[K-Defense Season 2 Diagnosis] Defense Market Shaken by Security Instability [Yang Nakkyu's Defence Club]

by Yang Nakgyu

Published 17 Mar.2026 08:57(KST)

Updated 17 Mar.2026 14:46(KST)

<1> Shifting Security Dynamics Across Continents

Editor's Note
More than four years have passed since the Russia-Ukraine war began. There is still no end in sight. On the contrary, military tensions are spreading across continents like a pandemic. With the United States launching airstrikes against Iran, the powder keg in the Middle East is igniting. While Europe now faces threats from Russia, the United States has drawn a line with its "America First" policy and refused to help. European countries have responded by increasing their defense budgets and moving toward security self-reliance. China has its sights set on Taiwan, ramping up its pressure with economic sanctions and gray zone tactics-military actions aimed at achieving security objectives through low-intensity provocations. The United States is also under pressure. While it must keep China in check, restoring naval power is not easy due to the struggling shipbuilding industry. Amidst this global security upheaval, the Korean defense industry has entered a "new normal." Although exports are soaring, a new strategy is required. This article examines the state of global affairs and continent-specific strategies for the Korean defense industry.

The major markets for the Korean defense industry are the Middle East, Europe, and the Americas. In the Middle East, U.S. airstrikes against Iran are ongoing. President Donald Trump of the United States has even hinted at a full-scale war. Since he has stated he will not rule out deploying ground troops to Iran, there is a significant possibility of further large-scale attacks. As Iran launches indiscriminate retaliatory airstrikes not only on Israel but also on U.S. military bases in neighboring Arab countries, the current war is on a path toward expanding into a pan-Middle Eastern conflict. Iran, meanwhile, has adopted a stance of all-out resistance by selecting Mojtaba Khamenei, the second son of Ali Khamenei, as the new Supreme Leader to succeed him.

[K-Defense Season 2 Diagnosis] Defense Market Shaken by Security Instability [Yang Nakkyu's Defence Club]

Middle Eastern countries are gripped by the fear of war. This is the reason for their increased arms imports. The Middle East accounts for 33% of global arms imports. According to the Stockholm International Peace Research Institute (SIPRI), between 2020 and 2024, Qatar (3rd), Saudi Arabia (4th), Egypt (8th), and Kuwait (10th) rank among the world's top 10 arms importers. The main reason Middle Eastern countries are major arms importers is their lack of manufacturing capability. Qatar is a prime example. Although it is the second smallest country in the Middle East, it accounts for 23% of the region's arms imports-surpassing Saudi Arabia. Qatar does not discriminate when selecting import partners. Its air power is diversified, including the United States' F-15, France's Rafale, and Europe's Typhoon. When Saudi Arabia imposed a blockade on Qatar, Qatar decided to strengthen its independent defense capability.

Middle Eastern Countries Account for 33% of Global Arms Imports

Saudi Arabia has changed its policy. It has decided to reduce imports in order to achieve self-reliance in defense. By 2030, Saudi Arabia plans to allocate 50% of its defense procurement budget to domestic equipment. In 2017, Saudi Arabia established the Saudi Arabian Military Industries (SAMI), and since 2021, it has been able to produce some military aircraft components at its own production facilities. Nevertheless, there are still niche markets. With continued tensions with Yemen, Saudi Arabia is strengthening its naval power not only in the southern and northern border areas but also in the Persian Gulf. The Royal Saudi Navy is currently implementing its second expansion program, making large-scale imports of warships inevitable.

