When war destroys the internet economy

Conflict-driven internet shutdowns and infrastructure attacks are crippling startup ecosystems across multiple emerging markets, interrupting AI-dependent services and e-commerce operations (e.g., Digikala, historically ~750,000 daily unique visitors and an estimated $150m valuation) after an Iran blackout began on Jan. 8. The phenomenon is widespread — #KeepItOn reported 103 conflict-related shutdowns in 2024 (up from 74) — forcing talent flight (an estimated 65,000 Ukrainian tech professionals abroad), distributed survival operations (Sudan), and large reconstruction needs (World Bank cites ~$216bn for Syria), raising persistent operational, revenue and investment risks for regional tech and fintech exposures.

Analysis

Market structure: Rising frequency of conflict-related shutdowns (103 incidents in 2024 vs 74 prior year, ~39% increase) shifts value to resilient comms, cloud-hosted AI and cybersecurity vendors and away from local EM e-commerce and fintech. Expect vendors of satellite/backhaul (VSAT), managed cloud (AMZN, MSFT, GOOGL) and security (CRWD, FTNT) to see 3–10% incremental revenue opportunity in 12–24 months as customers pay premiums for resilience.

Risk assessment: Immediate impact (days–weeks) is revenue stoppage for on‑ground merchants and spikes in FX volatility for affected EM currencies; short term (months) sees hiring freezes and fundraising droughts; long term (quarters–years) is brain drain that can shave 20–40% off local startup valuations and extend time‑to‑exit. Tail risks include escalation to regional war or sanctions on cloud/satellite vendors (low probability, high impact) — trigger: >3 new national shutdowns in 60 days or targeted sanctions on a major cloud provider.

Trade implications: Favor 6–18 month allocations to cybersecurity and satcom/defense equities and options (HACK/CRWD, VSAT, LHX) and reduce EM tech beta (EEM/EMQQ) by 20–40%. Use pair trades (long cyber/defense, short EM tech) and option structures (3‑month call spreads on CRWD; 6–12 month LEAP calls on VSAT) to capture rising resiliency spend while capping downside.

Contrarian angle: The market may overpay purely for “defense” names while underpricing diaspora-enabled rebuilding and cloud migration opportunities; historical parallels (Ukraine’s post‑invasion tech rebound: Grammarly/GitLab) argue for selective long stakes in global cloud and remote‑work enablers (AMZN, MSFT) at 12–36 month horizons. Unintended risk: rapid defense/comms wins can trigger export controls or supply constraints that re‑rate beneficiaries if boarderline suppliers are sanctioned.

Key Decisions for Investors

• Establish a 2–3% portfolio long in cybersecurity exposure: 1.5% in CRWD and 1% in HACK ETF with 6–12 month horizon; implement a 3‑month ATM call spread on CRWD (buy ATM call, sell 10–15% OTM call) to limit cost and target 20–40% upside.
• Add 1–2% long in satellite/defense: split 1% VSAT and 1% LHX with 12–18 month horizon; hedge with 6–12 month 10% OTM puts sized at 25% of position if broader geopolitical escalation occurs (trigger: >3 new national shutdowns in 60 days).
• Reduce emerging‑market tech beta: trim EM tech/SMID exposure (EEM or EMQQ) by 20–40% within 30 days and redeploy into cloud leaders (AMZN, MSFT) 0.5–1% each for 12–36 months to capture cloud migration from unstable jurisdictions.
• Implement pair trade: long CRWD (1.5%) vs short GTLB (0.5%) over 3–6 months — rationale: asymmetric upside from cybersecurity spend vs modest near‑term growth risk for GTLB from talent disruptions; unwind the short if two consecutive months show <1 shutdown/month in impacted regions.
• Near‑term monitoring triggers (actionable): if #KeepItOn reports >3 new country shutdowns in 60 days or sanctions target a major cloud/satcom supplier, increase cyber/defense longs by +1–2% and increase EM hedges (buy 3‑month EEM puts 5% OTM) immediately.