Conflict and Capital: The Divergent Paths of Wealth among Business Elites in Israel and Iran during Wartime

Author name: Ahmed Khan

This study examines the economic trajectories of business elites in Israel and Iran during periods of geopolitical conflict. Grounding analysis in institutional economics and war economy frameworks, it argues that while Israeli entrepreneurs often leverage wartime dynamics for wealth accumulation, their Iranian counterparts frequently face financial challenges compounded by sanctions, corruption, and structural bottlenecks. Through comparative case studies—including the Iran–Iraq War, recurrent Israel–Iran standoffs, and the recent Middle East escalations—this paper highlights how political institutions, state-business relations, and economic resilience shape outcomes for business leaders amid warfare.

Keywords: war economy, business elites, Israel, Iran, economic institutions, sanctions, defense industry, corruption.

1. Introduction

Throughout history, warfare has profoundly shaped economic destinies. Business elites may either capitalize on conflict—via defense contracts, reconstruction, or market arbitrage—or suffer setbacks due to sanctions, infrastructure damage, and market uncertainty. This paper explores this duality, with a focus on Israel and Iran—two regional rivals whose contrasting institutional regimes yield divergent outcomes for business elites during wartime.

2. Theoretical Framework

2.1 War Economy and Economic Warfare

War economies often emerge through a combination of direct military spending and indirect economic maneuvers (blockades, sanctions, asset seizures) that reshape markets and investment flows (Baldwin, 1985) . In authoritarian or highly centralized states, wartime profiteering can be captured by regime-aligned business elites; in more plural economies, the effects are more varied, often favoring agile entrepreneurs in emerging sectors.

2.2 Corruption and Rent-Seeking

Corruption intensifies during wartime, as increased public spending and reduced oversight create fertile conditions for rent-seeking and illicit gains (Farzanegan & Zamani, 2024). In Iran, state-sanctioned corruption and shortage-economy tactics (e.g., “resistance economy”) often redirect war-driven profits toward regime insiders rather than private-sector innovators

3. Israel: Entrepreneurs Riding the Conflict Wave

3.1 Defense Industry and High-Tech Spillovers

Israel’s robust defense sector—anchored by firms such as Israel Aerospace Industries, IMI, Rafael, and Tadiran—has thrived during wartime and peacetime alike. High Defense R&D budgets (~USD 700 M annually in the 1970s–80s) have enabled both military innovation and civilian high-tech spin-offs.

Example: Israeli defense manufacturers provided military equipment throughout the 1980s, increasing foreign exchange earnings and catalyzing civilian tech industries. Even when defense R&D may have underperformed relative to civilian R&D in pure export terms, the cross-sector knowledge transfer bolstered long-term commercial competitiveness .

3.2 Market Resilience amid Ongoing Conflict

Despite periodic escalations—such as rocket attacks or Iran-linked missile drills—in recent years, Israeli markets have demonstrated surprising resilience. The TA-125 index has typically rebounded swiftly, supported by ingrained investor confidence and government interventions. Historical financial analysis shows that, unless supply chains and oil chokepoints are critically impacted, Israel’s equities often bounce back within weeks

3.3 Strategic Business Positioning

Leading Israeli firms often pivot rapidly during wartime, offering cybersecurity, drones, and surveillance tools—services in high demand globally amid conflict. The fusion of military-grade R&D and commercial marketing enhances the wealth of business leaders aligned with both sectors.

4. Iran: Wealth Trapped within Sanctions and Cronyism

4.1 The “Resistance Economy” and Structural Constraints

Since the 1979 revolution, Iran has pursued a state-driven “resistance economy” to mitigate sanctions, encouraging barter trade and local substitution. While it prevented systemic collapse, this model restricted private enterprise, instead empowering regime-linked conglomerates, limiting genuine wealth accumulation by independent entrepreneurs.

4.2 Sanctions, Currency Shocks, and Profit Instability

Empirical analyses show that sanctions precipitate inflation spikes, exchange rate volatility, and reductions in output—hindering long-term investments by business elites (Laudati & Pesaran, 2021. The rial’s depreciation fosters short-term windfalls for regime-affiliated traders but damages broader investor confidence and elite diversification.

