Ukraine’s defence sector is drawing growing interest from Gulf states even as financial pressures mount and European support faces delays, reported Ukraine Business News.

President Volodymyr Zelenskiy said his recent tour of the Middle East yielded “historic” agreements with Saudi Arabia, the United Arab Emirates and Qatar, signalling a potential new source of capital and industrial cooperation for Ukraine’s defence industry.

The agreements go beyond diplomatic support, focusing on practical collaboration in air defence, arms manufacturing and energy. Kyiv has signed an interdepartmental defence cooperation deal with Saudi Arabia, paving the way for contracts, technology partnerships and investment. A separate 10-year intergovernmental pact with Qatar outlines joint defence projects, co-production facilities and technology sharing, while talks with the UAE on security cooperation are ongoing.

Zelenskiy said the aim was not only to build long-term strategic relationships but also to channel investment into domestic arms production, particularly in areas such as naval drones, anti-drone systems and air defence. Analysts say such partnerships could help Ukraine scale manufacturing capacity and reduce reliance on Western stockpiles by anchoring production in joint ventures.

Energy cooperation also featured prominently in the discussions, with Ukraine seeking diesel imports critical for both military logistics and agriculture. Gulf states, with their strong energy base, are seen as natural partners in stabilising supply chains strained by war.

However, the push to attract investment comes against a backdrop of deteriorating investor sentiment. Ukrainian Eurobonds have fallen sharply, declining nearly 14% in March as global appetite for emerging market debt weakened. Analysts at ICU say the downturn reflects broader market anxiety, exacerbated by geopolitical tensions including the war in Iran and stalled peace prospects in Ukraine.

The decline in bond prices highlights the financial constraints facing Kyiv, even as it seeks to expand its defence-industrial base. Delays in external funding have compounded concerns. A planned €90bn EU loan package remains stalled, with Hungarian Prime Minister Viktor Orban continuing to block progress.

During a visit to Kyiv, EU foreign policy chief Kaja Kallas said she hoped the issue would be resolved by June, potentially at the next European Council summit scheduled for June 18-19. She added that an earlier breakthrough could occur at an informal meeting in April, though this would depend on Hungary lifting its objections.

The uncertainty surrounding EU funding and broader reform progress has weighed on investor confidence, with market participants increasingly sceptical about the timeline for financial stabilisation and post-war recovery.

At the same time, Europe is accelerating its own defence industrial response, drawing heavily on lessons from Ukraine’s battlefield experience. German defence group Rheinmetall has announced plans to expand production of its Skynex and Skyranger air defence systems — platforms designed to counter low-cost aerial threats such as Iranian-made Shahed drones used by Russian forces.

Unlike traditional missile-based systems, these platforms rely on rapid-fire cannons, offering a more cost-effective solution against mass drone attacks. Rheinmetall aims to increase output to as many as 400 systems annually by 2027, with manufacturing spread across Germany, Switzerland and Italy.

Parallel efforts are underway in Eastern Europe. Defence firms including Polska Grupa Zbrojeniowa and Frankenburg Technologies are collaborating on the development of low-cost missiles specifically designed to intercept drones. The project, based in Poland, aims to produce up to 10,000 units annually, with testing potentially beginning in Ukraine as early as the second quarter of 2026.