Saudi Arabia Forced to buy American Weapons due to Rising Tensions with Iran

The Saudi Arabian defense industry is valued at US$52.9 bn in 2013 and is one of the largest defense markets globally. During the review period (2009-13), the country’s defense expenditure grew at a CAGR of 10.87%, and is expected to record a CAGR of 7.92% over the forecast period (2014-2018), to value US$77.3 bn by 2018. The key factors driving the growth include increases in cross-border insurgency, domestic unease with the ruling regime, the rising number of Al-Qaeda training camps in the country, an increasing focus on oil infrastructure security, regional rivalry with Iran and the desire to emerge as the most influential nation in the Middle East. Saudi Arabia’s substantial defense budget, coupled with the limited capabilities of domestic defense firms, is attracting foreign OEMs into the market.  Saudi Arabia’s robust economy enables it to invest large amounts of money in the procurement of defense equipment and, over the forecast period, the nation is expected to increase its defense expenditure to an average of 8.8% of Gross Domestic Product (GDP).

Rising tensions with Iran forced the country to purchase American weapons at record levels in recent times. Since the nation does not share a border with Iran, its arms purchases focused on expensive warplanes and complex missile defense systems. The US$60 bn agreement with Saudi Arabia that was formalized in 2012 included the purchase of 84 advanced F-15 fighters, more than 100 helicopters, a variety of ammunition, missiles and logistics support, and upgrades of 70 F-15 already in service. In addition to upgrading its air force, the government is also entering into deals to strengthen its ground forces.

Saudi Arabia is one of the world’s largest importers of military hardware and the limited capacity of its emerging domestic defense industry means that the country is heavily dependent on foreign arms. However, the government tried to improve the situation by introducing an Economic Offset Program, a tool to encourage foreign companies to establish joint ventures (JVs) with Saudi Arabia’s domestic organizations. The country is likely to become one of the five largest importers in the forecast period due to major outstanding orders such as the F-15 combat aircraft from the US and the Typhoon combat aircraft from the UK. With the US, Canada, and France already supplying armored vehicles to Saudi Arabia, Germany is also expected to do so during the forecast period.

Related Research on

Future of the Saudi Arabian Defense Industry

Over the forecast period it is expected that key opportunities will emerge within missile defense systems, helicopters, infantry fighting vehicles, tanks, fighter planes, and unmanned aerial vehicles (UAVs).

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Source: ASDReports - Market Research
Date: Aug 7, 2013