Middle East arms race: Iranian threat spurs Gulf nations to upgrade defenses.

• Author: Magnuson, Stew
• Position: Middle East Defense - Company overview

ABU DHABI, United Arab Emirates -- The United Arab Emirates government in December announced a deal to buy two Patriot missile battalions from The Raytheon Co.

When it comes to air-and-missile defense, the United Arab Emirates is sparing no expense to guard the nation against a looming Iranian threat. And it has the cash to do so.

The coastal nation--just 35 miles across the Strait of Hormuz from Iran--is flush with oil revenues and well within range of Iran's missiles. Despite the recent downturn in petroleum prices, the UAE's spending on defense is continuing unabated.

Dan Darling, a Middle East defense analyst with Forecast International, predicted the UAE, Iraq, Saudi Arabia and Israel will collectively spend about $70 billion on defense in 2009. The UAE will account for about $7 billion of that.

Oil-rich Gulf nations still have large cash reserves saved from years of steadily high petroleum prices. One of their biggest expenditures is on air and missile defenses to protect critical assets such as oil fields.

Under a $3.5 billion deal, the UAE by 2012 will receive two air-defense weapons that can be deployed from Patriot launchers: Lockheed Martin's Patriot advanced capability-3 (PAC-3) and Raytheon's guidance enhanced missile.

"What the UAE has asked the U.S. government for is a comprehensive integrated air-and-missile defense effort ... and Patriot is the base piece of that," said Tim Glaeser, Raytheon's director of business development and strategy for Patriot programs. "This remains a volatile region and there are threats out there. Basically if the countries want to continue to embark on a program of growth and seek stability, they need peace, and if you want peace, you have to have security."

Glaeser said Raytheon has engaged in various levels of talks about selling the Patriot system to all the Gulf Cooperation Council nations. The GCC is a security alliance that includes the UAE, Saudi Arabia, Bahrain, Qatar, Kuwait and Oman.

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Raytheon has received permission from the U.S. government to share technical data on the air- and missile-defense system with Qatar. Kuwait and Saudi Arabia already have the Patriot system in place. The company is awaiting word from Saudi Arabia on whether it wants to upgrade its program, Glaeser said.

Near the top of the list of assets that the UAE wants to protect are its oil fields, which are mostly offshore. Its new and towering cities, Abu Dhabi and Dubai, with their gleaming...