Pentagon War Game Found Aluminum Risk. Iran Proved It.

Last July, about 80 government officials and industry executives gathered in Washington for a Pentagon war game. Their task: figure out how the US aluminum supply chain would hold up under a major global conflict. The answer was not reassuring. High-purity aluminum – the ultra-refined metal used in fighter jets and armored vehicles – emerged as a critical vulnerability, according to a report from the nonprofit Institute for Defense Analyses, which ran the exercise. The United Arab Emirates provides roughly 90% of American imports of that metal, people with direct knowledge of the matter said.

Seven months later, the war game became a real-world test. The US attacked Iran in March. Iranian drone strikes hit major aluminum plants in the UAE and Bahrain, driving prices to a four-year high. The UAE facility has since restarted, though it will take months to return to full capacity. The closure of the Strait of Hormuz made it harder to get shipments to global buyers.

The Iran war has laid bare a weakness in the US defense industrial base: America effectively no longer makes high-purity aluminum. The nation's sole large-scale producer, Century Aluminum's Hawesville smelter in Kentucky, shut down in 2022 because of soaring energy costs. The Commerce Department had identified it as the only domestic source capable of meeting military demand. That leaves the government dependent on foreign suppliers at a time when the military is racing to rebuild stockpiles and global defense spending is surging.

The Supply Chain Reveal

The war game unfolded over two days in July of last year, according to the IDA report. Participants were given a scenario: Increase the capacity of the US aluminum industry before and after a “major large-scale combat operation” that would curtail imports in 2027. A second event, such as a cyberattack leading to the loss of a smelter, would occur at the same time. Using sticky notes on wall charts, they had to stick to budget scenarios ranging from $12 billion to $1 billion.

At the end, the group recommended amassing a domestic stockpile of high-purity aluminum, expanding US production, and investing in new equipment. They also suggested improving access to low-cost, reliable power – by reopening old coal plants or opening new nuclear reactors and natural gas generators.

The exercise was part of a broader Pentagon effort to identify strategic dependencies. That is an area where Washington has made far more progress diagnosing the problem than fixing it, according to Michael O’Hanlon of the Brookings Institution. The Pentagon frequently lacks information about subcontractors multiple steps removed from prime contractors like Lockheed Martin Corp. Dependencies become fully apparent only after a disruption occurs, O’Hanlon said.

The Real-World Test

The attacks on Persian Gulf aluminum producers show that facilities essential to Defense Department logistics are increasingly at risk of targeted strikes, according to Bill Greenwalt, a senior fellow at the American Enterprise Institute. “It’s a huge wake-up call for the department to be looking at supply chains in all areas around the world to ensure that they’re not especially vulnerable to attack or sabotage,” said Greenwalt, who served as Deputy Undersecretary of Defense for industrial policy under George W. Bush.

Regular suppliers of high-purity metal include Tennessee-based Kaiser Aluminum Corp. and France’s Constellium SE. Apollo Global Management’s Arconic Corp. also provides the metal. These companies are the top three providers to defense contractors, including Lockheed Martin Corp. and Boeing Co.. A Kaiser spokesperson declined to comment. Spokespeople for the Defense Department, Constellium and Arconic did not immediately respond to requests for comment.

Much of the supply is likely to come from Emirates Global Aluminium PJSC. It is the dominant supplier to the US, providing about 75,000 to 85,000 metric tons of high-purity aluminum per year for military needs, according to a person with direct knowledge of the matter. Whether the three manufacturers can obtain enough material hinges on uninterrupted shipments from the Middle East and how fast EGA's damaged plant can restart, they added. US stockpiles held by EGA are running low, they said. An EGA spokesperson declined to comment.

“This is a very specific type of aluminum product that is very much business to business, so it’s not something that you can go and pick up from a distributor,” Uday Patel, senior research manager at Wood Mackenzie, said in an interview. “We’re in a situation where there is no solution. Much will depend on how much stocks are in the pipeline.”

High-purity aluminum trades about 5 to 10 cents a pound above the so-called US Midwest premium, industry consultant Greg Wittbecker said. The Midwest premium – the surcharge added to global price benchmarks to deliver aluminum to that region – surged in June to record highs in data going back to 2003 as the Iran war roiled supply. Prices have since pared some gains.

Policy Response and the Power Problem

US policy efforts have so far fallen short. In the clearest acknowledgment yet that President Donald Trump’s 50% tariffs on foreign aluminum have not boosted domestic manufacturing as intended, his administration recently unveiled an incentive program. The plan offers to halve duties on imports of the metal for companies building domestic plants. Despite “the benefits from the aluminum tariff regime, the domestic production and supply of primary aluminum, which is critical to the US economy and defense industrial base, is still in insufficient supply,” according to a White House proclamation.

Trump’s tariffs have also hindered domestic stockpiling. They helped drive up US prices, forcing manufacturers to buy only what they need as costs rise. The Pentagon’s Defense Logistics Agency last year put out a tender seeking a contractor to provide high-purity aluminum, with a requirement that the material come from a US supplier. The agency later withdrew the tender without explanation. While Arconic makes the ultra-refined metal at its plant in Davenport, Iowa, the facility uses feedstock that is partly imported and output is on a small scale, only for internal consumption.

Artificial intelligence is an indirect threat to US aluminum manufacturing. Aluminum production is among the most energy-intensive industries, and power-hungry data centers are competing for cheap electricity. Century Aluminum sold the Hawesville site earlier this year to TeraWulf Inc., which plans to build a data center there for AI company Anthropic.

The US military can still get the high-purity aluminum it needs if it is willing to pay a higher price, according to Eugene Gholz, an associate professor at the University of Notre Dame. The metal can be produced elsewhere, though at elevated cost or with delays. “If the government really wants the high-purity aluminum, they’re going to get it,” said Gholz, who served as senior adviser to the Deputy Assistant Secretary of Defense for Manufacturing and Industrial Base Policy from 2010 to 2012.

Supply-chain adjustment is neither immediate nor inexpensive. New production can take years, especially in defense industries where permitting and investment are lengthy processes. That will remain a challenge as the US seeks to diversify its sources of high-purity aluminum and other critical materials, according to Jerry McGinn, director of the Center for the Industrial Base at the Center for Strategic and International Studies. “These markets migrated out of the U.S. in the ’80s and ’90s because of market forces,” McGinn said. “Bringing them back is a hard thing to do.”

For investors tracking defense supply chains, the commodities analysis page monitors aluminum and related material price moves. Among the companies most exposed, Apollo Global Management (APO) carries an AlphaScore of 53, reflecting mixed exposure to the aerospace metals market. Boeing (BA) scores 46 and Lockheed Martin (LMT) scores 57.