International situation for the second half of 2026: a perspective on Defense.

The international situation affecting Europe and Portugal in the second half of 2026 is marked by the persistence of conflicts in Eastern Europe and the Middle East, or more accurately, the Near East. These conflicts are lasting far more than initial predictions. The “markets” did not foresee, at the start of Russia’s large-scale invasion of Ukraine in February 2022, that the conflict would last at least the four and a half years it has already lasted. Nor did they anticipate that the US and Israeli military operations against Iran, however intermittent, would extend for at least the year they have already been underway since the first offensive in June 2025. More predictable in recent years was the increasingly heated geoeconomic Cold War between the US and China, but it was less predictable that the US would engage in tariff disputes, technological restrictions, and aggressive competition for resources with its oldest and most reliable allies.

The most recent NATO Summit, in Ankara, Turkey, on July 7 and 8, confirmed the mobilization of increasing financial resources to strengthen the military capabilities and industrial defense production of European allies, with a view to a more balanced distribution of burdens between Europeans and the US. The significant investment in defense is driven by the continued commitment to provide Ukraine with €70 billion in military equipment, assistance, and training during 2026 and again in 2027. It is in this context that the commitment made at the 2025 Hague Summit was reaffirmed: to allocate, by 2035, 5% of each NATO member state’s GDP to defense, with at least 3.5 percentage points (pp) for direct defense spending and the remaining 1.5 pp for broader defense and security-related expenditures, such as investments in critical infrastructure.

All of this together is the same dynamic: a decrease in US burdens and an increase in European burdens, of ‘making’ Europeans pay for and guarantee their own defense, starting with the Ukrainian war effort against Russian aggression. This is not an isolated event, nor is it a moment coinciding with the current US presidency of Donald Trump. It is a trend that stems from the end of the Soviet threat thirty years ago and was even better substantiated fifteen years ago by Hillary Clinton, then Secretary of State in the Barack Obama presidency, with the “pivot to Asia.” This “turn to Asia,” later semantically mitigated as “rebalancing towards Asia,” advocates a reorientation of US economic and military attention towards the Asia-Pacific region, in the face of China, at a time when the economic center of the world has ceased to be transatlantic and has become transpacific.

This dynamic also channels resources and new opportunities for intra-European cooperation and between Europe and the world in defense investment.

The idea that NATO (1949-…), a legacy of the Cold War between the US and the USSR, will mutate according to geopolitical whims, but is eternal, contrasts with the history of the birth, life, and death of its counterparts from the then ‘sanitary cordon’ around the USSR in the post-World War II era: CENTO (1955-1979), covering the Middle East and Central Asia; and SEATO (1954-1977), covering Southwest Asia. It is not only European defense, from the EU plus the UK and Norway, that seeks greater self-sustainability, even as the European pillar of NATO; in other regions we also see new ‘geometries’ emerging as a consequence of the global retraction and transactional approach of the US. The new ‘Sunni quadrilateral’, asserting itself in the Middle East, brings together the second largest NATO member, Turkey; the Muslim nuclear power, Pakistan; and the largest Arab country, Egypt; And the world’s largest oil exporter and guardian of Islam’s main holy sites, the Kingdom of Saudi Arabia. These are respectively the first, second, third, and fifth Muslim countries in terms of military power. One of their antagonists, Iran, would be fourth.

The current situation is one of logistical constraints, whether in the transit of goods and services, in access to critical raw materials and rare earths, or in access to capital and, above all, technology. But what is most evident is the energy crisis. Namely, in our perspective, the energy crisis in Europe, which, in a move away from both coal and nuclear power, was increasingly dependent on natural gas imports as a reliable source of electricity production to complement the mix with the, fortunately, increasingly dominant ‘renewables’ which, despite significant developments, remain low-density, intermittent, and costly to store. And this import was, until 2022, excessively concentrated in direct pipeline supplies from Russia to Central European countries, including, very favorably, Germany. Without the flexibility that liquefied natural gas maritime terminals allow importers, as is the case in the Iberian Peninsula, where the predominance of imports via LNG carriers allows Spain and Portugal to diversify suppliers and even replace one exporting country with another in case of supply failure, for example due to a geopolitical crisis. This is clearly demonstrated in the price of electricity to industry, at a time when industry, and economies and societies in general, are electrifying and ideally decarbonizing. From 2007 to 2019, that is, since the creation of the Iberian Electricity Market (MIBEL) and with the start of major investments in new renewable electricity production sources, the price of electricity to industry in MIBEL was 14% cheaper than the EU average, but 10% more expensive than in Germany. From 2020 to 2022, with the logistical difficulties of COVID-19, the intensification of the conflict with Russia, and the growing weight of green electricity in the Iberian mix, MIBEL’s advantage over the EU average widened to 19%, and the relationship with Germany radically reversed, going from a disadvantage of -10% to an advantage of 27%. In the last three years, 2023 to 2026, with the consolidation of ‘green’ electricity in the peninsula, MIBEL’s advantage grew to 27% compared to the EU average and 33% compared to Germany. This gives us today an important competitive advantage within the EU for attracting energy-intensive industries that want to be ‘green’ and decarbonized, such as, for example, most basic products industries and also defense industries.

