Middle East defense spending hit $243 billion in 2024, driven by regional tensions and economic diversification, with Israel and Saudi Arabia leading growth.
2025 sees the UAE prioritising economic growth (4.8% projected) and diversifying defence partnerships, including a $15 billion arms deal with South Korea and reduced reliance on the U.S.
Israeli firms like Elbit Systems see increases in upgraded military technology (e.g., AI-enhanced tanks), but face geopolitical shift as Gulf states shift to non-traditional suppliers such as South Korea.
Success for Israeli defense companies depends on balancing technological innovation with alignment to regional strategic autonomy and complex political dynamics.
The Middle East’s defense sector is undergoing a seismic shift, driven by escalating regional tensions, economic diversification, and a strategic pivot toward non-traditional security partnerships. In 2024, military spending in the region surged to $243 billion, a 15% increase from 2023, with Israel’s defense budget alone jumping 65% to $46.5 billion-a figure representing 8.8% of its GDP the second-highest in the world. Saudi Arabia, the region’s largest spender, allocated $71.4 billion to defense, while Iran, despite sanctions, boosted its budget by 40% to over $30 billion. These figures underscore a broader trend: the Middle East now accounts for 9.5% of global defense spending, with nearly all states in the region increasing their budgets year-on-year.
Looking ahead, 2025 is shaping up as a pivotal year. The UAE, for instance, is projected to grow economically by 4.8%, reinforcing its status as a regional hub for international businesses and defense procurement. This growth is attracting foreign investment, including a $15 billion arms deal under negotiation between South Korea and the UAE, which includes joint development of defense systems. Such deals highlight a shift in the region’s defense partnerships, as countries like the UAE seek to diversify suppliers beyond traditional allies. For example, the UAE has suspended F-35 procurement talks with the U.S. due to political conditions, turning instead to South Korean and Russian firms.
This diversification is not merely about procurement but also about economic and strategic resilience. Global investment firms like KKR are expanding into Abu Dhabi, signaling confidence in the Gulf’s long-term economic stability and its capacity to fund defense modernization. These developments suggest that the Middle East’s defense spending is no longer solely a reaction to immediate security threats but a calculated investment in long-term geopolitical positioning.
While Israeli defense companies like Elbit Systems and Israeli Aerospace Industries have secured high-profile export contracts in the UAE and Bahrain, their technological prowess positions them as key players in the region’s evolving landscape. In 2025, Elbit Systems was awarded a $210 million contract by the Israel Ministry of Defense to upgrade Merkava Main Battle Tanks. The project includes AI-enhanced electro-optical sights, advanced target detection systems, and a six-year maintenance plan. Such innovations not only bolster Israel’s own military capabilities but also demonstrate the firm’s ability to deliver cutting-edge solutions that could appeal to regional partners seeking to modernize their arsenals.
However, geopolitical risks remain. The UAE’s pivot away from U.S. defense systems, for instance, illustrates how political dynamics can disrupt traditional export channels. For Israeli firms, navigating these risks requires a dual strategy: leveraging their technological edge while aligning with regional partners’ strategic autonomy. Elbit’s focus on AI-driven upgrades and local production partnerships-such as the South Korean model-could serve as a blueprint for Israeli firms aiming to enter Middle Eastern markets.
The Middle East’s defense boom presents both challenges and opportunities. For investors, the region’s appetite for advanced military technology is clear, but success hinges on understanding the interplay between economic development, geopolitical shifts, and supplier diversification. Israeli firms, with their track record of innovation and adaptability, are well-positioned to capitalize on this dynamic-provided they can navigate the region’s complex political landscape and compete with emerging players like South Korea.
As the UAE and other Gulf states prioritize self-reliance and strategic flexibility, the demand for high-tech, customizable defense solutions will only grow. For Elbit and its peers, the path forward lies in demonstrating not just military superiority but also the ability to integrate into the region’s broader economic and security ecosystems.
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