20AUG

Zelenskyy reveals ten offshore factories

2 min read

16:38UTC

Ukraine's wartime export ban is fracturing. One manufacturer sold 1,000 interceptors for $3.5 million while holding a EUR 300 million state contract.

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Key takeaway

Grey-market factories signal Ukraine's export ban is fracturing under commercial pressure.

Volodymyr Zelenskyy disclosed on 28 March that approximately 10 drone factories have been built abroad to circumvent Ukraine's wartime export ban.¹ One company sold 1,000 interceptor drones to a foreign buyer for $3.5 million while simultaneously holding a EUR 300 million state production contract. At least one European country purchased drones without warheads and then requested Ukrainian operators to accompany them.

The economics explain the leakage. Ukrainian interceptors cost $2,500 to $5,000 per unit.² A PAC-3 Patriot interceptor costs $13.5 million. That price ratio makes Ukrainian systems irresistible to any buyer facing drone threats, and demand from 11 nations remains blocked by the export ban . Manufacturers with excess capacity and uncertain state payment timelines have rational incentives to seek foreign hard-currency buyers.

Ukraine can technically build 1,000 interceptors per day but is budget-limited to roughly half that. The funding gap, perhaps $5 million to $10 million daily, represents the difference between a cottage industry and a global export platform. Zelenskyy warned the "window of opportunity" is narrowing: private manufacturers are outpacing state coordination.

Deep Analysis

In plain English

Ukraine bans the export of its drones because it is still at war and does not want its most effective weapons reaching enemy hands. But the manufacturers making these drones need cash now, not promises from a government with constrained budgets. So roughly 10 factories have been built outside Ukraine in secret, allowing the drones to be sold to foreign buyers without technically violating the export ban. Zelenskyy revealed this publicly, which is unusual. It signals he sees both the problem (the state is losing control of its most valuable technology) and an opportunity (these exports could become a significant revenue source if formalised).

Deep Analysis

Root Causes

The export ban was enacted in 2022 as a wartime security measure to prevent battlefield-proven designs from reaching adversaries. The problem is that Ukrainian drone manufacturers have matured from cottage workshops into industrial producers, and the state payment infrastructure has not kept pace.

When a manufacturer holds a EUR 300 million state contract but also sells 1,000 units abroad for $3.5 million, the state contract is providing production certainty while the export sale provides cash flow. This is structurally identical to how Soviet-era arms exporters operated in the 1980s: state backing for capacity, grey market for liquidity.

What could happen next?

Risk
Grey-market drone exports undermine Ukraine's ability to control proliferation of its most advanced battlefield technologies, with no guarantee buyers' security practices are adequate.
Immediate · High
Opportunity
Lifting or restructuring the export ban could generate $2–3 billion annually in hard currency revenue, reducing Ukraine's dependence on Western military aid.
Short term · Medium
Consequence
The existence of 10 shadow factories signals that Ukrainian drone manufacturers are already operating as a de facto global defence export industry without state oversight.
Immediate · High
Precedent
If Ukraine formalises exports, it establishes the first wartime-proven small-drone export market, reshaping the global defence procurement landscape for sub-$10,000 strike systems.
Long term · Medium

Source Landscape

This story draws on centre-leaning sources from Ukraine

Ukraine

LeftRight

Primary parallel: Israel's arms export policies after the 1973 Yom Kippur War showed that a country under existential pressure can convert wartime innovation into a sustainable defence export industry within five to seven years, but only with strong state licensing infrastructure; Israel's success required SIBAT (the defence export directorate) to control and vet all transactions.

Counter-parallel: Ukraine's parallel in the 1990s arms export chaos is cautionary. Post-Soviet Ukraine sold Kh-55 cruise missiles to Iran and China in 2001 under similar circumstances of weak enforcement and manufacturer financial pressure; the technology transferred proved strategically damaging.

