The Tech Download: Defense startups eye Iran war windfall as U.S. and Gulf states turn to tech

Defense startups on both sides of the Atlantic are seeing heightened demand as the U.S. and Gulf states turn to new technologies amid the Iran war, with more than 3,000 drones and missiles fired at the United Arab Emirates, Saudi Arabia, Bahrain and Kuwait since the start of the conflict, according to data compiled by the Center for Strategic and International Studies. Investment into the sector has surged—from $869 million globally in 2020 to $11.2 billion in 2025, Dealroom data shows—and European firms report plans to expand staff in the Middle East to meet rising commercial interest.

"The Iran war is the 'moment defense tech and Silicon Valley have been waiting for,'" wrote CNBC reporter Samantha Subin, capturing how startups view the recent spike in demand. One defense CEO also told reporters that interest from Gulf states was "skyrocketing" as governments race to bolster defences against drone and missile attacks.

Demand, investment and real-world tests

Startups say U.S. Department of Defense customers have increased orders since strikes on Iran began at the end of February, with some offering to buy out production capacity or asking firms to ramp up manufacturing. Estonia-headquartered Frankenburg technology — maker of the Mark I interceptor missile — and Ukrainian-UK company Uforce told CNBC they are stepping up hiring plans in the region. Frankenburg has conducted live-fire tests of its Mark I interceptor, highlighting the kind of systems now in demand.

• Sector funding: $869 million in 2020 → $11.2 billion in 2025 (Dealroom)
• Regional attacks: 3,000+ drones and missiles fired at GCC states since conflict began (CSIS)
• European and U.S. startups reporting increased commercial talks with Gulf governments

The broader investor appetite for defense and dual-use technology is illustrated by recent megarounds: autonomous ship startup Saronic announced a $1.75 billion round, and drone company Shield AI secured $2 billion, underscoring how capital is flowing into companies tied to security and defence innovation.

Hurdles and strategic trade-offs

Despite the surge in interest, startups face practical challenges. The U.S. government "hasn't offered a steady enough flow of contracts to rationalize scaling" for some firms, Subin reported, creating a dilemma for founders. "That's leaving defense tech firms divided over whether to hike capacity to win deals and risk profitability, or hold off and potentially miss opportunities," she said. For European firms, which are often more capital-constrained than U.S. peers, committing resources to the Middle East could mean pulling talent and product focus away from markets in Europe and North America.

Decision-making over finite resources will determine whether the current window of demand becomes a sustained commercial opportunity or a short-term windfall. Time will tell whether increased orders and Gulf-state interest translate into stable, long-term contracts that can justify expanded production and recruitment.