By Mirna Fahmy
The conflict between the U.S., Israel, and Iran has birthed a hybrid model of war where bits and bytes are as lethal as bombs. In this environment, private tech companies have evolved from mere service providers into digital shields. These shields allow modern economies to absorb shocks that would have crushed any nation decades ago.
In modern combat, speed has become the most expensive and essential commodity. Militaries are now paying a massive premium for AI tools that can compress decision-making cycles from weeks down to mere seconds. This evolution is most visible in identification and intelligence, where programs like Project Maven use AI to scan vast amounts of drone footage, finding hidden targets in an instant. Furthermore, firms are developing AI agents—a digital “Google Maps for war“—that enable autonomous drone swarms and pilotless jets to maintain their mission even when enemy jamming cuts off traditional communications.
This shift has turned large-scale digital infrastructure into the indispensable backbone of military operations. The $1.2 billion Project Nimbus contract, which is a collaboration between Google and Amazon, currently supplies the “brain” of the cloud system to the military forces of Israel. As data becomes the new weapon, a new generation of “Titans” is rising; startups like Anduril have secured massive deals, such as their $20 billion agreement with the U.S. Army, while established giants like Palantir see their market values soar as they manage the overwhelming flow of battlefield data.
Technology provides the brains, but traditional defense and energy companies still supply the muscle, resulting in record-breaking profits. RTX and Lockheed Martin are currently navigating a period of high demand, with backlogs for Patriot missiles and F-35 jets serving as the foundation of air defense for 19 different countries including Ukraine and Germany.
Simultaneously, the energy sector is capitalizing on global instability. Supply disruptions in the Strait of Hormuz have pushed profits for Exxon Mobil and Chevron up by 20%, while Aramco is on track to generate a staggering $25 billion in war-related profits in 2026 alone.
The concept that modern war must lead to total collapse is being challenged by the resilience of one of the world’s most deeply interconnected tech economies. Still, the fiscal scars are undeniable.
The recent multi-front war has taken a heavy toll on Israel’s economy. Following the October 7 attacks, economic activity declined sharply. In the final months of 2023, GDP contracted at an annualized rate of 21%, driven by a steep drop in consumer spending and business investment. Although the economy began to stabilize in early 2024, overall growth for the year remained weak at around 1%, far below the typical 3% average.
By early 2026, the economy is recovering from these initial shocks, but lasting damage remains. Growth rebounded to 3.1% in 2025, and forecasts suggest a stronger expansion of 5.2% in 2026 as reconstruction efforts intensify and exports increase.
Technology continues to serve as both the backbone and shock absorber of the economy. The sector accounts for roughly 20% of GDP and more than half of exports. Investor confidence has remained strong, with tech fundraising reaching a record $15.6 billion in 2025, including major deals such as Google’s $23 billion acquisition of the cybersecurity firm Wiz.
Because of that, the Israeli shekel had gained significant value by mid-April 2026. It recently broke below the important level of 3.00 shekels per US dollar, reaching its strongest point since 1995. This surge marks a 30-year high for the currency. On April 16, the Bank of Israel set the official rate at 2.9950 shekels per dollar. The currency has remained in the 2.98 to 3.00 range during daily trading.
However, the war has imposed a significant financial burden. It is estimated to be the most expensive in the country’s history, costing around $89 billion by late 2025. This surge in spending pushed the debt-to-GDP ratio from about 60% to nearly 70%. In response, credit rating agencies such as S&P and Moody’s downgraded Israel’s credit rating, reflecting mounting fiscal pressure.
Beyond the tech sector, other parts of the economy continue to struggle. Tourism has collapsed, with visitor numbers dropping by roughly 80%. The construction and agricultural sectors face acute labor shortages due to the mobilization of around 300,000 reservists and restrictions on Palestinian workers. In addition, low labor force participation among the rapidly growing Ultra-Orthodox population presents a longer-term structural challenge, potentially constraining future productivity and economic growth.
While the technology and energy sector remains strong, the broader U.S. economy is facing a more uneven outlook. The country is navigating a period of volatility and uneven growth, driven in part by ongoing tensions in the Middle East.
Initially economic growth for 2026 was projected to fall between 2.4% and 2.6%, but recent data has shown the opposite. The government shutdown that was from October 1 to November 12, 2025, combined with the immediate economic shock from the conflict with Iran, has introduced significant short-term distortion. The shock was later exacerbated as a sharp rise in energy prices happened after the big Iran war erupted on February 28. In March, North Sea crude oil climbed to $130 per barrel, pushing inflation expectations up to over 3%. In response, the Federal Reserve has paused its planned rate cuts and is expected to keep interest rates in the 3.50%–3.75% range for the remainder of the year.
