Perils of Iran War for the US Military Industrial Complex

The operation in Iran, where the United States expected to achieve success similar to Venezuela, turned out to be a poorly calculated action. Misconceptions about Iran assumed that the country was under the control of a single inpidual or group. However, the system formed over centuries within the country became a real challenge for the United States. In fact, the real problem for the US is not limited to the potential closure of the Strait of Hormuz. Rather, this issue is also connected with the suspension of flights in the region.

The US defense industry operates in conjunction with civil aviation and the space sector in order to maintain financial inflows even during peacetime. Having profited from crises ranging from Afghanistan to Ukraine, the US defense industry unexpectedly encountered serious difficulties in a war with Iran. Since military crises generally imply increased demand for defense companies, their shares and revenues tend to rise during such periods. However, as a result of the war with Iran, flight restrictions imposed not on a single country but on the entire region led to a decline in demand for civil aviation, causing shares in the US defense industry to fall. In other words, companies in the US that combine defense, civil aviation, and space sectors faced declining stock values instead of benefiting from the war.

Source: AlJazeera

Restrictions on flights to tourism hubs such as Dubai in the Middle East, as well as disruptions in the operations of civil aviation giants like Qatar Airways or Emirates, are causing significant financial losses for the aviation industry. Considering that defense and aviation companies in the US are integrated, the Iran war is producing a reverse effect on the US defense sector. Defense industry stocks, which had grown by around 20% since the beginning of the Ukraine crisis in 2022, declined by approximately 10% in monthly ratio during the Iran war. This shift may force even arms magnates, who support the US political elite’s decisions on foreign interventions, to reconsider continuing the war.

Additionally, rising energy prices are making travel to other regions of the world more expensive. The increase in energy prices naturally leads to higher ticket costs and flight cancellations. For instance, Korean Air announced that it had to implement emergency measures to maintain its stability, becoming one of the latest Asian companies forced to take such steps. These losses in civil aviation may at least neutralize the gains of the defense industry. It is worth noting that both Lockheed Martin and Boeing stocks experienced some of their lowest levels during the energy crisis of the 1970s. This indicates that defense industry stocks are relatively inversely proportional to energy prices.

Thirdly, failures related to weapons performance may also negatively affect the US defense industry. A simple example is that Iran’s Shahed-type drones appear to be more effective on the battlefield than the MQ Reaper drones produced by General Atomics Aeronautical. The relatively lower battlefield efficiency of MQ Reaper drones, each costing around $30 million, compared to Shahed drones, calls into question their market demand. As a result, US military companies producing MQ Reaper-type drones—primarily designed for multiple-use missions—may face another serious loss. They will now be required to reconsider their specialization and modify their drone production strategies.

An even more serious situation than drone losses is related to the hitting of F-35 fighter jets by Iran. While the loss of a single aircraft may not itself cause severe financial shock, it increases demand for air defense systems capable of downing one of the leading fighter jets of the US military. Countries supplying spare parts for Iran’s air defense systems may gain a form of indirect promotion in the global military technology market.

Finally, there is the decreasing interest of Gulf Arab states in US defense guarantees and military equipment. A reduction in purchases by Arab allies would significantly decrease revenues of the US defense industry. The perception that the United States is not adequately protecting its Arab allies in the Iran war may compel them to reconsider defense agreements with the US. In a context of declining petrodollar flows, the US defense industry will be forced to seek alternative options. Of course, Arab states cannot rapidly replace the US with another power—most notably China. However, one of the negative consequences of the Iran war has been the erosion of trust in the Arab market, which is a key consumer of US defense products.

The dilemma facing the US defense industry is that if the war in Iran ends, demand for military products may decline, leading to falling stock prices. If the war continues, disruptions in civil aviation and the loss of Arab partners may reduce demand for defense company stocks. Furthermore, technical losses may weaken confidence in industrial products.

It must be acknowledged that the US is seeking an alternative exit strategy from the Iran war. This involves maintaining the stability of defense industry revenues by emphasizing expensive projects in the space sector. US government lunar programs can generate financial inflows into the aerospace sector, which is linked to the defense industry. Although the program is directly aimed at maintaining US leadership in space and on the Moon, it also indirectly serves to stabilize defense companies following unexpected setbacks in the Iran war. However, using such strategic objectives to mitigate tactical challenges may inevitably affect the broader economic and social situation within the US. For example, President Donald Trump, while discussing a $1.5 trillion defense budget, noted that part of the funding would be reallocated from social sectors. More specifically, spending on non-military sectors could be reduced by up to 10%.

In reality, the US needs to find strategic solutions to strategic problems. The war in Iran has exposed the vulnerabilities of the US defense complex. Firstly, the large-scale suspension of civil aviation may block financial inflows into the defense industry. Additionally, shortcomings in advanced technologies and the US’s incomplete adherence to military agreements are prompting more cautious approaches to trade agreements. Maintaining such a massive industry by reducing social spending and limiting infrastructure investments is gradually intensifying internal tensions.

As a strategic solution consistent with US legislation, the time has come to apply antitrust laws against defense industry giants. The integration of strategic sectors like space research and non-military sectors like civil aviation with defense companies is beginning to produce negative effects. Firstly, it opens the door for economic warfare conducted by US military corporations. Secondly, these giants are creating financial pressure on the social sector. Reductions in social spending may, in turn, strengthen populism and right-wing radicalism in domestic politics.

Separating military, civil, and space sectors through antitrust laws would not only help reduce internal pressure by allocating more resources to social reforms, but also ensure political balance with elites capable of influencing government decisions. As long as independent decision-making centers still function within the US government, reforms must be implemented before these systems become paralyzed by problems arising from the military-industrial complex. At the core of these reforms should be large-scale restructuring of the defense industry based on antitrust principles.