Geopolitical tensions drive Asia’s defence industry ascent

Asian defence sector expands as countries worldwide raise military budget amid heightened tensions
South Korea's global customer base highly diversified; backed by supportive policies, fast turnaround
South Korea dominates LNG vessel production due to technological expertise, relatively low geopolitical risk

National security has moved to the forefront of policymaking, as rising geopolitical tensions- including conflicts in Europe and the Middle East - prompt countries worldwide to strengthen their militaries and energy security. This focus has opened opportunities in Asia's defence sector, where South Korea has been noted for its technological expertise and rapid turnaround times.

Geopolitical tensions drive Asia's defence industry ascent, led by South Korea

Countries worldwide, including NATO members, are boosting defence budgets, reflecting heightened focus on national security. In Asia, China, India, Japan, and South Korea are following suit, while prioritising domestic arms production to reduce dependence on imports. This supports the growth of local manufacturers, with some expanding their footprints overseas. A Singaporean defence company recently won a contract to supply military land systems to Qatar, while a Japanese defence firm has secured deals to build warships for Australia. India's state-owned company is also exporting defence products and services to countries across Asia, Europe and Africa.

South Korean defence sector rally on strong exports to world countries

Industry reports highlight South Korea's growing role among regional peers. Between 2021 and 2025, it was listed among the world's top 10 arms exporters, with the ambition of becoming one of the world's top four largest players by 2030. The country is raising its defence budget by 7.5% this year, with favourable policies supporting investment in research and development and small- and medium-sized enterprises.

The growth prospects of South Korea's defence industry underpin the sector's rally, with key players surging roughly 110% to 195% in the past year. South Korean companies now supply a range of weaponry — including artillery, missiles, tanks, fighter jets, warships, and defence systems — primarily to countries in the Middle East, Europe and Asia. Global clients favour South Korea for its speedy turnaround, and flexible engineering, which enable compatibility with different systems, including NATO platforms. Last year, South Korea ranked No.2 in supplying weapons to European NATO members.

The development is evident at the company level, where firms have continued to secure global contracts. A South Korean shipyard is teaming up with a US shipbuilder to construct US navy auxiliary ships. Another defence manufacturer is set to produce propellant and modular charge systems for Washington from a US-based facility.

Energy stability key to national security; South Korea dominates LNG vessel production

Energy has become an increasingly critical component of national security. LNG has been in focus in recent years as nations shift away from Russian gas. Germany and Greece, for instance, are investing in LNG terminals, while many European nations are diversifying their fuel sources by turning to Norway, the Middle East and the US. In Asia, Japan and South Korea are increasing imports from the US and Australia. The US, now the world's largest LNG exporter, has seen exports increase nearly 30-fold from 2016 to 2025.

Long-distance LNG shipments to Europe and Asia, combined with rising demand and new projects, are driving a mounting need for LNG vessels, with the industry estimating that more than 650 new ships could be required by 2040.LNG vessel construction is a highly specialised process that involves cooling natural gas to about -160°C for low pressure storage during transport. Thanks to their technology know-how and reliable delivery, South Korea's top three shipbuilders command about 70% of the world's LNG carrier market, with order backlogs exceeding 200 vessels as of early 2026. Global customers also favour Korea-built vessels, as the country is less likely to be caught in geopolitical crossfire amid heightened tensions. Shares of the trio have rallied about 85% to 90% in the past year, and their 2025 earnings growth ranged from more than double to over eightfold.

Conflict in the Middle East inevitably triggers short-term market volatility, but industry fundamentals in Asia's defence sector appear resilient. With geopolitical tensions likely to remain elevated, South Korea may continue to encounter opportunities in the defence space across the region.