IT SOURCING INSIGHTS

Impact of the Middle East Conflict on Supply Chains 

A GUIDE FOR STRATEGIC ADJUSTMENTS IN IT SOURCING

The escalating conflict between Israel and Iran is set to further strain global supply chains already pressured by tariff volatility – shifting IT spending priorities from innovation to resilience. Immediate impacts are being felt in logistics and energy costs, while more indirect ripple effects may emerge in hardware and semiconductor supply chains, given Israel’s niche but strategic role in chip design and tech R&D.

Overall Impact on Global Supply Chains

The conflict’s influence on global supply chains is expected in several key areas:

1 RISING OIL & ENERGY COSTS

• Impact: Brent crude surges are already occurring and driving up transportation and manufacturing costs globally.
• IT Relevance: Increases costs across the economy and specifically in IT categories due to more expensive logistics and energy-intensive data centers and chip production.
• Note: Iran accounts for ~4% of global oil production; fuel surcharges on affected shipping routes have already risen 15–30%.
  

2 STRAIT OF HORMUZ RISKS

• Impact: As a key global chokepoint (30% of global container traffic, 20% of oil, 30% of liquified natural gas), disruption here increases freight times, shipping costs, and insurance premiums.
• IT Relevance: Delayed and costlier shipments for IT equipment and critical components; shipping times may increase by up to 14 days.

3 AIR AND SEA FREIGHT DISRUPTIONS

• Impact: Major carriers are scaling back operations to Israeli ports; airspace closures are interrupting cargo flow.
• IT Relevance: Hardware delays and cost increases for components sourced from or routed through affected areas.

4 SHIFT TO RESILIENT INVENTORY MODELS

• Impact: Movement away from just-in-time models toward buffer stock and nearshoring.
• IT Relevance: Increased capital tied up in inventory; investments needed in storage, systems, and sourcing redundancy.

Specific Impact on IT Spend Categories

The most immediate effects are expected in Cybersecurity and Digital Infrastructure.

CYBERSECURITY

1 CYBERSECURITY SURGE IN THE MIDDLE EAST AND NORTH AFRICA

Information security spending in the region is projected to hit $3.3 billion in 2025, a 14% increase from 2024. This is largely driven by heightened cyber threats linked to regional instability. U.S. enterprises are watching closely, viewing this as a proxy for the rising threat environment.

2 SECURITY SOFTWARE LEADS THE PACK

Nearly 45% of that spend will go toward security software – identity and access management, endpoint and network protection, Zero Trust frameworks, and threat intelligence – all categories seeing mirrored growth in U.S. enterprise budgets.

3 MANAGED SECURITY SERVICES EXPANDING

Ongoing shortages in skilled cybersecurity talent are pushing more U.S. organizations to adopt outsourced capabilities like Managed Detection & Response (MDR), currently the fastest-growing security subcategory (forecasted at 16.6% growth globally).

4 GEOPOLITICAL RISKS DRIVE SOVEREIGN CLOUD DEMAND

Heightened geopolitical tensions, including the Middle East conflict, are accelerating interest in sovereign cloud solutions. U.S. companies are prioritizing these platforms to ensure regulatory compliance, data sovereignty, and operational resilience against international disruptions.

5 AI-DRIVEN SECURITY CHALLENGES

The rapid adoption of generative AI and multi-cloud environments is creating new cybersecurity challenges. U.S. enterprises are investing in advanced security tools to protect increasingly complex and scalable workloads, including AI-specific threat detection and cloud-native defenses. Rising cyber threats from actors in the Middle East are amplifying this urgency.

6 GEOPOLITICAL RISK SHAPES IT BUDGETING

U.S. CIOs and CISOs are increasingly incorporating geopolitical tensions – such as the Middle East conflict – into their IT budgets and risk strategies. This involves allocating resources for incident response, supply chain risk monitoring, and critical infrastructure protection to maintain business continuity amid growing global uncertainty.

IMPACT ON IT HARDWARE AND CHIP SPEND

While the Middle East conflict does not directly disrupt the major global semiconductor fabrication hubs, it still carries implications for IT hardware and chip spending – primarily due to Israel’s key role in chip design and R&D, as well as broader supply chain pressures.

ISRAEL’S CENTRAL ROLE IN CHIP DESIGN AND IP

• Israel is a global leader in semiconductor design, housing roughly 8% of the world’s chip design talent and hundreds of specialized firms.

• Major tech companies – including Intel, Nvidia, Qualcomm, Cisco, Apple, Amazon, and Microsoft – maintain key chip design centers in Israel. Intel’s Israeli facilities, for example, have been instrumental in developing processors like the 8088 microprocessor and recent innovations such as the Lunar Lake and Gaudi AI processors.

• Although fabrication is mostly done elsewhere, disruptions in Israel – caused by workforce shortages, security concerns, or instability – could delay chip design and R&D efforts. This may slow innovation pipelines for next-generation processors and specialized AI chips.