The United Arab Emirates (UAE) spends the second most on defense in the Middle East after Saudi Arabia. Last year, its defense budget reached 9.8% of GDP (USD 32.9 billion). In 2019, the UAE consolidated and merged 25 domestic defense companies to create EDGE Group. It subsequently absorbed 13 more domestic companies and acquired stakes in overseas defense firms such as Siatt in Brazil and Anavia in Switzerland. The UAE aims to become a producer of its own weapons, moving beyond maintenance, repair, and overhaul (MRO) businesses. It has also diversified its sources of imports. From 2019 to 2024, it relied on France (42%) and the United States (38%) for arms imports. However, the UAE is now pursuing economic diversification to reduce its dependence on oil. It has begun partnering with countries that offer technology transfer, including Korea (Chunmoo and Cheongung), Indonesia (landing ships), China (advanced trainers), and Sweden (airborne early warning and control aircraft). The most important condition for UAE negotiations is the offset agreement-requiring countertrade, such as the purchase of parts or technology transfer, as a condition for arms procurement. The Korean defense industry’s customized strategies, such as localizing facilities, are essential to meet these demands.

Photo taken on the 2nd by Vento Satellite Company. It shows the damage after a drone attack at the Ras Tanura refinery in Saudi Arabia. Photo by AP Yonhap News

An official from a defense company stated, "About 70% of Middle Eastern countries’ strategic assets are aging, so Korean defense industry exports have increased more than threefold from USD 241.06 million in 2019 to USD 747.48 million in 2024," adding, "Weapons imports will continue to rise in tandem with ongoing military tensions."

The European market is also moving quickly. A drone, believed to be operated by Hezbollah, struck the British Royal Air Force Akrotiri base in Cyprus, an EU member state. In response, France dispatched an aircraft carrier, and major European countries such as Italy and Spain formalized the deployment of naval forces, putting Europe at risk of being drawn into the vortex of war. In Turkey, a NATO member, a ballistic missile launched by Iran was intercepted. In addition, the threat of further Russian invasion and President Donald Trump's pressure on Europe to increase defense spending are also factors driving the rise in defense budgets.

According to SIPRI, as of 2024, Europe’s defense spending has reached USD 693 billion (about KRW 1,003 trillion), the highest since the collapse of the former Soviet Union. This is 113% of the USD 616 billion (about KRW 892 trillion) recorded in 1990. The EU's defense white paper, "Readiness 2030," states that over the next five years, European defense spending will increase by up to EUR 800 billion (about KRW 1,270 trillion) from current levels.

The European Market Has Grown, but "Buy European" Is Stressed

According to SIPRI's "Trends in International Arms Transfers 2024" report, from 2020 to 2024, 64% of arms procured by NATO's European member states were from the United States. French and Korean-made weapons each accounted for 6.5%, followed by Germany (4.7%) and Israel (3.9%).

The issue is the EU’s so-called "Buy European" policy, which stipulates that 65% of defense spending must go toward European-made components. While the intent is to reduce dependence on U.S. weapons, this is a blow to the Korean defense industry. Detailed regulations further require that, in joint purchases among EU member states, components equivalent to 65% of the final product price must be supplied from within the European Free Trade Association (EFTA) area-including non-EU European countries like Iceland, Liechtenstein, Norway, and Switzerland-or from within Ukraine. This makes the requirements even more stringent. As a result, Ukrainian and Norwegian defense companies are likely to benefit significantly. While this policy was designed to reduce Europe’s long-noted vulnerability due to high reliance on U.S. weapons, it also effectively sidelines Korea.

Protectionism Calls for Customized Strategies by Continent

However, the EU has specified that "countries applying for EU membership or candidate countries, as well as those with security and defense partnerships with the EU," are eligible to participate. Korea, which signed a security and defense partnership with the EU in November of last year, is thus, in principle, qualified-providing a sigh of relief. Notably, in "Readiness 2030," the EU specifically mentioned Korea and Japan, stating that it "must seek opportunities for defense cooperation with Indo-Pacific partners." Although no concrete measures were outlined, the EU’s intent to pursue defense cooperation has been made official.

Junwon Lee, a professor at Hannam University, said, "The unprecedented expansion of global defense budgets is being driven by the arms build-up in Europe triggered by the prolonged war in Ukraine, as well as the intensifying competition for hegemony in the Indo-Pacific region." He added, "With each country’s protectionism and Europe’s increasing caution, there is a growing need for specific export preparation strategies tailored to each continent."