4.3 Cronyism and Internal Rent-Skimming

Decades of institutionalized corruption, especially via IRGC-controlled businesses, channel wartime economic rents to insiders (Fathollah-Nejad, 2024). These actors benefit from opaque military contracts and currency subsidies, yet this wealth remains tied to regime stability, exposing them to political risk.

5. Israel vs. Iran: Comparative Wealth Outcomes

Dimension	Israel (Private Elites)	Iran (Regime-Linked Elites)
Institutional Freedom	Market-driven, pluralistic; resilient during crises	Centralized, opaque; constrained by sanctions
Defense Sector	Significant spillover to civilian tech	Integrated with IRGC-controlled firms; limited civilian diffusion
Market Stability	Markets rebound swiftly; government cushions volatility	Volatile economy, repeated shocks from sanctions and war
Profit Capture	Legal contracts, exports, innovation	Rent-skimming, corruption, informal networks
Wealth Accumulation	Potentially global and diversified	Concentrated, politically tied, bounded by domesticization
Political Risk Exposure	Moderate (subject to global investment flows)	High (regime threat or sanctions risk)

6. Case Studies

6.1 Iran–Iraq War (1980–88)

Israel: Clandestinely supplied arms to both Iran and Iraq, but also solidified its defense exports. Firms like IMI and IAI gained from regional tensions, generating both military and technological spillovers.

Iran: War spending, sanctions, and foreign blockades led to widespread shortages. The foundational resistance economy insulated elites but failed to catalyze sustainable wealth creation.

6.2 2000s–2015 “Campaigns between Wars”

Israel: Adopted “campaigns between wars” strategy with consistent military R&D fueling startups in cyber and aerospace—commercial war profiteering under transparent systems .

Iran: Relief from the 2015 nuclear deal allowed for limited foreign engagement. However, anti-corruption weaknesses and renewed sanctions by 2018 reasserted elite capture and thwarted independent wealth creation.

6.3 2023–25 Middle East Escalation

Israel: Even amid missile strikes, the TA-125 index has risen, reflecting investor confidence and active fiscal rescue strategies .

Iran: Faced damage to infrastructure and a decline in oil revenues. Any wartime profiteering occurred within IRGC domains, reinforcing crony networks and political risk.

7. Discussion

7.1 Institutional Resilience vs. Cronyism

The Israeli case illustrates how pluralist institutions and global market integration enable war to catalyze innovation and wealth—within legal, transparent frameworks. Conversely, Iran’s model concentrates wealth within politically safe enclaves, often devoid of sustainable economic diversification.

7.2 External Economic Shocks

Israel benefits from strong investor sentiment and global investor networks, cushioning shocks. Iran is repeatedly severed from global finance, reliant on barter systems, informal markets, and illicit asset transfers.

7.3 Corruption’s Dual Role

Corruption fuels wartime profiteering in Iran but traps wealth within narrow political circles. In Israel, by contrast, corruption is relatively limited, and defense contracts are bid competitively—leading to diffused economic gains.

8. Conclusion

Business elites in Israel and Iran experience dramatically different economic outcomes during conflicts. Israel exemplifies a model where wartime dynamics strengthen innovation-rich industries, diversify wealth, and restore markets quickly. Iran, in contrast, consolidates wealth within regime-aligned elites, prioritizes political survival over economic diversification, and struggles with recurring shocks.

For business leaders and policymakers, these findings stress the importance of:

1. Institutional transparency—fostering competitive markets and equitable wealth distribution.

2. Global integration—allowing businesses to escape domestic downturns.

3. Anti-corruption safeguards—enabling independent entrepreneurs to thrive even under geopolitical stress.

9. Five Hashtags

#WarEconomy #WealthInequality #IsraelIran #DefenseIndustry #EconomicInstitutions

References

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• Laudati, D., & Pesaran, M. H., “Identifying the Effects of Sanctions on the Iranian Economy using Newspaper Coverage,” arXiv preprint, 2021.

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• Wikipedia contributors, “Defense industry of Israel,” and “Resistance economy,” accessed 2025.