Labor market conditions have been showing some signs of softening. The unemployment rate has slightly risen to the range of 4.3% to 4.6%. Nevertheless, average hourly earnings increased by 0.3 percent from March 2025 to March 2026.
Consumer spending has remained resilient. In March, spending rose by 4.3%, supported in part by larger tax refunds stemming from recent government legislation, helping offset the impact of higher fuel costs.
However, this same digital resilience is also a source of new and unprecedented vulnerability. Cyber warfare has now become a fully operational theater, with governments and hacking groups targeting data centers, energy grids, and financial markets far beyond the front lines.
As modern militaries become increasingly dependent on commercial software, private technology firms have effectively been drawn onto the battlefield, turning them into primary strategic targets. That was visible in Iran’s direct threats against major U.S. companies such as Apple and NVIDIA.
At a deeper level, the risks are not only external but systemic. The growing reliance on advanced AI systems has created a logic gap, where commanders may not fully understand the reasoning behind the decisions these systems produce. In such an environment, failure becomes harder to predict and control. A single software breach, miscalculation, or system malfunction could cascade rapidly, potentially triggering a broader defensive breakdown.
In the past, there was no AI nor technology to absorb any economic shocks, but rather total economic erasure. In the mid-20th century, internal stability was the first casualty of conflict. Resources were simply consumed as they were directed mainly to the military and either winner or losser, cities and villages were wiped out.
In 1945, Britain stood as a winner of World War II, yet it was a nation bankrupt. The war had drained a quarter of its total national wealth. The British people, despite their victory, did not stop food rationing until 1954, nearly a decade after the fighting ended. The empire that once spanned the globe found itself unable to afford its own colonies, leading to a rapid and forced decolonization.
France faced an even grimmer reality. The war systematically destroyed its industrial core in the northeast, leaving a void of debt and a shortage of workers. The result was a financial death spiral: by 1948, prices had jumped a staggering 1,820%. Like Britain, the economic cost of the war stripped France of its status as a colonial superpower; it simply no longer had the capital to maintain its reach.
The Soviet Union emerged as a global superpower, but it did so over a graveyard. With 27 million citizens dead and its industrial heartland leveled, the civilian economy was non-existent. It took until 1950 just to reach pre-war production levels. For the Soviet people, victory meant decades of grueling rebuilding and a stubborn refusal of Marshall Plan aid that left the nation’s standard of living lagging for a generation.
The only country to see an economic boom was the United States, primarily because its factories were never touched by bombs. Its Gross National Profit (GNP) rose from $200 billion in 1940 to $500 billion by 1960, fueled by an untouched industrial base and two-thirds of the world’s gold reserves.
Today, the U.S. model of an untouched industrial base has been digitized and exported. In 2026, Israel’s factories may be under threat, but its “brain”—the tech sector—remains offshore in the cloud or protected by cyber-defenses.
This resilience was not an accident, but a survival strategy born from decades of following—and then adapting—the U.S. model of industrial growth.
During its early years, Israel faced a reality far closer to the post-war devastation of Europe than the high-tech boom of today. The nation lived through deep poverty and strict rationing, where growth was fueled slowly by mass immigration and reparations from Germany. The true test came during the Yom Kippur War in 1973, which devastated the economy and led to a decade of “lost years.” During this time, growth stopped and inflation spiraled out of control, peaking at a staggering 445% in 1984.
Stability only returned after a major government program reset the economy in the mid-80s. By the 1990s, Israel made a decisive pivot toward technology. Military research and development began to move into the private sector, creating what is now known as the “Startup Nation.” This transition ensured that while the country’s borders remained a battlefield, its economic engine—the “brain”—would be protected by the intangible walls of cyberspace.
The super change of war nature from the age of “steel and gunpowder” to the era of “AI and algorithms” has not made war less expensive, but it has made it less terminal for the modern economy.
The examples of the US and Israel, having the capacity of maintaining the productive industrial base – which is mainly digitalized and hosted in clouds – enables the country to bounce back in a way its predecessors from the 1945 years never could. The record-breaking tech fundraising and the surge of the shekel in the midst of a multi-front conflict prove that the world economy highly prioritizes innovation over physical land nowadays.
Yet, traditional industries like tourism, agriculture, and construction fall far behind. This led to the birth of a two-faced economic situation where the new ultra-recovered elite benefits from the fast-paced and safe world while the physically working people face the issues of debts, inflation, and shortage of workers.
Ultimately, the lesson of the mid-2020s is that while technology can shield a currency and a stock market from the immediate shocks of war, it cannot fully erase the deep scars of social and financial debt. The transition of private tech companies into digital shields has created a new kind of superpower status—one that relies on a constant stream of innovation to outpace the costs of conflict. In this new hybrid world, the winners are no longer just those with the most tanks, but those whose digital infrastructure is robust enough to turn the chaos of the battlefield into the data of the future.