Valuation, Contagion, and the Abraham Accords Economy

Operation Epic Fury has sharpened a question that the Abraham Accords economy can no longer defer: how much value would actually be destroyed if Israeli commercial engagement in the Gulf were severed? The standard answer—tally bilateral trade and discount for country risk—is dangerously inadequate. It treats each Israeli firm as an isolated revenue line when, in reality, these firms are embedded in host-economy supply chains whose disruption would cascade through dozens of intermediate sectors.

The conventional discounted cash flow approach fails here in two specific ways. First, it treats the firm as an island, ignoring the web of supplier relationships, technology transfers, and joint ventures through which Israeli firms actually generate value in Gulf economies—relationships whose severance would impose costs far beyond the firm’s own revenue. Second, it collapses geopolitical risk into a single country premium, when the risk surface is deeply heterogeneous: a cybersecurity firm embedded in UAE banking infrastructure faces a fundamentally different threat matrix than an agritech venture transferring drip-irrigation technology in Morocco, or a fintech operating through Bahrain’s regulatory sandbox.

Input–output analysis, the structural economics framework pioneered by Wassily Leontief and recognised with the 1973 Nobel Prize, provides the missing lens. By mapping inter-sectoral flows of goods, services, and technology through the Leontief inverse matrix, (I – A)⁻¹, I–O tables reveal the full multiplier effects—backward and forward linkages—that DCF models miss entirely. Applied to Israeli companies in MENA, this approach transforms the valuation conversation from headline revenue to structural impact, and from generic country risk to sector-specific contagion.

Multipliers That Matter

Six years into the Abraham Accords, with the UAE, Bahrain, Morocco, and Sudan formally engaged, Israeli firms have developed substantial backward linkages in Gulf economies. Saudi Arabia remains the conspicuous absence—no formal normalisation, and Riyadh has conditioned recognition on Palestinian statehood—yet tacit commercial engagement is measurable: the UAE–Israel land corridor transits Saudi territory, over 550 multinational firms have established regional headquarters in Riyadh under Vision 2030 (many with Israeli technology embedded in their supply chains), and bilateral normalisation talks resumed in late 2025 with an economic-first sequencing. A cybersecurity firm selling to UAE banks does not merely book revenue; it generates induced demand on local IT services, cloud infrastructure, compliance consultancies, and training academies. An agritech venture in Morocco’s Sous-Massa region enables downstream food processing and reduces the host government’s fiscal exposure to imported food price volatility. The I–O multiplier captures this full cascade.

Constructing a meaningful I–O table for Israeli corporate activity in MENA requires synthesising national supply-use tables from the UAE, Bahrain, and Morocco with disaggregated Israeli export data, UNCTAD FDI flows, and firm-level data from companies listed on the TASE, NASDAQ, or operating through ADGM and DIFC structures. The analytical challenge is that Israeli firms typically straddle multiple sectors simultaneously—a defence-to-civilian conversion company appears in the table as both a manufacturing exporter and a healthcare services enabler—requiring careful revenue allocation across receiving sectors.

Consider the following illustrative multiplier estimates for key Israeli sectors in the Gulf, constructed from publicly available UAE supply-use tables and Israeli trade data.

Illustrative I–O Multipliers for Israeli Sectors in UAE Economy (stylised estimates)

Note: Multipliers derived from UAE Federal Competitiveness and Statistics Centre (FCSC) supply-use tables (2020 release) and Israel Central Bureau of Statistics (CBS) export data, disaggregated by HS code and destination. Risk adjustments are author’s probability-weighted estimates. Figures are illustrative.

The valuation insight is immediate. A cybersecurity firm with $4.2 billion in direct Gulf-facing output generates nearly $10 billion in total economic impact. For investors, the relevant question is not merely “what will this firm earn?” but “how deeply is it embedded in the host economy’s production structure?”—because embeddedness determines both the upside multiplier and the political cost of disruption. A high-multiplier firm enjoys what amounts to an implicit political put option: governments are less likely to restrict a firm whose removal would cascade through twenty intermediate sectors.

Forward linkages matter equally. An Israeli desalination technology firm embedded in a Gulf water-energy-food nexus project does not merely sell equipment; it enables downstream agricultural output, reduces energy-sector water consumption, and lowers the host government’s fiscal exposure to imported food price volatility. The total economic footprint is a multiple of the firm’s top-line revenue, and the I–O framework quantifies that multiple with structural rigour.

