How the war is shaping Saudi defense spending

The real test of whether the war reshapes Saudi defense spending is still to come. The Kingdom spent SAR 124.6 bn on the military in 1H 2026, up 12% y-o-y and about 45.8% of the SAR 240 bn annual allocation (pdf), but its 2026 budget was set months before the US-Iran war and the recent intensification of Houthi attacks. That makes 2H the real test of whether the crisis pushes spending beyond what was already planned, and the early signals — a run of US arms approvals, new defense alliances, and a localization push — suggest Riyadh is adjusting.

Don’t expect a sudden jump, though. Zubaida Karim of the Sipri Military Expenditure and Arms Production Program tells EnterpriseAM that Saudi military spending will stay high as regional security pressures persist, adding, “based on current trends, I believe it will gradually increase and remain quite stable rather than experiencing a sudden jump compared with 2025.” Saudi Arabia is already the Gulf’s largest military spender — at USD 83.2 bn in 2025 per Sipri, up a modest 1.4% on 2024 — so it enters this phase from a high base rather than ramping from scratch.

The most likely shift will be in the mix: Low-cost missile and drone attacks are pressuring air defenses, energy facilities, and maritime security, which points spending toward interceptors, surveillance, counter-drone systems, and layered air defense. The problem is that the Kingdom leans heavily on expensive US-made systems like Patriot and THAAD, according to a Sipri note.

But detailed data is hard to come by. “The lack of disaggregated data when it comes to military spending makes it difficult to determine how much is specifically allocated or invested in missiles and drones,” Karim says.

The queue problem

Higher spending doesn’t ensure faster deliveries. The heavy reliance on US suppliers creates potential delivery delays if Washington prioritizes its own stockpiles and wartime needs — a risk most acute for high-demand air defense systems and precision-strike munitions. Patriot PAC-3 production is set to rise from around 620 missiles in 2025 to 2k by 2032, but expanding that capacity takes years, according to Sipri.

The approvals are stacking up regardless. Washington cleared a potential USD 9 bn sale of 730 Patriot interceptors in January, a USD 2 bn sale of 10k APKWS-II guided rockets over the summer, and a further USD 5.75 bn package this month covering JDAM-ER systems and AGT-1500 engines.

Riyadh is not waiting on Washington alone. The Kingdom signed a framework with Ukraine for joint investment, technology transfer, and procurement during Ukrainian President Volodymyr Zelenskyy’s visit to Riyadh, with interest in cost-effective alternatives to expensive US-made interceptors. It has also contracted South Korean air defense batteries.

What’s the short-term play? Karim’s read is that the near-term response leans toward more imported capability even as the Kingdom slowly works toward its localization target. That tracks with what Albert Vidal of the International Institute for Strategic Studies told us earlier this month, that even with one of the region’s strongest air defense networks, “Saudi Arabia, like other GCC states, is seeking to replenish its air defense stockpiles.”

Saudi Arabia can afford higher defense spending but not without trade-offs. Government reserves stood at SAR 399.1 bn at the end of 1H 2026, giving fiscal headroom, but the budget ran a SAR 160 bn deficit, fully debt-financed, lifting public debt to SAR 1.69 tn. That’s more absorbable while oil revenues hold, and harder if war costs, export disruption, and weaker non-oil growth arrive together.

Building it at home

The longer-term answer is to make more of it domestically, Karim said. The Kingdom puts about 25% of its military procurement in domestic production and is targeting 50% by 2030 — a goal Karim called difficult given continued reliance on imported systems. Success, she said, “will mainly depend on how swiftly and quickly it can grow its domestic industry.”

REMEMBER- The buildout is drawing in foreign primes and local capital. At the World Defense Show, state-owned Sami launched Rukn, a platform to develop local defense suppliers, and the Defense Ministry signed 28 contracts tied to the 50% localization target. Lockheed Martin is working with Pioneers Technical Systems on the first Saudi ground depot for PAC-3 missile maintenance; Riyadh is exploring local assembly of Gökbey helicopters; US-based Vector is pursuing local manufacturing of its drone systems; and Masna Ventures has launched a USD 100 mn fund for Saudi defense-tech companies.