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17 Jan 11. The Middle East defense spending binge is set to grow further in coming years as Gulf Arab nations embark on military modernization programs. In its annual Middle East market analysis, Forecast International expects defense investment across the region to expand by 14 percent over the next five years. The region’s continuation as a leading global area for military expenditure is being spurred by Saudi Arabia and the United Arab Emirates. Medium-term regional defense growth will stem from not only the two core Gulf Cooperation Council (GCC) members, but also Iraq. Faced with internal security challenges, plus the need to solidify its borders, Baghdad will invest an average of $12.5bn annually through 2015 towards the advancing development of the Iraqi Security Forces (ISF). The principle area of Iraqi investment going forward will be in bolstering the Iraqi Air Force (IQAF). The IQAF plans to field 500 fixed- and rotary-wing aircraft by 2020; its pressing needs include advanced jet trainers and combat aircraft. The impending exodus of U.S. forces from Iraq combined with a broad range of equipment requirements means that the pace of fitting-out the ISF will have to accelerate if the central government is to capably provide security. Such progress may be hindered if Pentagon investment in the Iraqi Security Forces Fund dries up due to Washington’s own budgetary pressures at home. Since 2005 the U.S. Department of Defense has allocated about $19.1bn to the fund. As a result of U.S. financial largesse the bulk of Iraqi equipment orders flow through the Pentagon’s government-to-government Foreign Military Sales (FMS) channel ensuring U.S. defense companies are the beneficiaries.
“Although the Iraqi government would like to diversify its supply chain, the U.S. remains its principal provider of military equipment,” says Forecast Middle East defense analyst Dan Darling. “So long as U.S. funding towards the development of the new Iraqi Security Forces continues, this is unlikely to change. Should Washington turn off the tap, others will surely step into the void, including France, Russia and suppliers from Eastern Europe.”While Iraq provides a robust market opportunity due to the ongoing ISF rebuilding process, the scale of investment in the Gulf region is higher. Spearheaded by a $60 billion package of approved FMS agreements, Saudi Arabia aims to upgrade its air fleet with new and refurbished F-15 jet fighters and new helicopters including up to 70 Boeing AH-64D Apaches, 36 Boeing AH-6i Little Birds and 72 Sikorsky UH-60M BlackHawks. In addition there is mention of a major Royal Saudi Navy upgrade program also being pursued through Pentagon FMS channels that could be worth up to $30bn. Mirroring the Saudi efforts, the UAE is also undertaking a modernization of its Air Force. This modernization includes an approved FMS agreement for the purchase of 60 AH-64D Apache helicopters. The UAE is also in the process of considering successors for its fleet of Mirage 2000 jet fighters in what may ultimately prove to be a 60-unit buy worth up to $10bn. Additional areas that the UAE may seek to upgrade include littoral protection and air defense. Concrete defense cooperation amongst the six GCC members continues to be elusive, leaving each nation to pursue their needs independently. Thus the UAE, Kuwait and possibly Qatar are each contemplating a buy of the Dassault Rafale combat aircraft while the Saudis and Oman seek U.S.-built solutions to their jet fighter needs. But despite the lack of progress within the GCC in terms of a common procurement approach, the one constant is that at the national level defense investment remains robust, generally representing between 10-20 percent of total state expenditure annually. For 2010 combined GCC defense/security investment was $68.3bn. Forecast International expects that total to increase to $73.4bn in 2011 and continue growing to $82.5bn by 2015.
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