Plunging oil price to reset global defence budgets: IHS

LONDON - Global defence spending is likely to remain constant for the next two years as tumbling oil prices cut the budgets of Middle East exporters, but swell the coffers of Asia-Pacific importers, defence analysts IHS said Friday.

With Brent crude recently falling below the symbolic US$60 dollar (S$78) mark - a 50 per cent drop since mid-June - the defence budgets of countries in the Middle East and North Africa are likely to fall to normal levels, having grown by almost 30 per cent between 2011 and 2014, according to the study, released in London.

By contrast, "falling oil prices are expected to have a net positive effect upon economic growth in China, India and Indonesia and will aid government finances," said Craig Caffrey, senior defence budgets analyst at IHS Aerospace & Defence.

"Key regional markets such as Indonesia, Malaysia and South Korea have outlined plans for increases in military spending while growth in India and China is expected continue at rates above five per cent in real terms," he explained.

Global annual spending on defence grew by 0.85 per cent to US$1.597 billion in 2014, the first increase in four years, aided by a slowdown in US budget cuts and a 17.8 per cent growth in Russian military spending.

Defence budgets should continue to stabilise following the chaos of the financial crisis, although global political developments could still play a major role, according to the report.

"Despite the continued importance of the global economic climate upon defence resourcing, the crisis in Ukraine and the emergence of Islamic State (IS) in Iraq and Syria over the course of 2014 have demonstrated the extent to which geo-political developments can still have a significant impact upon military spending," it said.

The US firm also predicted that by 2019, NATO "will fail to account for the majority of worldwide defence expenditure for the first time in its history having accounted for almost two-thirds of global spending as recently as 2010."