Iran conflict disrupts economies, but experts predict rise in defense spending

BEIRUT — Amid the conflict in Iran, oil production facilities and shipping lanes — namely the Strait of Hormuz — have been targeted, disrupting economies both locally and globally.

Exports like liquefied natural gas from Qatar and the United Arab Emirates, along with oil from Kuwait, Bahrain, Saudi Arabia and the UAE have seen total or partial interruptions, Kristian Coates Ulrichsen, fellow for the Middle East at Rice University’s Baker Institute, told Breaking Defense. The interruptions come in part from attacks on Ras Laffan in Qatar, which decreased the country’s LNG exports by 17 percent, per BBC, and attacks on the Strait of Hormuz, through which more than 20 percent of the world’s oil and LNG pass, according to the US Energy Information Administration.

“Damage to critical energy infrastructure is another factor that has risen considerably and, in Qatar’s case, will be costly both in terms of the cost of repair and foregone revenues from the planned expansion of LNG output, which was set to come onstream later this year and next year,” Ulrichsen said.

These disruptions have also caused economic effects across the globe including an increase in US gas prices of over a dollar per gallon from last month.

Such economic disruptions are likely to have an impact on the national budgets for several Gulf nations, but experts told Breaking Defense the nature of the threat means one industry in particular will likely be spared from any cost cutting: defense.

“Defense spending may go up rather than down and will as a matter of urgency be reassessed to better focus on the challenges of a drawn-out conflict that now face the Gulf States,” Ulrichsen said.

Ulrichsen and others said spending should only increase especially when it comes to capabilities to counter attacks on energy infrastructure in the future.

“To counter these [Iran’s] asymmetric threats, Gulf states are compelled to accelerate military modernization, prioritizing advanced air defenses like Patriot and THAAD upgrades,” Retired Kuwaiti air force Col. Zafer Al Ajami told Breaking Defense. “This strategic pivot necessitates fiscal reallocation; non-essential public projects, social subsidies, and welfare expansions may face significant cuts to preserve space for defense spending.”

As part of that investment, Sascha Bruchmann, a research fellow for defense and military analysis at the International Institute for Strategic Studies explained that Gulf nations will have to also focus on replenishing missile defense capabilities. 

He added that “military spending will also look closer at c-UAV solutions that are battle-proven and effective. It was a trend at shows and in academic discussions over the past years, but many governments failed to truly implement at scale.”

The focus on air defenses could mean shifting investments away from tanks and other heavy armored vehicles, Bahrain-based strategic expert and political researcher Abdullah Al Junaid noted.

“We may also [see a] beef up of ISR (integration of aerial components and naval forces). The Desert Shield Forces role may change to a more robust force to address future threats as a rapid deployment/crisis containment,” he told Breaking Defense. (Desert Shield Forces is the US and international coalition deployed to Saudi Arabia in 1990 to aid Kuwait in stopping the Iraqi invasion.)

But an increase in defense spending isn’t a guarantee of security, Kristian Alexander, senior fellow at the United Arab Emirate-based Rabdan Security and Defence Institute, said.

“Effectiveness increasingly depends on integration, coordination, and the ability to sustain defense operations under prolonged pressure. In doing so, Gulf states are adapting to a security environment in which economic infrastructure is as much a target as military assets, and where the ability to absorb and mitigate attacks is becoming just as important as the ability to deter them,” he said.