Polish soldiers on Korean-made K2 tanks take part in a military parade in Warsaw on Polish Army Day, Aug. 15, to commemorate the anniversary of the 1920 victory over Soviet Russia at the Battle of Warsaw during the Polish-Soviet War. AFP-Yonhap

President Yoon Suk Yeol's mysterious martial law declaration and subsequent attempt to impeach him are threatening the recent export momentum of Korea's defense contractors. Potential partner countries are calling off their planned talks in the wake of the political unrest.

According to industry officials on Monday, Kyrgyz President Sadyr Japarov planned to visit Korea Aerospace Industries (KAI) in Sacheon, South Gyeongsang Province, Dec. 4, to observe a test flight and the production site of the KUH-1 Surion, but canceled this following Yoon's abrupt declaration of martial law and its subsequent lifting.

Swedish Prime Minister Ulf Kristersson, who was scheduled to visit Seoul from Dec. 5 to 7, also canceled his trip, citing the "current situation" in Korea.

During his visit, Kristersson was expected to have closed-door meetings with businesses, raising hopes over possible cooperation talks between the two countries in the defense industry. During Korean Prime Minister Han Duck-soo's visit to Sweden in May last year, Kristersson expressed his interest in exploring defense industry cooperation with Korea.

Shipbuilders are also expressing concerns over the possible impact on their bid to win large overseas orders, namely a $2.7 billion submarine procurement contract from Poland.

Tomasz Szubrycht, commandant of the Polish Naval Academy, visited Hanwha Ocean and HD Hyundai Heavy Industries to assess each shipbuilder's capabilities. However, it remains uncertain whether the visit will result in immediate progress as the Korean government is currently in a state of inactivity due to the uncertainties arising from the president's martial law declaration.

The martial law fiasco is apparently affecting ongoing defense export deals.

Yonhap News Agency reported Monday that a contract between Korea and Poland on exporting over 800 K2 battle tanks is unlikely to be signed by the end of this year, citing an unnamed source saying "the Polish side is suggesting a more cautious approach" in relation to Korea's ongoing political turmoil.

In 2022, the tank's manufacturer, Hyundai Rotem, signed a framework contract for exporting 1,000 K2s to Poland and clinched a $3.25 billion executive contract to supply an initial batch of 180 tanks. Since then, the two sides have been negotiating the terms for the remaining 820 tanks, with the Korean side hoping to close the deal by the end of this year.President Yoon Suk Yeol and Peruvian President Dina Boluarte watch a video clip on the two countries' defense industry cooperation at the Government Palace in Lima, Nov. 16 (local time). Yonhap

대표 이미지Since taking office in 2022, Yoon has dedicated much of his overseas trips to promoting Korea's defense systems. This resulted in a noteworthy expansion of defense exports, which the government described as "K-defense," but returned with greater uncertainties after the martial law fiasco because defense exports are mostly based on talks between governments.

As setbacks are reported, the Defense Acquisition Program Administration (DAPA) released a statement on Monday saying that "defense cooperation activities are proceeding as usual, unaffected by the domestic situation, and collaboration with key countries continues as normal."

"DAPA recently sent letters to partner countries that the defense cooperation will be pursued as usual, and contractors' activities are continuing as normal," it said. "All planned defense exports and scheduled cooperation activities with foreign governments are proceeding as planned."

Despite the explanation, the market is already showing fears that the country's defense industry may lose its momentum, affecting the stock prices of Korea's so-called Big 4 defense contractors.

KAI, Hyundai Rotem, Hanwha Aerospace and LIG Nex1 all extended their losing streaks on Monday, shedding 5.98 percent, 5.93 percent, 6.38 percent and 9.42 percent from a session earlier, respectively.

"The country's defense industry used to be a domestic-centric industry, but now stands as an export driver, selling in the global market under the brand called Korea," Hana Financial Investment analyst Wee Kyung-jae said.

"Following the recent events, major countries have issued travel advisories on Korea, and the world is now gazing worriedly at Korea, which may weaken expectations for weapons system exports."