# Industry's Compass Points to Cannons: How Middle East and European Conflicts Are Reshaping Global Production The world is witnessing a radical transformation in its industrial structure, as civilian production priorities give way to defense and military industries. This shift, reminiscent of World War II and the Cold War era, has not emerged from a vacuum. It is a direct response to escalating geopolitical tensions, led by the war in Ukraine and the explosive conflicts in the Middle East — the Gaza war and tensions with Iran. Major powers have realized that national security no longer depends solely on political alliances, but on domestic industrial capacity to meet growing military needs. ## Part I: Global Military Expenditure — Unprecedented Figures According to the latest data from the Stockholm International Peace Research Institute (SIPRI) for 2026, global military expenditure reached a record **$2,887 billion** in 2025, an increase of 2.9% in real terms compared to 2024 — the eleventh consecutive year of increases. The main driver of this surge was Europe, where military spending jumped 14% to $864 billion, the fastest annual growth the continent has seen since the end of the Cold War. In the Middle East, spending stabilized at historically elevated levels of approximately $218 billion, with Israel maintaining a defense budget 97% higher than pre-Gaza war levels, despite a slight decrease in 2025 following the ceasefire agreement. Germany alone saw its military spending rise 24% to $114 billion, surpassing the 2% of GDP threshold for the first time since 1990. ## Part II: Germany's "Zeitenwende" — From Cars to Missiles Germany is the most prominent example of this industrial transformation. Historically, it relied on an export-driven economic model led by its powerful automotive industry. However, economic stagnation, fierce Chinese competition, and declining global demand for vehicles coincided with the outbreak of war in Ukraine, prompting Berlin to declare **"Zeitenwende"** — a historic turning point. In 2025, **Mercedes-Benz** profits fell by nearly half, **Volkswagen** earnings dropped by more than 40%, and **Porsche's** operating profit nearly reached zero. In contrast, Volkswagen entered talks with Israeli firms to produce components for the Iron Dome air defense system. **Schaeffler** — a major automotive parts supplier — announced expansion into drone engine production and armored vehicle systems, expecting defense to account for up to 10% of its revenues. **Deutz AG**, specializing in drive systems, pivoted to supply engines for Patriot air defense systems, drones, and armored vehicles, boosting its revenues by 15% in 2025. **Rheinmetall** is leading this boom, opening a massive ammunition factory in August 2025 with investments exceeding €500 million, producing up to 25,000 artillery shells (155mm) this year, with capacity expected to reach 350,000 units annually by 2027 — making it the world's largest. Job applications at the company rose from 59,000 in 2021 to 175,000 in 2025. ## Part III: The Middle East — Global Demand Catalyst and Industry Localization The repercussions of Middle East conflicts have not been limited to the region; they have extended to revitalize the budgets of global defense companies. **RTX (Raytheon)** revenues rose 9% in Q1 2026 to $22.08 billion, with Raytheon's division growing 10% due to demand for air defense and missile systems, securing a $3.7 billion contract to supply Patriot missiles to Ukraine. On the Israeli front, defense companies experienced an unprecedented boom: **Elbit Systems** revenues rose 16% to $7.9 billion, with backlog orders reaching $28.1 billion (72% from outside Israel). **Rafael** recorded 30% sales growth to 21.7 billion shekels in 2025. Meanwhile, Gulf states recognized the danger of complete dependence on military imports in an unstable region. **Saudi Arabia** raised its military industry localization rate to **24.89%** according to the Vision 2030 annual report released in April 2026, up from just 7.7% in 2016, on its way toward the 50% target by 2030. ## Part IV: The Drone Revolution — When Civilian Factories Become the First Line of Defense The wars in Ukraine and Gaza proved that cheap, commercially available technology like drones can change the rules of military engagement. By 2024, Ukraine alone manufactured approximately 2 million drones, including 1.5 million domestically produced. This intensive reliance forced the global defense industry to adapt rapidly, opening the door for technology startups and civilian companies — such as automotive engine factories — to enter the defense market, blurring the lines between civilian and military industries. The focus is no longer solely on expensive stealth fighters, but on mass production of attack and kamikaze drones, jamming systems, and low-cost air defenses. This technological shift has made it easier than ever for civilian companies like automotive and engine manufacturers to enter the defense market. ## Conclusion The industrial transformation we are witnessing today is not merely a temporary response to passing crises, but a **deep restructuring of the global economy**. While traditional automakers' profits decline, ammunition factories and drone plants flourish. The conflicts in the Middle East and Europe have imposed a new reality: national security requires a flexible industrial base capable of rapidly shifting from civilian to military production. In this new era, factories have become the first line of defense. --- *Sources: SIPRI 2026, Wall Street Journal, Reuters, Al Jazeera, Saudi Vision 2030*