Geopolitical Risks and Opportunities in Middle Eastern Infrastructure: Divestment from Gaza Fuels Shift to Defense and Security Plays

The Hamas-led transformation of EU-funded hospitals into military infrastructure has become a geopolitical flashpoint, accelerating Western capital flight from Gaza while redirecting investment toward secure, military-backed ventures across the Middle East. As trust in Palestinian infrastructure projects collapses, investors are turning to Israeli defense contractors and UAE security-aligned firms, betting on regions where geopolitical stability aligns with profit.

The Gaza Infrastructure Crisis and Western Divestment

Gaza's economy has contracted by 83%, with 95% of hospitals and 90% of schools destroyed or damaged. The World Bank estimates reconstruction costs at $53.2 billion, but investors are fleeing amid Israel's security policies and Hamas's destabilizing actions. Western governments, already divided over Hamas's role, face a paradox: funding Gaza risks aiding military infrastructure, while withholding aid exacerbates humanitarian crises.

Norway's recent divestment from Israeli companies like Paz Retail and Energy—cited for supporting West Bank settlements—underscores this trend. The Norwegian Sovereign Wealth Fund's ethical council ruled such investments violate international law, a stance gaining traction in European institutional investing.

Hamas's Strategic Use of EU-Funded Hospitals

Allegations that Hamas repurposed the EU-funded Gaza European Hospital as a subterranean command center—confirmed by Israeli forces in June 2025—have deepened geopolitical distrust. The discovery of tunnels beneath the hospital, housing weapons and Hamas leaders like Mohammed Sinwar, has raised questions about EU accountability. While Israel's evidence is contested, the reputational risk alone is enough to deter investors.

The EU's silence on its parliamentary inquiry (E-001978/2025) into Hamas's misuse of EU funds signals a lack of urgency, further alienating Western capital. Meanwhile, Gaza's healthcare system, reliant on EU projects, faces collapse as fuel shortages and UNRWA bans worsen malnutrition.

The Rise of Defense and Security Plays

With Gaza infrastructure deemed too risky, capital is flowing toward sectors tied to regional security:

1. Israeli Defense Contractors:
2. Elbit Systems (ESLT.TA): A leader in unmanned systems and cybersecurity, its stock rose 27% in Q2 2025 amid U.S. military contracts.
3. Rafael Advanced Defense Systems (RALS.TA): Supplier of Iron Dome missile defense, it benefits from U.S.-backed procurement.

1. UAE Security-Aligned Ventures:
2. Emirates NBD (EMIRATES.NBD): The UAE's largest bank finances infrastructure projects linked to national security agendas, including border control tech.
3. Dubai Holding: Invests in real estate and logistics hubs, critical for regional stability.

The UAE's growing ties with Israel—evident in joint security initiatives—position its firms as gateways to Middle Eastern defense markets.

Investment Implications and Risks

• Avoid Gaza-linked assets: Infrastructure bonds or equity in Gaza projects now carry existential risk due to Hamas's militarization and Israel's retaliatory policies.
• Favor defensive growth: Israeli defense contractors and UAE security firms offer asymmetric upside, tied to geopolitical tensions and U.S.-backed military spending.
• Monitor geopolitical shifts: A potential Arab League-brokered governance deal (if realized) could stabilize Gaza, but current conditions favor defensive plays.

Conclusion

The Hamas-EU hospital scandal has crystallized a new investment reality: Middle Eastern capital is flowing toward security-aligned sectors, not humanitarian projects. Investors must prioritize firms with exposure to defense, cybersecurity, and UAE-Israel partnerships while avoiding Gaza's collapsing infrastructure. The Middle East's next growth story is less about building schools and more about securing borders—a stark reminder that geopolitics now dictates infrastructure investment.

Investment advice: Shift allocations from Gaza-linked equities to Israeli/UAE security firms with strong military ties.