• IT Spend Impact: Companies could face higher R&D costs over time as they invest in redundancy and alternative design resources. Delays in chip development can ripple into slower product refresh cycles and increased prices for cutting-edge IT hardware.

INDIRECT IMPACT ON HARDWARE MANUFACTURING AND SUPPLY CHAINS

• Energy & Transport Inflation: Rising oil prices are driving up manufacturing and shipping costs for energy-intensive IT hardware, including chips, servers, and laptops. These cost increases are being passed on to buyers.

• Logistics Disruptions: Airspace restrictions, shipping delays, and higher maritime insurance costs near the conflict zone are straining delivery timelines and inflating transportation expenses.

• Component Bottlenecks: While Israel is focused on design, disruption to its chip IP or specialized testing functions could delay availability of certain components.

• Impact on IT Spend: U.S. enterprises may face higher hardware acquisition costs, longer lead times, and the need to plan purchases further in advance – potentially paying premiums or accepting less optimal hardware alternatives.
  

Strategic Adjustments in IT Sourcing and Resilience (for U.S.-based firms)

In response to these risks, U.S.-based firms are implementing more robust IT sourcing and resilience strategies:

1 DIVERSIFYING VENDOR GEOGRAPHY

Actively reducing reliance on vendors with operations in or near conflict zones, including shifting workloads away from Israeli data centers (especially for sensitive data) and reassessing partnerships with firms having R&D or support hubs in high-risk areas. This involves building a risk-weighted vendor scoring system that integrates geopolitical risk metrics.

2 PRIORITIZING CYBER RESILIENCE

Investing in threat intelligence platforms that monitor geopolitical risks in real-time, deploying zero-trust frameworks to limit lateral movement in case of breaches, and increasing spend on sovereign cloud solutions to ensure data jurisdictional control. This also includes dual-sourcing critical services for cloud hosting, endpoint protection, and identity management across geographically diverse providers.

3 MULTI-CLOUD AND HYBRID STRATEGIES

Adopting multi-cloud architectures across major providers (AWS, Azure, Google Cloud) to avoid single points of failure. Some are repatriating critical workloads to on-premise or hybrid environments for added control and maintaining hybrid fallback capacity.

4 COST-CONTAINMENT MEETS RISK HEDGING

Negotiating flexible contracts with cloud and security vendors to accommodate volatility and investing in automation and AI-driven operations to offset rising labor and insurance costs. This includes incorporating flexible SLAs and ensuring insurance alignment with elevated regional risks.

5 ENHANCED RISK SCORING IN PROCUREMENT

Embedding geopolitical risk scoring into vendor selection criteria, evaluating data center locations, supply chain dependencies (including reliance on specific chip designs from vulnerable regions), and cyber maturity. Using third-party risk platforms to simulate conflict scenarios and stress-testing vendor resilience is also becoming more common.

6 INCREASED BUFFER STOCK

Investing in greater inventory of critical IT hardware components and raw materials to weather potential disruptions, moving towards a “just-in-case” rather than “just-in-time” model.

7 LONG-TERM RESHORING/NEARSHORING CONSIDERATIONS

While primarily impacting national-level industrial policy, the conflict reinforces the strategic imperative for nations to invest in domestic semiconductor manufacturing and IT hardware production to reduce reliance on vulnerable global supply chains, even if it entails higher initial costs.

Possible Vendor Impacts

Based on their operational presence, R&D capabilities, and strategic partnerships within Israel, several specific IT vendors may be more directly impacted by the Middle East conflict. These impacts can range from disruptions to chip design and production to increased operational risks and heightened scrutiny over their services. These are homegrown Israeli companies with significant presence and influence:

1 CHECK POINT SOFTWARE TECHNOLOGIES

Focus: Cybersecurity

One of the earliest and most successful Israeli IT companies. Products include firewalls, endpoint protection, and cloud security.

2 NICE SYSTEMS

Focus: Customer engagement, analytics, and financial crime prevention

Serves large enterprises, including banks and contact centers.

3 AMDOCS

Focus: Software & services for telecommunications and media companies.

Provides billing, CRM, and operational systems.

4 RAD GROUP (RADWARE, RADWIN, ETC.)

Focus: Networking, cybersecurity, telecom.

A family of independent companies spun off from the original RAD Data Communications.

5 CYBERARK

Focus: Identity security and privileged access management.

Widely used in finance, government, and critical infrastructure

6 MELLANOX TECHNOLOGIES (ACQUIRED BY NVIDIA)

Focus: High-performance networking hardware and software.

Still has significant R&D presence in Israel under NVIDIA.

7 ISRAEL AEROSPACE INDUSTRIES (IAI) – ELTA & TAMAM DIVISIONS

Focus: Defense and aerospace IT systems, radar, and cybersecurity

8 MATRIX IT

Focus: IT services, consulting, and system integration.

