Geopolitical Risk and Defense Spending in Eurasia: Strategic Opportunities for Western Aerospace and Defense Firms

The Eurasian defense landscape in 2025 is defined by a confluence of geopolitical risks and unprecedented spending growth. As global defense expenditures approach $2.56 trillion, Western aerospace and defense firms face a dual challenge: navigating volatile regional dynamics while capitalizing on lucrative procurement opportunities. This analysis examines how rising tensions with Russia, China's strategic expansion, and regional conflicts are reshaping defense markets, and how Western companies can position themselves to benefit from these trends.

Eurasian Defense Spending: A Geopolitical Catalyst

Defense budgets across Eurasia have surged in response to escalating threats. The United States remains the largest spender at $920 billion, prioritizing nuclear modernization and global military presence, according to the defense budget rankings. China's $266.85 billion allocation underscores its focus on naval expansion and cyber capabilities, while Russia's $126 billion budget reflects its commitment to regional dominance despite economic constraints. India and Saudi Arabia, at $75 billion and $74.76 billion respectively, are investing heavily in modernization and advanced weaponry (the same source provides these country figures).

The EU's Security Action for Europe (SAFE) program has emerged as a critical driver of opportunity. With €150 billion in funding for joint procurement and technology development, the initiative allows up to 35% of project value to be sourced from third-country subcontractors, including U.S. firms, according to a National Defense analysis. This mechanism is particularly relevant for high-tech systems like AI, electronic warfare, and missile defense, where Western firms hold competitive advantages. For example, Raytheon secured a €5.1 billion contract for Patriot air defense systems in Germany, demonstrating the potential for U.S. firms to penetrate European markets despite local sourcing requirements.

Eastern Europe: Countering Russian Aggression

Eastern Europe has become a focal point for defense modernization. NATO's Operation Eastern Sentry and the U.S. "4+2" force posture (four brigade combat teams and two divisional headquarters) aim to deter Russian incursions, according to a CSIS analysis. Poland, which increased its 2024 defense budget to €88.5 billion, is a prime example of this trend. Its Poland Provided Logistic Support (PPLS) initiative reduces U.S. financial burdens while enabling Western firms to integrate into local supply chains.

The EU's ReArm Europe Plan further amplifies opportunities, with 800 billion euros allocated for defense spending and innovation through 2029 (as the National Defense analysis notes). Programs like France's Scorpion initiative and the UK-Italy-Japan Global Combat Air Programme (GCAP) offer long-term revenue streams for firms with advanced manufacturing capabilities. However, Western companies must navigate EU policies favoring domestic suppliers, such as the European Defence Industrial Strategy (EDIS), which targets 50% local sourcing by 2030.

Middle East: Hedging Against Chinese and Russian Influence

The Middle East's defense market is evolving as Gulf states seek to counter Russian and Chinese influence. The UAE's EDGE Group has transitioned from an importer to a regional defense competitor, partnering with European firms like Estonia's Milrem Robotics to develop unmanned systems, according to a Breaking Defense report. Similarly, Saudi Arabia aims for 50% self-reliance in defense production by 2030, creating opportunities for Western firms to co-produce artillery components and drones.

However, the region's reliance on Russian and Chinese arms remains a challenge. Leaked Russian documents reveal Iran's $6.5 billion contract for 48 Su-35 fighter jets from Russia, as detailed in a report on leaked Russian documents. China's dual-use exports to Russia also sustain its war effort in Ukraine. U.S. and EU firms must leverage friendshoring strategies-such as joint production agreements with Gulf partners-to secure a foothold in this competitive market (the Breaking Defense piece discusses friendshoring options).

Central Asia: A New Frontier of Sino-Russian Collaboration

Central Asia's defense landscape is increasingly shaped by Sino-Russian partnerships. Kazakhstan and Uzbekistan have deepened ties with both powers, with Russia supplying advanced air defense systems and China facilitating infrastructure projects under the Belt and Road Initiative, according to a Hudson analysis. A notable example is Russia's 2023 agreement to equip and train a Chinese airborne battalion, including technology transfer for domestic production.

For Western firms, opportunities in Central Asia are limited but growing. The EU's emphasis on strategic autonomy and the U.S. push for industrial resilience could drive investments in cybersecurity and counter-drone technologies to counter hybrid threats, as the Hudson analysis highlights.

Challenges and Strategic Recommendations

Western firms must address regulatory and geopolitical hurdles. The EU's 65% local sourcing rule for SAFE projects has significant implications for market entry, and U.S. outbound investment restrictions under Executive Order 14105 complicate cross-border deals, according to a Morgan Lewis briefing. Additionally, China's expanding influence in Eurasia-through arms sales and economic leverage-poses a long-term risk (leaked Russian documents provide related examples).

To succeed, firms should:
1. Establish local partnerships with European primes (e.g., Airbus, Rheinmetall) to navigate procurement rules (the National Defense analysis discusses partnership pathways).
2. Diversify supply chains to mitigate risks from U.S.-China tensions and Russian sanctions (the Morgan Lewis briefing outlines regulatory and supply-chain implications).
3. Leverage U.S. and EU funding for R&D in AI, hypersonic defense, and cyber capabilities (friendshoring strategies in the Breaking Defense report highlight funding and co-production opportunities).

Conclusion

Eurasia's defense spending boom presents a $2.5 trillion opportunity for Western aerospace and defense firms. While geopolitical risks persist, strategic alignment with EU initiatives, Eastern European modernization, and Middle Eastern self-reliance efforts can unlock significant value. Companies that adapt to regulatory frameworks and invest in cutting-edge technologies will be well-positioned to thrive in this dynamic market.