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Gulf States to maintain defense spending despite oil price slump

By Stanley Carvalho

ABU DHABI (Reuters) - Gulf Arab states are poised to continue to spend billions of dollars on defense despite low oil prices causing severe budget deficits forcing Gulf States to introduce austerity measures and cut spending.

Saudi Arabia's total defense budget is forecast at $82 billion in 2016, steadily rising to $87 billion in 2020 while that of UAE is put at $15.1 billion in 2016 reaching $17.0 billion in 2020, according to Teal Group, a U.S-based defense analysis firm which has also forecast increased spending by Kuwait, Qatar, Oman and Bahrain.

"Defense spending is linked to national security and threat perception, not resource prices," said Richard Aboulafia, vice president of Teal Group. Oil prices more than halved in 2016 from their peaks in 2014.

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"Even if low oil prices might complicate the timing of defense deals, it really has little to do with the total medium- and long-term volume of sales," he added.

Saudi Arabia and the UAE's defense spend as a share of their GDP is the highest in the world, according to the Stockholm International Peace Research Institute.

That means big business for arms manufacturers at the biennial International Defense Exhibition (IDEX), starting on Sunday in Abu Dhabi, capital of the United Arab Emirates.

Big contracts at stake include the UAE's requirements for up to 60 fighter jets. Talks have been ongoing with France's Dassault Aviation and Britain's BAE Systems.

Saudi Arabia is in the middle of its Eurofighter and F-15 acquisition programs, but they are due to be completed by 2019, after which the country will need more fighters to meet its ambitious force structure goals.Kuwait has requested 28 Boeing F/A-18 E/F Super Hornets, with an option for a total of 40 aircraft while Bahrain has expressed interest in the Lockheed Martin F-16.

Aside from fighter jets, countries in the region are looking to upgrade missile systems and to buy helicopters, tanks, drones, and other hardware to strengthen internal and external security.

The UAE will announce deals at IDEX 2017, the only time such contracts are awarded officially. At the 2015 IDEX, it announced deals worth $5 billion, up 30 percent over 2013.

"High or low oil prices, defense and security are irreplaceable, we cannot compromise," a senior UAE military official told Reuters.

Around 1,235 companies from 57 countries are exhibiting at the expo, the region’s largest such show.

(Reporting By Stanley Carvalho; Editing by Eric Meijer)