With the Middle East war, sparked by U.S. and Israeli airstrikes on Iran, dragging on, countries are rapidly depleting their weapons stocks, and the defense industry is expected to benefit again in a big way.
On the 2nd, the Financial Times (FT) in the United Kingdom reported, "The Ukraine war has driven many defense companies' backlogs and sales to a record high, and the Middle East conflict will bring another influx of funds into this institutional sector as the United States and its allies rush to replenish their weapons stockpiles."
As the Middle East war stretches past a month, the warring parties' weapons inventories are rapidly running dry. According to the Royal United Services Institute (RUSI), in the first 16 days of the war, the United States and its coalition partners used more than 11,200 munitions worth about $26 billion. This includes more than 1,200 Patriot missile defense systems from the global defense company RTX (Raytheon Technologies), hundreds of long-range Tomahawk missiles, and about 300 Terminal High Altitude Area Defense (THAAD) interceptors from Lockheed Martin.
Tom Karako, director of the Missile Defense Project at the Center for Strategic and International Studies (CSIS), said, "The number of offensive and defensive missiles being expended in current operations is, frankly, scary," adding, "This is all the more concerning because these assets are needed to deter conflict and adventurism in the Pacific." Here, "conflict and adventurism in the Pacific" refers to China's potential threat surrounding Taiwan.
As weapons are quickly used up, the United States is moving to expand defense expenditure. The Donald Trump administration is preparing a $1.5 trillion budget proposal for next year's defense, to be submitted to Congress, and the Ministry of National Defense has asked the White House to request an additional $200 billion to fund the war with Iran. Defense Secretary Pete Hegseth said on the 19th of last month, "It costs money to eliminate the bad guys."
Weapons demand is also surging in Gulf states that must respond to Iran's retaliatory attacks. Earlier, on the 19th of last month, the U.S. Ministry of National Defense approved a plan to sell a total of $16.5 billion worth of weapons to three countries: the United Arab Emirates (UAE), Kuwait and Jordan. FT reported that major global defense companies such as RTX, Lockheed Martin and Northrop Grumman are expected to be the biggest beneficiaries of this policy.
The war's benefits are spreading not only to large defense companies but also to small and midsize firms. A single Patriot missile costs more than $3 million and takes months to produce, prompting governments to look for cheaper alternatives. In this war, Korea's LIG D&A (formerly LIG Nex1) drew attention as a medium-range air defense system with lower expense than RTX's Patriot, and the Cheongung-II (M-SAM II) has already been exported to Saudi Arabia, Iraq and the UAE.
Among startups, SpektreWorks of Scottsdale, Arizona, which developed the low-cost unmanned combat attack system (LUCAS) drone, is cited as a prime beneficiary. The company's drone was developed to counter Iran's Shahed drones and has been deployed to the Middle East by the U.S. Ministry of National Defense since the war broke out. In addition, drone firms such as AeroVironment and Unusual Machines are also seen as beneficiaries.
With weapons demand rising, investment capital is also flocking to the global defense industry. Venture capital money is flowing to firms including Titan Technologies in Munich, Germany; Cambridge Aerospace in the United Kingdom; Origin Robotics in Latvia; and Frankenburk Technologies in Estonia. In particular, Israeli defense company Elbit Systems, buoyed by a flood of investment, rose to the top of the Tel Aviv Stock Exchange by market capitalization in mid-month.
For now, the defense boom is expected to continue. Several European startups recently told FT that Middle Eastern countries have reached out to secure weapons supplies. Soren Monro-Andersen, chief executive officer (CEO) of Los Angeles (LA)-based startup Nerous, said, "Since the U.S. and Israeli airstrikes on Iran, the Ministry of National Defense's 'demand signals' have increased sharply."