Global Defense Spending Continues to Ratchet Up as Russo-Ukrainian War Nears One Year Mark

Almost one year on from Russia’s formal invasion of Ukraine, all sides seem committed to staying the course and fighting for as long as it may take. Throughout the past 12 months, assistance by Ukrainian allies in the west, particularly NATO member states, has surpassed the $50 billion mark with no limit on future expenditures in sight. For many years, most NATO countries had fallen short of the alliance’s stated goal to spend 2% of their GDP on defense, but that balance appears to be shifting. 18 of 30 member states are now committed to complying with their pledge in 2023, double the share who complied in 2022.

Rising military spending in North America and Europe will be driven by both regions’ need to re-fill weapons and equipment stockpiles that have been heavily drained by their support for the Ukrainian war effort. In 2022, direct commercial sales from US defense contractors to governments surged by almost 50% and, if the Russo-Ukrainian conflict goes on as brutally as it has, contractors could see continually resilient revenue growth for years to come.

Related ETF: SPDR S&P Aerospace & Defense ETF (XAR)

Friday will mark the first anniversary of the Russo-Ukrainian war, which has permanently altered the geopolitical landscape of the world and is unlikely to end anytime soon. Just this morning, Russian President Vladimir Putin reiterated his commitment to the war as part of the annual State of the Nation address, noting his belief that Western allies providing assistance to Ukraine “intend to transform the local conflict into a global confrontation”. Putin doubled down on the stakes Russia faces, stating that this conflict will ultimately be “a matter our country’s existence”.

On Monday, President Joe Biden made a surprise visit to the Ukrainian capital and gave a set of remarks promising the disbursement of “$500 million” in new security assistance to Ukraine. According to a press release from the Department of Defense, that spend will be closer to $460 million and include supplies of 155mm artillery shells, 120mm mortar rounds, additional ammunition for High Mobility Artillery Rocket Systems (HIMARS), thousands of Javelin and other anti-armor rockets, and several Bradley Infantry Fire Support Team vehicles. These supplies will be provided from Department of Defense (DoD) inventories and constitute the thirty-second drawdown of US military stockpiles for Ukraine since August 2021.

Since the initiation of Russia’s invasion in Ukraine, approximately $29.8 billion has been expended by the US on material assistance to the Ukrainian military effort. Combined North American support is close to the $34 billion mark when you include Canada’s sizeable $4.0 billion in military contributions.

At the same time, Al Jazeera notes that the United Kingdom, Germany, and Poland round out the top 3 among European nations providing military assistance to Ukraine, contributing roughly €7.1 billion, €5.5 billion, and €3.0 billion, respectively. More than 20 other European nations have provided assistance as well. Most recently, MRP covered Europe’s upcoming deployment of a significant number of modern battle tanks, specifically the Leopard 2, to Ukraine throughout the next year.

All of these countries are members of the North Atlantic Treaty Organization (NATO). In 2023,  the cumulative military budget across its 30 member states was set at $2.1 billion, representing a 25.8% increase YoY. Still, only nine NATO countries met the organization’s stated goal for each member state to spend the equivalent of 2.0% of their GDP on defense last year. However, DefenseNews reports 18 have plans to do so in 2023. That is a significant shift from 2018 when…