Europe then turned to more natural gas from the Middle East and new producers, notably the US, which began exporting natural gas (and oil) about ten years ago and is developing enormous liquefaction and transoceanic export capacities for liquefied natural gas. This growing capacity is geopolitically exacerbated by the new realities in sanctioned and/or intervened countries such as Venezuela, Iran, and of course Russia, not disregarding all the ongoing disruptions in the Middle East and the changes in the Organization of the Petroleum Exporting Countries (OPEC), with the recent departures of Qatar, Angola, and the United Arab Emirates. Cumulatively, the US leadership in research, development, and innovation in nuclear reactors, including the new SMRs (Small Modular Reactors) and their fuels, is becoming increasingly prominent.

Thus, contrary to the professed dynamic of European autonomy from the US, what is actually happening is an addition to security and defense dependence, of this growing energy and technological dependence. Just consider the world’s largest companies today, all major global technology companies of North American origin operating in Europe, without the obstacles and development of local alternatives, as China and Russia do. The US giants in digital services, software, and AI, such as Google, Microsoft, Meta, Cisco, Oracle, OpenAI, or Palantir. Or AWS, at the intersection with the sharing economy of e-commerce, mobility, and accommodation, such as Amazon, Uber, Lyft, and Airbnb. The hardware, proprietary operating systems, and semiconductor companies, Apple, NVIDIA, Broadcom, AMD, Micron, Applied Materials. And of course, Musk’s companies, such as Tesla, a leader in energy, or SpaceX, in space exploration, and Starlink in satellite telecommunications.

It is in this context that the EU seeks greater strategic autonomy vis-à-vis Russia, China, and even the US. In energy and critical raw materials and rare earths, in technology and industrial production, in defense. No less by following planning and incentive models practiced by the other two economic giants, China and the US.

Starting with decarbonization and reducing dependence on imported fossil fuels, with Fit for 55 and the new Renewable Energy Directive (RED III) in 2021. The REPowerEU Plan in 2022 and the Temporary Crisis and Transition Framework on State aid (TCTF) in 2023, in response to the energy crisis resulting from the Russian invasion of Ukraine.

The pursuit of green reindustrialization, autonomy from China, and the building of our own technological capacity, even surpassing the US, is underpinned by the European Chips Act in 2022; the Critical Raw Materials Regulation (CRMA), the Neutral Impact Industry Regulation (NZIA), and the Strategic Technologies for Europe Platform (STEP) in 2023; the State Aid Framework for Clean Industries (CISAF) in 2025; and the Industrial Accelerator Regulation (IAA) and the Electrification Action Plan (EAP), both already in effect for 2026.

In the defense sector, the European Defence Fund (EDF) is in effect within the framework of the Multiannual Financial Framework 2021-2027, endowed with almost €8 billion, and which brought together the pilot programs initiated in 2017: the European Defence Industrial Development Programme (EDIDP) and the Preparatory Action for Defence Research (PADR). The Strategic Compass for Security and Defence (SC) of 2022 defined the EU’s strategic priorities until 2030. In 2023, the Instrument for Strengthening the European Defence Industry through Joint Procurement (EDIRPA) and the Ammunition Production Support Regulation (ASAP) implemented the priorities identified by the Strategic Compass in response to the immediate needs created by the war in Ukraine, albeit with modest allocations of €300 million and €500 million respectively. In 2024, the European Defence Industry Strategy (EDIS) and its European Defence Industry Programme (EDIP) emerged with a budget of €1.5 billion, developing the foundations for a permanent defence industrial policy, also as a consequence of the Strategic Compass. In 2025, the Action for Security in Europe (SAFE) scaled up funding, providing up to €150 billion in loans to Member States, integrating the ReArm Europe / Readiness 2030 of the same year, which, between possibilities for public and private investment and greater national budgetary flexibility of Member States, pointed to a potential €800 billion. As a corollary, the European Commission proposed, already in 2026, the Action to Accelerate the Defence Industrial Transformation (AGILE), a package of measures aimed at promoting the European defence industry by simplifying procedures, licensing and access to financing.

Also worth mentioning is the Connecting Europe Facility – Military Mobility (CEF), which adapts trans-European transport infrastructure for dual civilian and military use. The CEF is currently the European funding program responsible for the three networks: the Trans-European Transport Network (TEN-T); the Trans-European Energy Network (TEN-E); and the Trans-European Telecommunications Network (eTEN).

This is the time to invest in the development of dual-use technologies and products, not only in weapons systems and equipment for armed forces, but also in the two other critical areas: energy and information and communication technologies. This applies to Europe and its traditional allies, whether in North America, the Middle East, or East Asia and Oceania.

Filipe Santos Costa
President of Portuguese Council of the European Movement
September 2026