of life and death for Ukraine and they are absolutely concerned that they might not be receiving enough of them. So he very explicitly said what was going on. Then a day later, Zelensky said that the United Arab Emirates, Qatar and Saudi had fired over north of 800 Patriot missiles in the first hours of the war. And he claimed that this is more than Ukraine had been able to procure since the start of the Russian invasion. The expectation is that the US Administration will help its Gulf allies who are obviously damaged and depleted by this conflict in Iran. It will be a scramble for everyone to get some and there will be nowhere near enough for Ukraine.

Ryan Knudsen (11:35)

How would you describe the situation Ukraine finds itself in right now?

Bojan Panchevsky (11:39)

Well, they're in a very difficult position there, in a pickle. The problem is the product is not there on the market. So it's a very, very difficult situation for them to confront because they will be facing a huge existential challenge and there's no clarity as to how will they resolve that.

Ryan Knudsen (11:57)

Meanwhile, US Adversaries like Iran, Russia and China are seeing a huge opportunity in America's production backlogs. That's.

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Ryan Knudsen (13:56)

According to intelligence and defense officials, some U.S. adversaries are keeping a close eye on the Patriot interceptor missiles being used in the Persian Gulf. Like China, for example,

Bojan Panchevsky (14:07)

the Chinese are using their satellites to observe every Patriot system in the area, and they're counting the missiles that are being fired. And it's a very simple math. You know, they know how many can be made and they know how many are being expended. So that when they do the math, they know the actual capacity of the United States to defend itself and its allies. And that's not a great thing if you want to deter someone like Russia or China.

Ryan Knudsen (14:34)

According to Boyan's reporting, U.S. adversaries have long understood that America isn't producing enough Patriot missiles to replace its supply, and they've been looking for ways to exploit it. For instance, if they can produce more attack weapons more cheaply, then they can theoretically outlast US Made defenses and eventually overtake them.

Bojan Panchevsky (14:53)

It turns out if you make a missile which is fairly precise and very, very fast and has a strong warhead, then you're laughing. You know the effect is the same. And if you mass produce these weapons and you fire 10 rockets for the enemy's one rocket, then you will eventually prevail. It doesn't matter how sophisticated the opponent is if your unsophisticated weapons, which do the job, are available in sufficient quantities, then you are eventually going to prevail.

Ryan Knudsen (15:23)

It's a numbers game, and Bojan says this is exactly what Russia and Iran are doing.

Bojan Panchevsky (15:29)

So basically, they're changing their doctrines to adapt to that reality of the kind of industrial decline, if you will, in the States.

Ryan Knudsen (15:39)

Are Russia and Iran facing the same kind of munition shortages?

Bojan Panchevsky (15:43)

Though it's interesting. Russia and Iran, despite the sanctions, despite the pressure, the military pressure they've had, they've been able to keep up industrial kind of production of weapons of all kinds because they are basically militarized details and their society's energies focused on strengthening the military.

Ryan Knudsen (16:04)

Russia and Iran have also started making weapons together. In 2023, the two countries entered a tech transfer deal that allows Russia to mass produce drones that were first developed in Iran. To counteract Iran's attacks, the US has been forced to divert air defenses from around the Pacific to the Persian Gulf, air defenses that had been set up to deter potential attacks from China and North Korea. The US has also sought other ways to counteract the munitions disadvantage, for instance, by trying to take out Iran's ability to fire any missiles at all. Here's Defense Secretary Pete Hegsef in a press conference last week.

Defense Secretary Pete Hegsef (16:44)

I mean, the best defense is a good offense. And so we're aggressively pushing into that airspace over that southern flank to ensure that we control it and we destroy anything that moves that would attempt to shoot us. Think of it as shooting the archer instead of the arrows. That's where we want to be in

Ryan Knudsen (17:01)

the war against Iran. That means the US And Israel are racing to destroy Iran's missile stockpiles and its launch capabilities. But as for Ukraine, while the US And Europe have supplied it with defensive weapons, they haven't supported Ukraine's offensive capabilities out of concern that it could escalate the conflict even further. So now Ukraine is in a situation where it's running out of defensive weapons without having neutralized the Russian threat. Even if the US Goes after the archers, so to speak, and limits Iran's ability to shoot at the US and its allies, that still doesn't solve the core manufacturing issues that we've been talking about, though. So what can the US do about that?

Bojan Panchevsky (17:42)

Well, I think if policymakers wanted, they could, you know, learn lessons from what's happening now, and they could put some pressure on the companies to start mass producing. They could give them bigger government contracts. They could also try to instigate a little more competition on that market. You know, the government will just need to decide how to instigate competition in that domain of the economy, you know, in military manufacturing and innovation, and how to create an ecosystem that actually works, that kind of keeps churning out innovative and cheaper products. We are in this era of asymmetric warfare where chips and whatever other elements required to produce a weapon like that are readily available everywhere in the world, so small state actors and even non state actors are going to be able to produce them. So, so I think that would have to instigate a massive change in the way America is thinking its defense and offense.

Ryan Knudsen (18:49)

There's this narrative out there, I think, certainly in the US and much of the world, that the United States has the biggest and most powerful and sophisticated military in the world and that its capabilities are limitless. And yet for all of its sophistication, it's almost too sophisticated in some cases for its own good.

Bojan Panchevsky (19:08)

That is absolutely true that the military might of the United States is completely unrivaled and unprecedented. But it's also a kind of giant with a feet of clay in some ways, because when it gets bogged down into a prolonged conflict with a peer enemy or with an enemy that has at least similar capacities, then it becomes very difficult.

Ryan Knudsen (19:42)

That's all for today. Wednesday, March 11 the Journal is a co production of Spotify and the Wall Street Journal. Additional reporting in this episode by Drew Henshaw. Thanks for listening. See you tomorrow.

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