SpaceX has successfully pushed the Pentagon to nearly double its payments for Starlink connectivity on U.S. kamikaze drones during the Iran war, Reuters reports, citing sources.
The development is seen as an indication of Elon Musk’s company’s growing leverage over critical U.S. military capabilities at a time when the satellite network has become indispensable in modern combat.
Within weeks of the U.S. launching its bombing campaign, SpaceX executives met with Pentagon officials and argued that the military had been underpaying for the service. According to two sources familiar with the matter and Pentagon documents reviewed by Reuters, SpaceX claimed the Pentagon was paying about $5,000 per terminal while effectively using a higher-tier aviation service worth closer to $25,000 per month.
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The dispute centers on the use of Starlink on LUCAS suicide drones — low-cost U.S. models comparable to Iran’s Shahed drones, designed to loiter over targets before diving to detonate. This disagreement is part of broader and increasing tensions between SpaceX and the Pentagon over Starlink pricing in recent months, according to interviews with five people familiar with the matter and supporting documents.
The Pentagon, which has also been working with SpaceX to provide Starlink connectivity to help Iranian citizens bypass government-imposed communications blackouts, has faced pushback on pricing for a proposed direct-to-cell service that would function like 5G without requiring ground terminals.
These unreported tensions underscore a critical reality: the Pentagon’s deepening reliance on SpaceX is granting Elon Musk substantial leverage over a vital layer of U.S. national security infrastructure — at a time when SpaceX is preparing for what could be one of the largest IPOs in history next month.
Military-Specific Starshield vs. Commercial Starlink
Unlike consumer Starlink terminals available at retail outlets like Walmart, SpaceX provides a military-grade version called Starshield under a 2023 agreement. Starshield terminals can connect to both the commercial Starlink constellation and a separate, more secure Starshield network, according to a person familiar with the arrangement.
The source said at the outset of the Iran war, Starlink was already a core part of U.S. military operations. In testing and early deployments, it supported a range of systems, from aerial attack drones such as the LUCAS to unmanned surface vessels used for maritime surveillance and strike missions. When the U.S. launched its bombing campaign, Starshield terminals were being used across more than a dozen drone systems.
According to Reuters, the use of Starlink has stirred tension between SpaceX and the Pentagon soon after the U.S. launched its February 28 assault on Iran. On March 1, SpaceX chief Elon Musk responded on X to a user’s post, featuring an image of the LUCAS drone ?that said it “appears to have an integrated Starlink” terminal. SpaceX argued that the LUCAS drones were operating under conditions that aligned more closely with its aviation-tier subscription rather than lower-priced land or mobility services.
“It is a violation ?of commercial Starlink terms of service to use the terminal ?for weapon systems. This applies to all users and is shut down when discovered,” Musk posted. “There is a separate network called Starshield, which is operated by the US government.”
Pentagon officials countered that the $25,000 monthly fee was designed for crewed aircraft, not expendable kamikaze drones that typically maintain Starlink connections for only minutes or hours.
Despite the objections, the Pentagon ultimately agreed to the price increase, nearly doubling the cost per LUCAS drone from around $30,000. The military is now considering purchasing more than 3,500 additional Starshield terminals, including 100 at the higher aviation tier, according to Pentagon documents. The potential deal could generate hundreds of millions of dollars in annual revenue for SpaceX, though final terms remain under discussion.
Starlink’s Growing Military Influence
Starlink has become indispensable in modern warfare since Russia’s invasion of Ukraine in 2022, providing resilient communications and precision targeting in contested environments. SpaceX’s constellation of roughly 10,000 satellites accounts for more than 60% of all active satellites in orbit, dwarfing competitors such as OneWeb and Amazon’s Project Kuiper.
The risks of over-reliance on a single private provider were highlighted during the Ukraine conflict when Musk temporarily restricted service in certain areas during a Ukrainian counteroffensive. More recently, a global Starlink outage last summer disrupted U.S. Navy tests involving unmanned surface vessels.
Clayton Swope, a senior fellow at the Center for Strategic and International Studies, noted that SpaceX’s unique position gives it unusual leverage.
“SpaceX certainly has the U.S. government over a barrel,” he said.
Unlike traditional defense contractors, SpaceX derives only about 20% of its revenue from the U.S. government, giving it a strong commercial base and greater negotiating power. This dynamic is amplified as SpaceX prepares for its IPO, where boosting revenue and demonstrating strong growth will be critical for valuation.
Direct-to-Cell Service for Iranian Citizens Also Under Negotiation
The Pentagon has additionally been in discussions with SpaceX about deploying a direct-to-cell Starlink capability to help Iranian citizens bypass government blackouts. This service, which would function like 5G without ground terminals, was proposed amid Iran’s crackdown on protests. SpaceX reportedly quoted as much as $500 million for initial deployment plus $100 million monthly for operations, prompting concern among defense officials over the high cost.
The dual-use nature of Starlink, serving both military operations and humanitarian/civilian connectivity, adds complexity to negotiations, as the same infrastructure supports sensitive combat missions and broader information access goals.
However, the ongoing pricing disputes are seen as typical examples of a fundamental tension in modern warfare: the U.S. military’s increasing dependence on commercial technology providers for critical capabilities. While SpaceX has delivered remarkable innovation and rapid deployment, its dual role as a commercial powerhouse and defense supplier creates potential conflicts of interest and leverage points that traditional contractors do not possess.
Pressure to maximize revenue across all segments, including government contracts, is likely to intensify as SpaceX moves closer to its IPO. For the Pentagon, analysts note that the challenge will be balancing the operational advantages of Starlink against the rising costs and strategic vulnerabilities of depending so heavily on a single company led by a highly visible and sometimes unpredictable figure.
The LUCAS drone pricing episode, though resolved, is seen as a clear signal that future negotiations over Starlink and Starshield services will be tougher and more expensive.