Dynamics of Military Spending in the GCC Countries: A Deeper Insight into the Role of Oil Revenues, Geopolitical Risks, Enmities, and Alliances

This paper aims, on the one hand, to examine the impact of oil revenues and geopolitical risks on military spending in the GCC countries over the period 1980–2022, using the Arellano-Bond difference GMM estimator, and, on the other hand, to investigate the impact of Iran’s military spending and the US military presence on the GCC countries’ military expenditures. The main findings emphasize that the GCC countries’ military spending is positively and significantly related to oil revenues and geopolitical risks. Hence, military expenditures, which have increased significantly following the dramatic increase in oil revenues, constitute an unbearable burden on the GCC countries in lean times. If the world happens to witness a drop in oil prices, the GCC governments will find it extremely difficult to maintain the same levels of military spending. Furthermore, the GCC countries’ military spending is positively and significantly affected by Iran’s military expenditures. Intriguingly enough, these Gulf countries have a pronounced tendency to reduce their military expenditures, free-ride on the US military presence, and rely on American security guarantees.