Israel-Hezbollah Ceasefire Impact and the Future of Defense Industry [AK Radio]

Defense Stocks Surge Curbed After Middle East Ceasefire
Strong Demand for Weapons Expected to Continue Despite Ceasefire

Israel and the Lebanese armed group Hezbollah entered a temporary ceasefire lasting 60 days starting at 4 a.m. on the 27th. This marks a pause in the approximately 13 months of armed conflict, but questions about the ceasefire's sustainability and the complexity of the Middle East situation continue to draw the attention of the international community and markets.

The ceasefire primarily involves both Israel and Hezbollah withdrawing their forces from the border. The Israeli military agreed to withdraw from the southern border area of Lebanon, while Hezbollah agreed to pull back to a region about 25 km north of the Litani River, away from the border. United Nations peacekeepers and the Lebanese army will be deployed in the ceasefire zone to monitor the withdrawal process and prevent renewed clashes.

However, the background and details of this ceasefire agreement have raised skepticism within the international community. From Lebanon's perspective, which was a major battleground of the war, the Lebanese government, despite not being directly involved in the fighting, has taken on the role of overseeing and mediating the ceasefire agreement. This is largely attributed to Hezbollah’s unique structure, where it simultaneously functions as a religious organization, a major political force, and a military entity within Lebanon.

On the 30th of last month (local time), funerals for senior Hezbollah commanders were held in Beirut, the capital of Lebanon, following the ceasefire between Israel and Hezbollah. Photo by Reuters and Yonhap News.

In particular, political pressure within Lebanon and Hezbollah played a significant role in reaching this ceasefire agreement. Hezbollah, having lost key leaders and weakened its organizational base due to the war, appeared compelled to accept the ceasefire for reconstruction purposes. Additionally, rising criticism of Hezbollah among the Lebanese government and the public also contributed to the background of this ceasefire. Meanwhile, Israel also felt the need for a ceasefire amid worsening domestic public opinion due to the prolonged war and political pressure on Prime Minister Netanyahu stemming from scandals.

The international community welcomes the ceasefire but remains cautious about its sustainability. Even after the ceasefire agreement, reports of airstrikes between the two sides have continued, raising concerns about whether the 60-day ceasefire can actually be upheld. Israel reportedly struck Hezbollah’s military facilities even after the ceasefire, while Hezbollah condemned Israel’s military actions, escalating tensions.

The complexity of the Middle East situation further complicates the sustainability of this ceasefire. Due to Hezbollah’s weakening, the Syrian government forces have lost major cities to rebel groups, triggering a domino effect. This has complicated the Syrian civil war dynamics again and raised concerns about the resurgence of extremist groups. Particularly, fears of the revival of extremist organizations like IS have prompted the international community to deliberate on measures to ease tensions in the Middle East.

Following the Israel-Hezbollah ceasefire, ceasefire discussions are also actively underway in the Gaza Strip. The Biden administration in the United States is exerting strong pressure on both Israel and Hamas to push for a ceasefire. Currently, Hamas is continuing resistance using underground tunnels, while the Israeli military is conducting operations to block them. However, Hamas is using the hostage issue as a key bargaining chip, whereas Israel maintains that it will not negotiate unless the hostage issue is resolved, indicating that more time will be needed before a ceasefire can be achieved.

On the 2nd (local time), the city center of Khan Yunis in the Gaza Strip, Palestine, reduced to ruins by an Israeli airstrike. Photo by AFP and Yonhap News.

The situation in the Gaza Strip adds complexity from a long-term perspective. Hamas’s underground tunnels are extensive, comparable in scale to the Seoul subway system, and it is projected that it could take years to completely eliminate them. Israel is blocking tunnels in major urban areas to suppress Hamas’s activities, but given Hamas’s inability to sustain long-term resistance, it is widely expected that they will eventually accept a ceasefire.

The news of the Israel-Hezbollah ceasefire has also caused significant ripples in the global defense market. In particular, South Korea’s defense stock sector reacted sensitively to the signal of reduced geopolitical risk and showed a downward trend. Shares of Hanwha Aerospace and Hyundai Rotem, which had risen sharply this year, plunged, but the mid- to long-term outlook remains positive.

Defense market experts predict that while this ceasefire has triggered a temporary adjustment phase, the long-term need for military buildup in the Middle East and Ukraine will continue to drive increasing demand for defense products. South Korea, recognized globally for its conventional weapons production, is discussing expanding production and entering the European market to meet growing demand.

AP Yonhap News

The inauguration of a second Trump administration is likely to bring further changes to the Middle East situation and the defense market. Unlike the Biden administration, the Trump administration is expected to pursue policies that increase Middle Eastern oil dependence and lower energy costs. Stability in the Middle East will thus become an essential task.

The Trump administration is also likely to accelerate military competition by demanding increased defense spending from NATO countries. This could present opportunities for South Korean defense companies. Even after ceasefires in the Middle East and Ukraine, the need for military buildup and weapon stockpiling is expected to continue, and South Korean defense firms are anticipated to play an increasingly important role in the global defense industry market.

The Israel-Hezbollah ceasefire has had short-term effects on the Middle East situation and the defense market, but in the long term, it raises the potential for military buildup and growth in the defense industry. South Korean defense companies have established themselves as important suppliers in the global defense market, with expected increases in demand from the Middle East and Europe.

As the ceasefire proceeds in an unstable state, changes in the Middle East situation are expected to continuously impact the global economy and security. The defense market is likely to seek new opportunities amid this uncertainty and continue its growth potential.

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