Risk as a Matrix, Not a Scalar

Conventional analysis assigns a single country risk premium to all Israeli corporate activity in a jurisdiction. The I–O framework reveals three distinct risk vectors, each following the structure of inter-sectoral flows rather than national boundaries.

Geopolitical contagion risk transmits through supply chains when Israeli–Iranian tensions escalate. The I–O table maps exactly which sectors are exposed: those with high imported intermediate consumption from conflict-affected routes face supply disruption, while those serving purely domestic demand are partially insulated. Regulatory arbitrage risk varies across jurisdictions—Israeli fintech firms operating through DIFC or ADGM structures face different compliance cost structures than those in Bahrain’s Central Bank sandbox or Morocco’s CFC Casablanca, and the I–O framework captures this through the technology coefficients. Dual-use classification risk affects defence-to-civilian conversion acutely. Israel is not a member of the Wassenaar Arrangement, though its Defence Export Control Law references the Wassenaar lists, giving it de facto equivalent status. The operative constraints come from US ITAR extraterritorial reach and host-country regulations aligned with Wassenaar or EU dual-use frameworks—and a reclassification event under these overlapping regimes could sever a forward linkage entirely.

Pricing the Constraint: Le Chatelier Meets Real Options

The Le Chatelier–Samuelson principle, which Samuelson adapted from thermodynamic equilibrium theory and extended to Leontief-Metzler-Mosak systems in his 1960 Econometrica paper, provides the formal bridge between these constraints and valuation. The principle states that constrained multipliers are always smaller than unconstrained ones. The Abraham Accords partially relaxed one binding constraint—diplomatic non-recognition—but left others firmly in place: regional security volatility, third-party sanctions regimes, domestic political opposition in host states. The effective I–O multiplier therefore sits strictly between the fully constrained and fully unconstrained values, and can in principle be computed from the structure of the technology matrix and the binding constraint set. Each additional constraint removed lifts the multiplier toward its theoretical maximum; each new constraint imposed—an Epic Fury escalation, a sanctions tightening—pushes it back down.

This is where real options theory meets input–output structure. A firm contemplating Saudi market entry holds a call option whose payoff is determined by the I–O multiplier of its sector: a multiplier of 3.1 justifies a much larger option premium—in the form of preliminary investment, relationship-building, and regulatory groundwork—than one at 1.95. But put-call parity applies with uncomfortable precision. The call on Saudi entry is mirrored by a put on existing Gulf positions, and the I–O table prices that put: it is the total economic impact, including all indirect and induced effects, that would be lost if the constraint set tightens. This is the central insight. Firms with high multipliers face larger absolute downside but enjoy stronger implicit protection, because host governments internalise the cascade costs. The Le Chatelier principle tells you by how much the multiplier moves when constraints bind; the options framework tells you what that movement is worth.

For policymakers in Abraham Accords states, the framework points toward prioritising Israeli sectors with high backward linkages—cybersecurity, agritech, water technology—for their multiplier effects on domestic employment and capability-building, not merely for their direct contribution.

For investors, the I–O multiplier should enter valuation models as a structural parameter, not a footnote. A cybersecurity firm embedded in UAE banking infrastructure with a multiplier of 2.35 warrants a lower risk premium than a consumer technology firm at 1.2 with no backward linkages. For Israeli firms, the strategic implication is to maximise embeddedness—every local hire, domestic supplier contract, and joint R&D programme raises the multiplier and strengthens the implicit political put. In a region where commercial relationships are inseparable from strategic ones, the I–O table is not merely an economic model; it is a map of political resilience.

The Abraham Accords economy deserves analytical tools commensurate with its complexity. Sentiment indices and headline FDI figures tell us that something is happening. Input–output analysis tells us what is happening—where value is created, how it cascades, what constrains it, and how much would be destroyed if the political winds shift. In a region where the distance between commercial opportunity and geopolitical catastrophe can collapse overnight, that structural precision is not optional. It is the price of responsible analysis. The Leontief inverse, not the country risk premium, is where serious valuation of the Abraham Accords economy must begin.

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