One of the largest IT service providers in Israel.

9 TALDOR

Focus: System integration, IT services, software development.

Works with government and large enterprise clients.

10 TEAM (ONE1, MALAM TEAM)

Focus: IT infrastructure, cloud, software, and outsourcing services.



Global Multinationals with Strong Presence in Israel

(including R&D/innovation centers)

Here are specific technology vendors and how they may be affected:

INTEL

• Direct Impact: Intel has a long-standing and substantial presence in Israel, dating back to 1974. Its Israeli R&D centers (in Haifa, Petah Tikva, and Jerusalem) have been instrumental in developing crucial processors like the Pentium M, Core-2, Lunar Lake, and all of its Gaudi artificial intelligence (AI) processors. Intel also operates a significant manufacturing plant in Kiryat Gat, where advanced semiconductors are produced.
• Vulnerability: The conflict poses risks of workforce disruption (e.g., military conscription affecting employees), potential damage to facilities, and challenges to ongoing R&D projects and chip production. While some recent workforce reductions are linked to broader industry trends, geopolitical instability can exacerbate these pressures. There have also been discussions and shareholder proposals questioning Intel’s operations in Israel due to the conflict.
• IT Spend Impact: Potential delays in the development and availability of next-generation processors and AI chips, leading to higher costs for these critical components in the IT hardware category.

NVIDIA

• Direct Impact: Nvidia has a significant R&D presence in Israel, serving as its second- largest R&D center outside the U.S., largely due to its acquisition of Mellanox. Thousands of Nvidia employees are based in Israel, actively involved in developing advanced AI chips and supercomputing solutions like “Israel-1.”
• Vulnerability: The conflict has had direct consequences, including impacts on employees and the cancellation of major events like an AI conference in Tel Aviv. There’s also increasing scrutiny and ethical concerns regarding the potential dual-use nature of their advanced AI hardware and its alleged use in military applications in the region, which could lead to reputational and regulatory risks.
• IT Spend Impact: Potential disruptions to the development pipeline of cutting-edge AI chips and high-performance computing components, which are crucial for AI/ML infrastructure and data centers. This could lead to scarcity and price volatility for these high-demand items.

OTHER MAJOR U.S. TECH GIANTS

(GOOGLE, AMAZON, MICROSOFT, APPLE, QUALCOMM, CISCO)

• Direct Impact: These companies also maintain significant R&D centers, cloud regions, or chip design operations in Israel. For instance, Google and Amazon are part of “Project Nimbus,” a large cloud computing contract with the Israeli government and defense establishment. Microsoft has launched an Azure cloud region in Israel and provides cloud and AI services to the Israeli Defense Ministry. Apple, Qualcomm, and Cisco also have chip design or development hubs in the country.
• Vulnerability: Beyond direct operational risks (e.g., disruption to R&D teams or data centers), these companies face increasing ethical and reputational scrutiny due to their perceived complicity or involvement in the conflict through the provision of technology. This can lead to internal employee dissent, public backlash, and potential boycotts, which can impact their market perception and ability to attract talent.
• IT Spend Impact: For customers, this could mean increased scrutiny of their own reliance on these vendors, potential pressure to diversify cloud providers, or a general awareness of the ethical implications of their IT sourcing. For the vendors themselves, there might be increased compliance costs and potential market challenges if public sentiment shifts.

INDIAN IT SERVICE PROVIDERS

(TCS, WIPRO, INFOSYS, TECH MAHINDRA)

• Direct Impact: Several large Indian IT services firms have a notable presence in Israel through various contracts and partnerships, including critical government digital infrastructure projects.
• Vulnerability: Their operations and client engagements in Israel make them susceptible to direct disruptions from the conflict, impacting service delivery, project timelines, and potentially client relationships. Their stock performance has already reflected subdued investor confidence due to these tensions.
• IT Spend Impact: For organizations outsourcing IT services to these providers, there’s a risk of service interruptions or delays for projects managed out of or impacted by their Israeli operations. This necessitates closer monitoring of SLAs and potentially diversifying service providers

NOTABLE STARTUPS AND SCALE-UPS

• Wix – Website building platform.
• Monday.com – Project and work management SaaS.
• WalkMe – Digital adoption platform.
• SentinelOne – AI-based cybersecurity.
• Similarweb – Web analytics and market intelligence.

Conclusion

In summary, IT vendors with direct R&D, manufacturing, or significant service delivery operations in Israel, or those whose core products (like advanced chips) are heavily reliant on Israeli design talent, are particularly exposed to the direct impacts of the Middle East conflict. These impacts translate into higher costs, potential delays, and increased scrutiny across various IT spend categories, pushing organizations to prioritize resilience and diversification in their vendor strategies.

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