Our View:

The new report is forecasting the UAE’s defence budget to continue increasing in absolute, but not relative terms for the next five years. However, we note that if the current dip in oil prices endures, some potential is there for negative fallout in defence spending. Our view is that the general increase in spending and procurement enables the UAE to adopt a more assertive defence posture in the Middle East and North Africa region.

If the current dip in oil prices endures, there may be negative fallout for defence spending, although it is too soon to determine given that the country boasts substantial reserves. We think that continued decline in oil prices may seem like bad news for the government’s strategy to develop the defence industry as a diversification measure away from the hydrocarbons markets. However, we think that volatility in the hydrocarbons market also has the potential to boost spending in the defence sector, particularly if the government has an increased urge to develop alternatives sooner rather than later as a result of the current slump in prices.