By Dr Majid Khan (Melbourne):
In early 2026, escalating tensions across the Middle East have once again underscored a stark geopolitical reality: major weapons exporters benefit from persistent regional threats, particularly from Iran. While public discourse focuses on security, deterrence, and strategic balance, there is an underlying economic and political dynamic that rarely receives sustained scrutiny the ways in which defense industries and their political allies indirectly rely on the presence of a credible adversary to sustain arms production, sales, and profits.
The Middle East is one of the most militarized regions in the world. For decades, states bordering the Persian Gulf have viewed Iran’s growing military capabilities, especially its ballistic missile arsenal, as an existential threat. Iran possesses the largest ballistic missile program in the Middle East, with short‑ and medium‑range missiles capable of striking targets across the region.
This perception fuels large‑scale arms purchases by neighboring countries. Saudi Arabia, the United Arab Emirates, Kuwait, Jordan, and others have invested heavily in air and missile defense systems, strike capability, radar networks, and advanced aircraft to counter what they see as ongoing Iranian aggression and proxy threats.
In March 2026, the U.S. State Department approved more than $16.5 billion in potential arms sales to three Middle Eastern nations including missiles, drones, radar systems, and upgraded F‑16 munitions in direct response to the Iran conflict. These deals epitomize how heightened threat levels translate almost immediately into defense contracts.
While governments negotiate and justify arms purchases in terms of defense and deterrence, it is indisputable that the modern defense industry operates on a volume‑driven economic logic. Major firms such as Lockheed Martin, Northrop Grumman, RTX, and others rely on consistent orders to sustain production lines that cost billions of dollars to operate and maintain.
Unlike consumer industries where companies can slow production or diversify easily, many segments of defense manufacturing advanced missiles, interceptor systems, fighter aircraft, and integrated air defenses require long lead times, specialized facilities, and continuous funding. These sectors cannot thrive if procurement declines sharply.
That basic economic constraint creates a structural preference (not necessarily conspiratorial, but deeply pragmatic) for ongoing geopolitical tensions that justify continuous procurement. Cut off the need for high‑end weaponry, and production capacities built up over decades and the associated jobs, political capital, and profit margins lose their raison d’être.
Perception matters in defense spending. Iran’s posture its missile capabilities, support for allied militias, and regional influence is consistently framed by both Gulf states and Western capitals as a long‑term security challenge.
Gulf nations have publicly decried the “rising threat from Iran‑backed militias and proxies”, citing fears of destabilization and direct attacks on their soil. Proxy forces such as Hezbollah in Lebanon and Houthi fighters in Yemen often armed with Iranian weapons reinforce the sense that Tehran remains an active threat, even where direct Iranian involvement is contested.
This threat narrative translates into procurement behavior. Nations that feel insecure do not just buy weapons reactively they maintain larger inventories, invest in advanced systems, and plan long‑term modernization programs. This is economically beneficial to defense firms, which gain multi‑year contracts, ongoing maintenance arrangements, and follow‑on sales for upgrades and spares.
Herein lies the heart of the economic argument: if the threat posed by Iran were conclusively terminated through diplomatic settlement, regime moderation, or binding arms constraints then the justification for massive weapons purchases could shrink significantly.
Arms production is influenced by demand forecasts. Large contracts from Middle Eastern states have been a cornerstone of global arms exports for decades. As noted by the Stockholm International Peace Research Institute (SIPRI), conflicts and tensions in the Middle East including the Iran confrontation are key drivers of arms imports worldwide.
If the Iranian threat were perceived as neutralized, states that currently pour tens of billions into advanced defense systems might reallocate budgets. That would mean fewer new orders, reduced need for next‑generation systems, and lower long‑term revenues for the world’s largest defense firms.
In economic terms, the value chain of defense manufacturing from raw materials and assembly to testing and delivery depends on predictable demand. Removing a major source of demand would disrupt that stability. Firms might need to cut production, reevaluate expensive facilities, or seek entirely new markets challenges that are neither trivial nor politically neutral.
Defense procurement is not simply a technical or economic matter; it is shaped by political narratives. Governments and think tanks frame Iran’s intentions in ways that sustain fear and urgency. Even when authoritative intelligence suggests Iran is not actively pursuing certain threats, those assessments can be overshadowed by more alarmist interpretations circulated through media and policy networks.
For example, intense focus on Iran’s nuclear ambitions often presented as imminent rather than speculative has historically driven allies to invest heavily in both offensive and defensive nuclear‑related technologies. Even when credible evidence later emerges that there is no active nuclear weaponization program, the initial threat framing leaves a lasting impact on procurement decisions.
Similarly, political leaders who justify defense spending by referencing Iran’s “ongoing hostility” provide cover for large arms budgets that might otherwise face domestic resistance. Defense jobs, industrial base sustainment, and geopolitical clout are all cited as reasons to maintain or increase spending.
The result is a kind of economic interdependence: defense industry needs persistent threats to sustain production, and governments need perceived threats to justify defense budgets, alliance arrangements, and strategic postures. Iran its missile program, proxy networks, and strategic positioning fits this archetype.
This does not mean that defense firms are consciously promoting conflict, but it does mean that their economic models align with geopolitical environments where adversarial dynamics are stable or escalating.
If Iran were to be fully neutralized as a threat, even if peace were achieved, the immediate economic consequence would likely be a decline in arms orders from one of the most defense‑intensive regions on the planet. Reduced demand would ripple through defense supply chains, affect production schedules, and potentially shrink political support for high defense budgets in exporting countries.
If the goal is to transcend this cycle where weapons producers implicitly benefit from persistent regional insecurity then diplomacy and long‑term strategic planning are essential.
Negotiated Security Frameworks: Binding agreements among Middle Eastern states that create mutual security guarantees could reduce the incentive to amass expensive defense systems.
Confidence‑Building Measures: Transparency around military activities, missile inventories, and defense exercises could lower threat perceptions.
Reduced Weapon Purchases as Policy Tools: Governments could tie foreign military sales to measurable benchmarks in de‑escalation rather than perceived threats.
Economic Diversification: Countries heavily reliant on defense procurement for economic or political reasons could redirect funds to infrastructure, education, and technology sectors.
However, these are exceedingly difficult to implement in regions where mistrust runs deep and strategic rivalry is entrenched.
The interconnected dynamics of regional threat perception, defense procurement, and industrial production mean that Iran as a persistent security challenge plays a central role in sustaining arms demand in the Middle East. For defense firms with global markets, this environment sustains production lines and long‑term revenue streams. For regional governments, it justifies expensive military expenditures.
Eliminating the Iranian threat if it were possible would fundamentally alter the calculus of defense procurement in the Middle East. That, in turn, would affect the global defense industry’s production rhythm. Whether this is good or bad depends on one’s priorities: peace and diplomacy, or robust defense industrial bases.
But the numbers and recent arms deals make clear that as long as Iran is seen as a threat, the mechanisms that drive arms production and sales remain fully engaged and that global defense firms, intentionally or not, have a vested interest in preserving the narrative