The economics are staggering. Ukrainian interceptors at $2,500–$5,000 per unit versus $13.5 million for a PAC-3 Patriot represents a 2,700-to-5,400 times cost advantage.

If Ukraine regularised even 10% of its production capacity at market prices, the revenue would rival Western military aid. A country that can produce 1,000 interceptors per day at $3,500 average price could generate $1.28 billion monthly in export revenue. Even at 20% of capacity, that is $256 million monthly, or roughly $3 billion annually — comparable to the annual US aid package.

Consensus view: IISS director general Bastian Giegerich argues that Ukraine's export ban was always economically unstable: the gap between production capacity and state payment timelines creates rational incentives for manufacturers to seek alternative buyers, and no export control regime survives sustained commercial pressure without enforcement resources.

Counter-view: RUSI senior research fellow Justin Bronk argues that grey-market exports create serious intelligence risks: drone technologies circulating outside Ukrainian state channels can end up with actors whose alignment with Western interests is ambiguous, as occurred with surplus Soviet equipment in the 1990s.

Key tension: Whether formalising exports would generate more revenue and state control than the current grey market, at the cost of enabling adversary drone acquisition.

Sources:Euromaidan Press

Mentions:Volodymyr Zelenskyy →Ukraine →

First Reported In

Update #3 · Anduril wins $20 billion counter-drone deal

Euromaidan Press· 30 Mar 2026

Read original →

Causes and effects

Caused by

Eleven nations seek Ukraine's drone tech

Zelenskyy's shadow factory disclosure directly referenced the wartime export ban (ID:1238) that the factories were built to circumvent.

Reported 19 Mar 2026

Read story →

This Event

Zelenskyy reveals ten offshore factories

Exposes a grey-market export channel that could become the foundation of a major Ukrainian defence industry.

Led to

Ukraine blocks drone sales as Gulf burns

Zelenskyy's shadow factory disclosure (ID:1738) revealed the export control pressure; the SSEC formal suspension is the regulatory mechanism enforcing the same strategic logic.

Occurred 7 Apr 2026

Read story →

Different Perspectives

South Korea's Defense Acquisition Program Administration

DAPA folded drone and roadside-bomb jammers into an 18-year, KRW 3.448 trillion K2 tank upgrade approved 11 August, rather than fund counter-drone kit as its own programme. Seoul is treating the threat as permanent enough to write into a platform's lifecycle, not urgent enough to buy ahead of it.

NATO Support and Procurement Agency

NSPA named five pre-qualified counter-drone suppliers under new framework contracts on 27 July, giving allies a purchasing route with no published budget attached. A framework without committed money is an instrument waiting for a spending decision, not a guarantee one is coming.

Ukraine's Ministry of Defence

Ukraine's forces strike with more than 70 AI and computer-vision systems drawn from over 200 domestic producers, the ministry said on 18 August, a supplier base neither Washington's tariff fight nor Beijing's export licence touches. Kyiv is scaling capability faster than either government is writing rules for it.

A European drone-component manufacturer

A European manufacturer selling components into the United States faces the same 100 per cent tariff and 3 September deadline as any other foreign supplier, with the duty-free onshoring carve-out available only to firms building on American soil. That leaves it to absorb the cost, relocate assembly, or cede the US market rather than shop around a rival supply chain.

Chinese drone component exporters

Exporters now need a case-by-case licence for each US-bound dual-use shipment after MOFCOM's 5 August order, with no published review clock. The same week Shenzhen logged nearly 200,000 domestic logistics-drone sorties and Hunan reported record spraying coverage, a home market large enough to absorb what the licence regime slows from leaving the country.

US drone manufacturers

The onshoring carve-out protects Performance Drone Works' $820 million War Department loan, but the same 3 September deadline hits Red Cat Holdings and Unusual Machines, both filing over 500 per cent revenue growth on 6 August, on Chinese-sourced components with no qualified domestic substitute yet.