The Red Tape of Ukraine’s Semi-Open Arms Exports

The war in Iran has exposed the inefficiency of tactics used to shoot down Iranian Shahed drones. Missiles that cost several million dollars are being used to intercept drones that cost merely tens of thousands of dollars. Just the first six days of combat operations in Iran cost the United States $11.6 billion. The Pentagon has requested an additional $200 billion to fund the campaign.

A more cost-effective approach is to deploy cheaper missiles or interceptors. Ukraine has drone interceptors that are dozens of times cheaper than the U.S.’s Patriot missiles, which cost $2 to $3 million apiece. Yet until February, Ukraine had virtually no arms exports. The few exports that were supplied were mostly components for previously delivered weapons systems, not new finished products or manufacturing technology.

Arms exports have been one of the most hotly debated issues in Ukraine, with discussions ongoing since the start of Russia’s full-scale invasion. Two broad camps have formed, each with its own arguments for and against opening up exports.

The anti-exports camp argues that with the conditions of Ukraine’s ongoing arms shortages, everything must go toward the needs of Ukraine’s defense forces. Selling a weapon abroad means taking that weapon away from a Ukrainian soldier in a trench. There were also concerns that opening up exports would reduce international aid to Ukraine, as donors would question why assistance was needed if weapons were being sold.

The pro-exports camp argues that Ukrainian companies should be allowed to export their products because the Ukrainian government is simply unable to purchase everything the industry can produce. In 2025, Ukraine’s defense industry was valued at $35 billion as a whole, but the actual contract value was around $12 billion. Export revenues would allow companies to scale their production and ultimately produce more armaments for the Ukrainian army, export supporters argue, especially considering that foreign buyers will pay higher prices than domestic ones.

While the debate dragged on, some companies relocated their ventures abroad, scaled back production, or closed down entirely due to a lack of government purchases. According to a Tech Force UA survey, by October 2025, 51 percent of all defense producers were considering relocating their production lines. Security concerns and prohibited exports were among the top reasons to relocate abroad (89 percent and 61 percent, respectively). For the Ukrainian economy, this has meant lost revenues, fewer jobs, and falling behind in the longer-term technological competition.

In 2026, the sector’s capacity is estimated at $50 billion, but, as in previous years, the actual contracted amount will almost certainly fall short.

How Ukrainian Arms Exports Work

From a legal standpoint, Ukraine never had an outright ban on arms exports. But in practice, exports simply didn’t happen.

Because the government wanted the exports to remain shut, the interagency commission under the National Security and Defense Council, which is one of the key bodies responsible for authorizing exports, either didn’t convene or simply rejected all applications. Other responsible government agencies rejected all export applications, as well.

Then, in the summer of 2025, after months of lobbying by Ukrainian defense companies, President Volodymyr Zelensky announced that Ukraine would begin to export its technologies and open joint production lines with partner countries abroad.

“Starting this year, the shortfall in funding for weapons production will be covered, in part, through the controlled export of certain types of our weapons,” Zelensky said in a statement on Sept. 19, 2025. “Thanks to these controlled exports, we will increase the production of drones for the front line.”

In December 2025, Zelensky appointed a new head of the interagency export commission, which convened for the first time in more than eight months in February 2026. ​​

The three main bodies currently involved in authorizing export licenses are the State Service for Export Control (SSEC), the interagency commission on exports, and the Cabinet of Ministers.

The cabinet develops all export-related regulations and designates companies as exporters. The interagency commission, which consists of 17 representatives from different branches of the government and the military, gives recommendations after analyzing the strategic aspects of the export deals, such as whether a certain country should be allowed to buy Ukrainian weapons, or if Ukraine should keep certain systems instead of selling them. The export control service conducts a technical audit of the manufacturer and its customer, and issues a final export license.

There are three different routes for defense companies to export their products: (a) by obtaining an export license independently; (b) by exporting through a specialized state exporter; or (c) by joining the Defense.City, a special economic initiative that offers a range of benefits for manufacturers, including a simplified licensing procedure.

For a direct application, the manufacturer must obtain authority from the Cabinet of Ministers—a process that takes upward of six months due to the extensive security vetting required. The cabinet has to issue a resolution designating the company as an exporter. This entitles the company to apply to the SSEC for a specific export contract. The main advantage of this route is the ability to independently execute export contracts once the cabinet has approved.

Through a specialized state exporter—six of which operate in Ukraine—the process takes roughly one to two months. In this case, the manufacturer depends on the exporter’s capacity to deliver, as the exporter serves as both the formal exporting entity and, often, an intermediary between the end user and the manufacturer, taking a percentage of the contract value in return. The manufacturer faces less bureaucracy but gives up a share of revenue and takes on other associated risks.

Through Defense.City—which provides exemptions for certain taxes, including from income tax if all profits are reinvested in the company’s development—manufacturers do not need to obtain their own export authority. The simplified procedure allows for a preliminary export permit to be issued within 15 days, skipping the lengthy cabinet designation process. However, the special regime does not eliminate the interagency commission’s role, which still reviews every export application. And besides, many young startups can’t join Defense.City, as it requires auditing and revenue checks that can happen only after a fiscal year has passed.

In each case, the manufacturer also has to register an application with the SSEC and prepare a package of documents that includes the product type, detailed company information, the destination country, and the end user. The SSEC then conducts all necessary checks, including verification of the technology, the manufacturer, and the end recipient. The recipient country must provide guarantees in the form of an end-user certificate, which identifies the parties to the international transfer, prohibits re-export, and establishes procedures for post-delivery verification of end use.

The Ukrainian manufacturer must also have a clear and transparent ownership structure, relevant licenses, a clean tax record, and the capacity for mass production. A proven track record from the battlefield and positive feedback from military users are also desirable.

