After two decades of relative peace, a new arms race is getting underway, fuelled by rising exports of weapons by Russia and the US headed largely for Southeast Asia and the Middle East. Countries bought a record breaking $65bn of arms in 2015 and will spend even more in 2016, according to the annual "Global Defence Trade Report" released on June 13 by IHS Jane's.

"The global defence trade market has never seen an increase as large as the one we saw between 2014 and 2015," said Ben Moores, senior analyst at IHS Jane's. "2015 was a record-breaking year." Markets rose $6.6bn, bringing the value of the global defence market in 2015 to $65bn.  Jane's forecasts that the market will increase further to $69bn in 2016.

Arms is big business and the trade is being fuelled by the Ukraine conflict in Europe, civil war and terrorism in the Middle East, and a feared conflict-to-come in the South China Sea of Asia. Spending in Southeast Asia soared, with several countries in the region ramping up their defence spending.

The US continues to be out on its own in the exporter ranking with $22.9bn worth of arms sold in 2015, followed by Russia in second place with $7.4bn in 2015. Both countries are expected to increase their exports to $24.4bn and $7.7bn in 2016, according to Jane's. Russian defence industry officials previously cited a sales figure twice as great, apparently citing some contracts still in progress.

Tensions behind the spike in sales are unlikely to subside in the near term. Following Russia's annexation of Crimea in 2014 and its use of Russian soldiers to destabilise the Donbas, Nato has responded with plans for a rapid reaction force along the EU border with Russia. Poland and the Baltic states also opened talks in June on building up better joint air defences to stymie a potential Russian attack; as recent studies have shown, Nato would be incapable of stopping a rapid Russian invasion of the Baltics if it came to war.

On the other side of border Russia has been beefing up its military presence in its European theatre, although a mooted Russian airbase in Belarus that would house Russia's most advanced fifth generation Sukhoi F35 fighters has just been put on ice.

Russian objections to Nato's expansion eastwards were stoked again in May when the first phase of the long discussed European missile shield went online with a new base in Romania. Another is due to open soon in Poland. While nominally there to protect Europe from missile attacks by rogue nations in the Middle East, the bases could also give the Western alliance the capability of shooting down Russian nuclear missiles, weakening Moscow's retaliatory capability and thus making a nuclear offensive more conceivable.  Russian worries about Nato's intentions go back to former US president George W. Bush's decision to unilaterally withdraw from the ABS missile treaty in 2002, scuppering a key element in the security arrangements to ensure a limit on arms in Europe.

If that were not enough to unsettle the Kremlin, both sides have been engaging in large-scale sabre rattling. Russia has run a series of massive military exercises over the last two years and Nato is responding this summer with its own. Poland is about to host the largest multinational military exercises on its territory in more than a decade. The Anakonda-16 exercises, involving 25,000 troops from more than 20 countries, are intended to showcase Nato unity a month ahead of the alliance's summit in Warsaw in July. The US Army recently drove tanks through the Moldovan capital Chisinau in a show of strength and will play a key role in the Anakonda-16 war games, sending tanks and soldiers from its bases in Germany in a simulated mission to rescue the Baltic states from a Russian attack.

Quite apart from the rising military tensions, the defence industry is a good business for many European countries. After the US and Russia, arms exports are also important for Germany ($4.8bn in 2015, $4.8bn in 2016), France ($4.8bn, $6bn) and the UK ($3.9bn, $4.3bn), with France showing the fastest growth and expected to knock Russia out of the number two biggest exporter slot in 2016. "France has doubled its backlog of orders from $36bn in 2014 to $55bn, meaning that $55bn worth of defence equipment has yet to be exported. This increase means that France will overtake Russia as the second-largest global defence equipment exporter,"  Jane's said in its report.

Arming the Middle East 

All these weapons are not only destabilising Europe, but the effect is probably even worse in the Middle East, a traditional hub of Russian arms sales which is rising up the rankings of importers and will only be encouraged following Russia's short but effective campaign in Syria launched last autumn. Russia will sell $14bn worth of arms in 2016, the head of the Federal Service of Military and Technical Cooperation Alexander Fomin said on May 18, calling the military operations in Syria "good advertising" for the country's military hardware.

The ranking table of importers is led by Saudi Arabia ($9.3bn in 2015, $10.1bn in 2016) and India ($4.3bn, $3.9bn) but the United Arab Emirates is the fastest climber, moving up from eighth place in 2015 ($2.1bn) to an expected third place in 2016 ($3.1bn), and increasing its spending by a third.

The Middle East was the largest importing region, with $21.6bn in deliveries of defence equipment in 2015, Jane's reports. Saudi Arabia and the UAE imported $11.4bn (17.5% of the global total) worth of defence systems in 2015, up from $8.6bn in 2014.

"The combined value of Saudi Arabia and the UAE's defence imports is more than all of Western Europe's defence imports combined," Moores said. Saudi Arabia's imports grew from $6bn to $9.3bn, an increase that is three times that of the entire sub-Saharan Africa market. "The US, Canada, France and the UK are the main exporters of defence equipment to the Middle East and beneficiaries of this spending boom," Moores said.

All in all, Jane's estimates that the biggest opportunities for arms dealers in the decade will be found in Saudi Arabia, which it expects to spend $36bn on arms, followed by India ($25bn), UAE ($14bn), Indonesia ($13bn) and Vietnam ($10bn).

Perhaps even more worrying is the heavy spending by countries that could be drawn into a potential major future conflict in Asia. Total defence spending accelerated in the Asia-Pacific region bordering the South China Sea, up a huge 71% between 2009 and 2015, Jane's reports.

Tensions are already high between China and Japan thanks to a territorial dispute over the Senkaku Islands, as they are known in Japan, or the Diaoyu Islands as they are known in China. Japan summoned the Chinese ambassador after a Chinese navy ship sailed close to what Japan considers its territorial waters in the East China Sea for the first time on June 9, increasing tensions over the disputed area. And, unsurprisingly, Taiwan appears as a top 10 importer of arms in 2015 ($1.5bn) and is expected to increase its spending in 2016 to $2bn, making it the seventh heaviest spender on weapons in the world, according to Jane's.