Our View: Saudi Arabia’s domestic defence sector remains small on a global comparison. As such, the
country relies heavily on imports to meet the requirements of its armed forces. Saudi Arabia’ military
expenditure is among the highest in the world, driven by government concerns over the perceived
strengthening of Iranian influence in the region; the external as well as internal expansion of Islamist
militant groups hostile to the House of Saud (such as the Islamic State and AQAP); and rising sectarian
tensions in oil-rich Eastern Province, where a large number of Shi’a Muslims reside. As a result of these
dynamics, we expect demand for military equipment to remain strong over the next five years - particularly
in the sea segment, as the Saudi Navy embarks on an extensive modernisation programme of its Eastern
In 2015 we expect Saudi Arabia’s defence spending to amount to USD56.7bn, representing a decline of
4.1% year-on-year (y-o-y). This reduction reflects a slowdown in overall economic growth than a lowering
of the government’s defence sector budget allocation - as illustrated by the fact that military expenditure as a
percentage of GDP remains high at a forecast 7.6%. The Saudi-led campaign against Houthi rebels in
Yemen; its strengthening of border security to prevent terrorists and criminals from entering the country; its
support for Sunni allies in the wider region; as well as its continued investment into state-of-the-art military
equipment to counter the threat of its regional rival Iran will require substantial funding over the course of
the year.