Given the wartime context and associated risks, every application is reviewed individually by export control authorities. It is critically important for Ukraine that its technologies do not fall into Russian hands or those of Russia’s allies. Export control authorities need to understand the intended export route, whether intermediaries will be involved, and whether the goods will pass through any free economic zone—all of which factors into the final licensing decision.

Two questions take priority: whether the application serves Ukraine’s national interests, and whether exporting the product to the buyer country is safe.

All the necessary regulations existed before the full-scale war, but reopening the system raised several new issues. Among them was the question of who would assess whether a manufacturer could produce more than the state can purchase. Discussions also continued through the fall of 2025 over who should be responsible for evaluating production capacity and whether export contracts should be subject to an additional tax.

The first question was resolved by assigning that responsibility to Ukraine’s Ministry of Defense. The SSEC first sends an interagency request to assess how much of a given product the defense forces actually need. The Ministry of Defense then collects input from the military, and the interagency commission also provides its recommendations.

The SSEC and the interagency commission issue a final licensing decision within 90 days. For companies that decide to obtain an independent license through the Cabinet of Ministers, this means an additional waiting time of up to six months.

Due to the sensitive information involved, Ukraine does not publish a list of licensed manufacturers. Crucially, licenses are typically granted for specific contracts rather than on an ongoing basis. Ukrainian manufacturers often choose to register their intellectual property abroad due to concerns that it may not be adequately protected in Ukraine. Potential investors also often require a startup to register its intellectual property abroad in order to protect their investments in the high-risk defense sector.

Export restrictions have already led some Ukrainian manufacturers to establish foreign spin-off companies or representative offices abroad. These are, in effect, Western companies that can only be described as Ukrainian in origin—their legal and operational structures are fully subordinated to entities abroad.

A Critical Caveat

Ukrainian defense companies routinely complain that the export licensing process is fragmented and convoluted, and that it takes too long.

“In today’s defense market, where contracts are signed quickly and windows of opportunity can close within weeks, 90 days for an administrative decision is an eternity,” the CEO of a defense lobbying association called the Ukrainian Council of Defence Industry, Ihor Fedirko, told me. Even after the government’s recent warming up to controlled exports, the interagency approvals may still be delayed, Fedirko said, leading to unpredictable timelines.

Since the interagency export commission resumed operations last December, the commission has issued 80 decisions, though the total number of applications is unclear. According to Fedirko, most of the first 40 applications were approved.

As the exports of defense technology vary in forms, the Ukrainian Council of Defence Industry distinguishes among three types of exports: build in Ukraine, build with Ukraine, and buy from Ukraine.

The last option is what is most commonly understood as arms exports—direct purchases of ready-to-use weapons. While the manufacturers seek this option for obvious cash benefits, the Ukrainian government remains conservative. So far, it has greenlit only the projects that establish joint production lines either in Ukraine or abroad.

Since summer 2025, Ukraine has signed several joint production agreements and partnership projects with its allies, including a joint Ukraine-U.K. development of drone interceptors called Project Octopus, a joint Germany-Ukraine venture called Quantum Frontline Industries, and Dataroom, a project by the Ukrainian Brave1 and Palantir to train artificial intelligence models for military purposes using Ukrainian data, among others.

In March, two Ukrainian companies—SkyFall and the Ukrainian Defense Drones Tech Corporation (UDD)––came at the top of the Gauntlet 1 of the Drone Dominance program, the Pentagon’s $1 billion budget for procuring small attack drones. As a result, both SkyFall and UDD were among the companies selected for orders from the Pentagon. Although it’s unclear what their export licensing status is, SkyFall reportedly partnered with British company Skycutter for this effort, possibly to circumvent Ukrainian export restrictions. Another Ukrainian company, General Cherry, didn’t do well enough in the Gauntlet to land a Pentagon order but announced on March 30 that it signed a contract with the American Wilcox Industries to produce Ukrainian drones in the U.S. 

To support international cooperation and promote Ukrainian products abroad, Zelensky also announced the government will establish 10 export offices abroad. Their primary responsibilities will include marketing and partner development. Further plans call for joint hubs under the Zbroya program—the Ministry of Defense’s online platform for arms manufacturers—which will also help companies navigate relationships with local governments and businesses across the European Union.

“There is no desire or goal to lock all manufacturers in here and just keep our own,” Davyd Aloian, an interagency commission member, told Reuters. “There is an approach, and it is focused on making a system that prioritises the frontline and national interests. And then come commercial interests.”

Yet this approach means that despite the flurry of reporting about interest in Ukrainian products in the context of the war in Iran, it’s unlikely that Ukrainian companies will start selling its ready-made air defense solutions in the foreseeable future.

Security considerations and the interagency review process make fast decision-making structurally impossible. While the West wants Ukraine’s interceptor drones, it’s unclear whether Ukraine has any in surplus. Despite the relative sophistication of Ukraine’s air defense, the threat of Russian drones remains acute. In late March, Russia used nearly 1,000 drones to attack Ukraine in a span of 24 hours.

Since the outbreak of the war against Iran, the Ukrainian government has been trying to keep the arms export frenzy under state control. To facilitate future exports, Zelensky went to the Persian Gulf at the end of March, signing 10-year defense cooperation agreements with Qatar and Saudi Arabia. Zelensky also negotiated a similar deal with the United Arab Emirates and met with officials in Jordan.

“Over the next 10 years, we will engage in co-production and build factories—both production lines in Ukraine and in these countries,” Zelensky said during a press conference after signing the cooperation agreements.

He also snubbed companies that have allegedly signed shady export deals behind the government’s back. “They are hurting Ukrainian exports,” Zelensky said.

The Ukrainian government, the president added, will “make sure (our) guys on the battlefield have everything they need.”