Exploring the Economic Effects of Conflict in Space

[Q5] Is it possible to realistically quantify the economic impact of warfighting events in space (e.g., increase in insurance costs for commercial satellites, stock market perturbations of a space attack, change in consumer behavior due to disruption of communication or PNT services)?

Author(s): Weston Aviles (NSI, Inc.)

Summary Response

This report captures the input of 19 responses contributed by experts from the National Security Space community in the US and an array of commercial space actors in the US, Australia, Italy, and Norway. Industry perspectives on this question are surprisingly varied in both their explicit responses (i.e., “yes,” “difficult,” “impossible,” etc.) and their use of methods for assessing the fallout of hostility in space. While the contributors offer a variety of useful insights, there does not appear to be an easily accessible and comprehensive analysis of the financial impact of conflict in the space domain. In fact, due to the cascading nature of warfighting events in space, contributors disagree on whether any analysis would produce a satisfactory answer, but the clear consensus is that further research needs to be done on this topic.

Not an Easy “Yes” or “No” Answer

Only three contributors4 responded to this question using a “yes” or “no” binary, suggesting that a more nuanced approach to the feasibility of modeling the economic impact of warfighting events in space is necessary. Contributors from Caelus Partners, LLC contend that a holistic simulation can quantify the impact of warfighting events in space. Toward this same end, Marc Berkowitz of Lockheed Martin and contributors from Harris Corporation point to previous work by the Department of Commerce as useful groundwork that might be combined with applied “economic principles and econometric(s).”5 On the other hand, several contributors6 suggest that it would be virtually impossible to accurately measure such a shock to a system that is “integrated into almost every nook and cranny of the economy” (Hitchens). Despite these more categorical assertions, the central theme highlighted by the majority of the experts is that the economic impact of warfighting events in space can at best be measured in relation to certain aspects of commerce that are contingent on space operations. However, even these estimates will be unable to account for the second- and third-order economic impact of warfare in space.

Broadly speaking, the expert contributors tend to define first-order effects as more easily measurable, direct damage to space assets that might be calculated by material replacement costs. Second-order effects involve damage to, or degradation of, systems that are dependent on space systems, while third-order effects involve the more intangible opportunity costs resulting from second-order effects. For example, first-order effects of the destruction of a Positioning, Navigation and Timing (PNT) satellite might be measured by the cost to replace that satellite. Calculating the costs associated with second-order loss or degradation of point-of sale (PoS) and ATMs capabilities that rely on the PNT satellite may be possible, but is likely difficult to do. Finally, calculating the third-order loss of potential revenue of all businesses affected by the loss of those systems is essentially impossible to quantify. Table 1 below7 outlines potential effects of warfighting events in space explicitly mentioned by contributors, and whether those effects can be realistically quantified.

Methods and Challenges of Quantification

As can be seen in the table above, the contributors who contend that quantifying the impact of warfighting events in space is possible, limit their assessments to only first-order effects and second-order effects only for select space-dependent systems. Given the challenges of quantification, contributors indicate only a few approaches that could be used to measure consequential outcomes. For example, the contributors from Chandah Space Technologies suggest a ground-up methodology10 for aggregating the equities of stakeholder assets that would be affected and “summing it across all the categories of interests.” The Harris Corporation team intimates that other approaches are being taken: “insurance companies and financial underwriters for commercial satellite owner/operators have most likely done more detailed estimates of these impacts.” However, they also caution that the “associated variability and uncertainties are likely to pose significant uncertainties to many of their estimates and, for all practical purposes, represent just a fraction of the overall financial impact.” In short, multiple contributors agree that there are fundamental challenges to any methodology aimed at capturing a comprehensive picture of the economic fallout of conflict in space.

How Bad is Conflict in Space?

Almost half of the contributors12 stress that the impact of a warfighting event in space would be a historic event with no comparable precedent (and therefore, extremely difficult to quantify for this reason). The Gilmour Space Technologies team writes of significant satellite damage leading to the “equivalent of a limited nuclear war in terms of economic damage,” and the Adranos Energetics team categorizes such an incidence as likely to result in a “total panic” in the financial world. To illustrate further the magnitude of such a warfighting event, two experts discuss how current political tensions surrounding the space domain are already limiting economic growth, commerce, and cooperation in peacetime.13 These effects would be magnified several times over in any warfighting scenario, and thus speak to the seriousness of such a potential event.

Contributors

Roberto Aceti (OHB Italia, S.p.A., Italy); Adranos Energetics; Brett Alexander (Blue Origin); Anonymous US Launch Executive; Chandah Space Technologies; Major General (USAF ret.) James Armor2 (Orbital ATK); Marc Berkowitz (Lockheed Martin); Caelus Partners, LLC; Elliott Carol3 (Ripple Aerospace, Norway); Matthew Chwastek (Orbital Insight); Faulconer Consulting Group; Gilmour Space Technologies, Australia; Harris Corporation, LLC; Dr. Jason Held (Saber Astronautics, Australia); Theresa Hitchens (Center for International and Security Studies at Maryland); Dr. Luca Rossettini (D-Orbit, Italy); Stratolaunch Systems Corporation; John Thornton (Astrobotic Technology); ViaSat, Inc.

This publication was released as part of SMA’s Contested Space Operations: Space Defense, Deterrence, and Warfighting project. For more information regarding this project, please click here.

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