Iran's Supreme Leader Ayatollah Ali Khamenei waves before taking part in the country's presidential election on July 5, 2024 in Tehran, Iran.
Iranian Supreme Court Office | Via Reuters
Iran's powerful proxy network in the Middle East is taking blow after blow from Israel, which has dramatically escalated fighting with the Lebanese militia group Hezbollah, killing its longtime leader Hassan Nasrallah in a series of air strikes on Beirut on Friday.
Hezbollah is Iran's most important strategic ally and functions as both a militant and political organization, which Tehran has funded and promoted since its founding in 1982 to become what is widely considered to be the world's most heavily armed non-state group.
Beginning with a series of sabotage attacks in early September that resulted in the explosion of thousands of Hezbollah pagers, Israel has not only crippled much of the group's communications but also eliminated its most powerful leader and several other senior commanders.
Iran's generals and their supreme leader, Ayatollah Ali Khamenei, have vowed revenge, but their actions and language so far suggest a more measured response. An all-out war between Israel and Iran would be devastating for the entire region, but would be particularly damaging to Iran, whose economy is already in disrepair and whose oil facilities could be particularly vulnerable to attack.
Notably, oil prices – which are usually very sensitive to supply risks – are still around $70 a barrel for the international benchmark Brent crude, suggesting that markets are also expecting a conservative response from Iran, one of the largest OPEC oil producers, predict.
“Over the past two weeks, Israel's decisive strikes against Hezbollah have essentially destroyed the crown jewel of Iran's regional proxy network,” Behnam ben Taleblu, senior fellow at the Foundation for Defense of Democracies, told CNBC.
“Iran’s response capabilities are not good. If the Islamic Republic gets involved more directly, there will be a direct target on its back. Therefore, survival comes before revenge, especially in a war of attrition.”
After the assassination of former Hamas leader Ismail Haniyeh in Tehran on July 31, Khamenei announced a “blood for blood” response, which has not yet materialized. But the tone after Nasrallah's assassination was markedly different – the Iranian leader made it clear that it was up to Hezbollah itself to decide how to respond.
“All resistance forces in the region stand with Hezbollah and support it,” Khamenei said on the social media platform X on Saturday. “The resistance forces will decide the fate of this region, above all the honorable Hezbollah.”
“Iran has shown restraint”
The Iranian economy has suffered for years from crippling Western sanctions as well as widespread mismanagement and corruption. Persistently high inflation has weakened Iranians' purchasing power, making it difficult to afford basic necessities given the sharp devaluation of the Iranian rial. The country of nearly 90 million people is not in a position to afford war, regional analysts say.
Recently elected Iranian President Masoud Pezeshkian appeared determined to turn this tide by, among other things, expressing his desire to improve relations with the West and restart talks on the JCPOA – or Iran nuclear deal – which, in theory in return, sanctions against Tehran could be relaxed to curb its burgeoning nuclear program.
Iranian President Masoud Pezeshkian attends his first press conference after taking office. on September 16, 2024 in Tehran, Iran.
Majid Saeedi | Getty Images News | Getty Images
Often described as a reformist, Pezeshkian is reportedly urging restraint in response to Israel's ongoing attacks on Hezbollah and Yemen's Houthi fighters, who are also backed by Tehran and have targeted Israel and Israel-affiliated ships in the Red Sea .
“Despite rhetorical promises of retaliation, Iran has shown restraint in practice, even as Israel has escalated sharply,” said Sina Toossi, a senior foreign research fellow at the Center for International Policy. “Many reformist elements within the Pezeshkian government argue that Iran cannot afford a war that risks targeting its critical infrastructure.”
Still, tougher parts of the Iranian government believe a strong response is necessary to achieve deterrence against Israel and fear that Tehran or one of the country's nuclear facilities could be the next target.
Smoke rises as damage is caused to surrounding buildings as a boy is seen on the rubble after Israeli warplanes attacked the Dahiyeh area in Beirut, Lebanon, September 28, 2024.
Houssam Shbaro | Anadolu | Getty Images
At least for now, Iran's priority appears to be “maintaining its regional influence and continuing the war of attrition against Israel without triggering a broader confrontation that destabilizes its alliances in Lebanon, Iraq, Syria and Yemen or leads to attacks against Iran.” could.” yourself,” said Toossi.
On Monday, Israeli Defense Minister Yoav Gallant hinted that a ground offensive could take place in Lebanon in the coming days. It remains to be seen whether such a development could change Iran's calculus.
Regional deterrence “in shambles”
Hezbollah said it would name its new leader at the earliest opportunity and that it would continue to fire rockets up to 150 kilometers (93 miles) into Israeli territory, adding that its fighters were prepared for a possible Israeli ground attack. Israel continued its airstrikes throughout the weekend and said it hit several targets in Lebanon on Sunday.
“What we are doing is the bare minimum… We know the fight can be protracted,” Hezbollah deputy chief Naim Qassem said on Monday, according to Reuters. “We will win, just as we won in the face of the Israeli enemy during the liberation in 2006,” he added, referring to the last bloody war between the two opponents.
Tens of thousands of people on both sides of the Israel-Lebanese border have been forced to leave their homes due to cross-border gunfire in the nearly 12 months since Hamas attacked Israel on October 7.
Hezbollah fired thousands of rockets into northern Israel during this period, most of which landed in open areas or were intercepted by air defenses.
More than 1,000 Lebanese have been killed and another 6,000 injured in Israeli attacks in the past two weeks, the country's health ministry said on Monday, without specifying how many of them were civilians. Another million people – a fifth of Lebanon's population – are now displaced, government authorities said.
FILE PHOTO: Lebanese Hezbollah leader Sayyed Hassan Nasrallah gestures to his supporters during a rare public appearance at an Ashoura ceremony in the southern suburbs of Beirut, November 3, 2014.
Hasan Shaaban | Reuters
While Iran is lagging behind, it appears intent on maintaining support for its regional proxies.
“Iran is very unlikely to confront Hezbollah, but it will stand behind it and try to rehabilitate it,” Ali Vaez, Iran project director at the nonprofit Crisis Group, told CNBC.
“Iran’s regional deterrent is now in tatters. But that doesn't mean Iran will give in and give up. There is simply no viable strategic alternative to supporting non-state actors to provide strategic depth.”
Israel, meanwhile, shows no signs of relenting as it continues its spate of tactical victories – although these have not yet resulted in Tehran's strategic goals of pushing Hezbollah further from its northern border so it can return its displaced residents to their homes .
“We suspect that some oil market participants will overlook this escalation as there has still been no major physical supply disruption and Iran has shown no willingness to enter this nearly year-long conflict,” said Helima Croft, head of global commodity strategy and MENA Research at RBC Capital Markets wrote in a research note published on Monday.
“And yet it is extremely difficult to see where this regional conflict is heading and whether this is the beginning of the end or the end of the beginning.”
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