Demand and Supply: European Defence Procurement against the Backdrop of War

Ukraine has taken the lead in reviving the continent’s defence industry. Will the rest of Europe follow?

With the US commitment to NATO uncertain and the war in Ukraine raging on, Europe’s capacity and willingness to rearm is an open question. More importantly, can Europe revive the military industry needed to support rearmament? According to Titan analyst Marianna Satta, increased European defence spending has undermined its arms industry as the majority of European procurement spending ends up strengthening industry overseas (2026). Nearly 75% of European defence procurement spending goes towards non-European products, as the urgency to procure weapons takes precedence over long-term strategic vision (Ibid). Satta also highlights the fact that defence research and procurement projects the EU’s Permanent Structured Cooperation programme’s (PESCO) defence research and procurement projects routinely fall stagnant: only 10% of such projects have reached completion since 2017 (Ibid).

In an article about Europe’s gunpowder and propellant industry, Swiss defence industry expert Amos Dossi claims the production of ‘weapons, ammunition, and energetic materials’ – the building blocks of military industry – ‘[is] considered redundant and [were] deliberately cut back in recent decades’ across the continent (2024). Once-nationalised powder factories have been privatised, and most subsequently shut down by Europe’s defence giants such as Rheinmetall, Eurenco, KNDS, and Nammo. In Dossi’s view, recent state-backed efforts to revive these basic elements of the arms industry are insufficient. A lack of certainty in the long-term demand for gunpowder production weakens the impetus for reindustrialisation, as state investors are unwilling to commit to developing the necessary supply-chains and expertise to support production. For Dossi, European governments have a responsibility ‘as oligopolistic customers’ to inspire confidence in demand and increase subsidies.

Indicators of Organic Growth in the European Defence Sector

Despite these very real issues with the re-emergence of Europe’s defence industry, there are also signs of organic growth. Europe’s private arms producers are actively investing in expanding their industrial capacity for the medium term. German arms manufacturer Rheinmetall’s investments are a particularly strong example of this: the company is ramping up gunpowder and propellant production, investing billions in restoring old factories in Germany and creating new ones in eastern Europe (Reuters, 2025a & Rheinmetall 2025). According to Reuters, Rheinmetall has invested $600 million into building a new Romanian factory, where construction is expected to conclude in 2029 (Reuters, 2025b). The deferred returns of such a project and the scale of the investment demonstrate Rheinmetall’s confidence in enduring demand for munitions.

Other trends also point to growth in Europe’s arms industry. Over the course of the Russia-Ukraine war, Europe has gradually assumed the role of Ukraine’s main benefactor in terms of military aid. More interestingly, the proportion of European-designed hardware in European arms transfers to Ukraine has grown steadily over the course of the war. In 2022, fewer than 30% of missiles given to Ukraine by European states were European designs. By 2024, this figure stood at 72%. The transfer of armoured vehicles from European countries to Ukraine followed a similar trend.

According to German economic think tank the Kiel Institute for World Economy, of the €10.5 billion allocated by European countries for Ukraine in 2025, at least 4.6 billion was ‘channelled through procurement contracts with defence companies rather than drawn from existing stockpiles’ (Nishikawa & Trebesch, 2025). These contracts were primarily awarded to European defence companies, reinforcing the idea that Europe’s defence industry is on the rise.

Perhaps the strongest example of an innovative and natively European defence industry is Ukraine’s itself. While Kyiv previously relied on supplies of Western armaments, Ukraine is increasingly designing and producing its own weapons, namely drones and loitering munitions. According to the Ukrainian Ministry of Defence (MOU), Ukraine’s defence procurement agency directed $3.8 billion more to Ukrainian from January to July 2025, increasing the share of domestically procured weapons from 44% to 71% (2025). The MOU procured drones almost entirely from domestic industry, with 95% of drone procurement funds directed towards Ukrainian manufacturers (Ibid). Ukrainian drone companies – of which there are over 500 – produce millions of combat drones per year and are increasingly capable of sourcing components domestically (Axe, 2025 & Halstian, 2025).

Although strategic concerns, urgency, and demand have clearly grown in Europe as crises have proliferated, inertia and the desire to return to business-as-usual have at times resulted in indecision or procrastination. After years of brutal war on its own territory, Ukraine cannot afford such luxuries. This urgency makes Ukraine an engine for European security and strategic autonomy going forwards.

The Political Importance of Ukraine to European Strategic Autonomy

It is impossible to forecast exactly how and when the Russo-Ukrainian war will end, Ukraine seems to be successfully defending its sovereignty and is unlikely to falter. Should Ukraine officially enter the European security architecture through EU- and NATO membership after the war, it may well become a leader in revitalising European strategy and military-industrial capacity.

More important are Ukraine’s foreign politics: where Europe in recent decades has usually been reactive and forced to react to outside developments, Ukraine has taken a pragmatic and active approach to shaping events in its favour and improving its chances of winning the war. While Europe’s leadership remains dismayed at Trump’s rhetoric on Greenland or his willingness to entertain Putin, Zelensky has been able to engage productively with him on at least some level. Although it is difficult to say what Trump will ultimately decide, he recently expressed willingness to license Ukraine’s production of Patriot air defence missiles at the NATO summit in Ankara (Cook, Kim, & Fraser, 2026), reflecting increased confidence in Ukraine’s capability on the battlefield.

In a similar vein, Zelensky recently published an open letter to Putin about ending the war. Pointing to Ukraine’s strategic success and unprecedented Russian weaknesses, Zelensky made a pragmatic case for why Putin should consider peace talks. While the proposal’s chance of success was never high, the statement laid out powerful conditions from a position of strength – and notably the insistence on Europe’s inclusion in an eventual political resolution (The Guardian, 2026).

Ukraine’s outsized political agency in this respect is the direct result of its choice to secure its own defence industry and fight proactively. Its leadership has repeatedly signalled that it is seeking partnership with Europe in its endeavours, both in the realm of politics and industry. While European agency would benefit greatly from Ukraine’s inclusion in the EU and NATO, the ongoing war continues to complicate this prospect.

However, there are lessons Europe can learn in the meantime: it is not enough to play Realpolitik. The political agency and strategic autonomy that Europe seeks require industrial capacity and military readiness. Both of these are attainable, as the case of Ukraine has clearly demonstrated. Another key lesson for Europe is identifying and pursuing concrete strategic objectives. Ukraine successfully thwarted any unilateral agreement between Trump and Putin. Zelensky cited acknowledged this achievement in his open letter to Putin, suggesting the Russian leader could ‘see for [him]self that Ukrainian and European issues are not decided in Anchorage’ (The Guardian, 2026). What gave Zelensky’s statement its weight was the combination of political vision and military strength it displayed. Now is the time for Europe to follow his lead.

Bibliography

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