The media continues to be transfixed by the widening circle of combat in the Middle East, and understandably so. The United States has as of this writing launched nine air and missile strikes against the Houthis—who remain undeterred and ornery as ever—Israel and Hizballah continue to trade blows across the Lebanese border, Iran flexed its muscles by firing missiles into Iraq, Syria, and Pakistan, and Israel continues its grinding military operations in Gaza to destroy Hamas. All the parties say they do not want to escalate to a regional war, but all are determined to exact a price from their antagonists for each attack, most of which are intended to “raise the cost” to the targeted party for their support for Israel or for Hamas. If it wasn’t so deadly brutal, especially to civilians, one might be reminded of one of those slapstick pie fights from an old Max Sennet silent film.
There’s nothing funny about the bloodletting in the Middle East these days, but there is plenty of irony. Everyone is intent on demonstrating their strength and resolve, and showing they can’t be pushed around, but in the end what they are really showing off is the limits of their power. Most everyone involved, other than Israel and Hamas, is deliberately fighting with one hand tied behind his back, because the cost of bringing out both fists is prohibitive—and risky. What is needed is for the major powers in this conflict to use the leverage they have with their smaller allies to end the fighting, but they cannot afford to be accused of appeasement—or worse, to be ignored by their allies. All the parties are so concerned to avoid looking weak, they can’t actually accomplish much of anything at all.
This is perhaps most true in the case of Iran. Iran certainly has showcased how much trouble it can make in the region, and the economic cost its Houthi allies are exacting from their attacks on shipping is substantial. Perhaps most important of all, it has indirectly—by empowering Hamas, which started this war—helped revive the Palestinian question as a central issue for the region. This is a question that Israel doesn’t want revived and that allows Iran to grandstand as an anti-imperialist paladin. But that’s about the extent of what Iran has gotten out of this.
It has delayed, but not scotched, Israeli normalization with Saudi Arabia. Hamas’ terrorist assault of 7 October may well have put in motion a train of events that will result in some sort of Palestinian state, but the settlement of this conflict is likely to be most shaped by the United States, Saudi Arabia, and the Saudis’ allies. The diplomacy working towards a resolution of the fighting, at least as reported in the media, is still based on the premises of the Abraham Accords: Saudi normalization with Israel in return for a defense treaty with the US and a “realistic pathway to a Palestinian state.” Not even a Palestinian state—just a pathway to it. For all the genuine popular anger against Israel in the region and beyond, it has not shaken Saudi Arabia from the goal of normalization, nor have any of the Arab states who have already normalized ties with Jerusalem broken relations or otherwise backed out of the arrangement. Rather than dissuading the Gulf Arabs from such a course, the actions of Iran’s Axis of Resistance and Iran’s demonstrative launching of missiles at its neighbors likely has only confirmed in Gulf Arab councils the wisdom of aligning with states, including Israel, who share a wariness about the Islamic Republic.
Iran’s support for Hamas may have put any realistic prospect of sanctions relief out of reach for the next several years, at least. Before the Hamas attack in October, the US and Iran had quietly negotiated a series of informal agreements meant slow if not stop Iran’s resumption of uranium to high levels of purity and to de-escalate potential sources of friction, such as attacks by Iraqi militias on US military forces deployed to Iraq and Syria. In return, the US was prepared to ease up enforcement of sanctions to the point of permitting the release of $6 billion in frozen Iranian funds. It was certainly unclear how well such informal deals would hold up, or whether they might lead to more formal, durable agreements, but with the outbreak of war between Israel and Hamas that potential door to sanctions relief was shut.
The results of that door shutting, and of the Nezam’s predilection for giving priority to security concerns more generally, may be seen in the debates surrounding the budget the administration of President Ebrahim Ra’isi has submitted to the Majles for the next Persian year beginning in March. As reported in the PersuMedia Daily Summary, Majles deputies facing re-election in March have balked at the administration’s varied efforts at belt tightening and raising revenue. Last month, the Plan and Budget Organization (PBO) reported that the government had failed to realize its projected revenues by a whopping 33 percent. The Majles nonetheless increased a proposed raise for government employees from 18 to 20 percent and mandated continued subsidies to bakers to prevent an unpopular jump in bread prices, eliciting howls of protest from the PBO. Raising both eyebrows and questions in Tehran is the fact that the government’s shortfall in revenues has occurred during a year in which oil sales to China were reported to have increased to a volume 60 percent higher than the amount of oil sold in 2017, before US sanctions were re-imposed.
No one seems to have an answer for where the money from the increased oil sales went, but it’s probably a safe bet that a considerable percentage went to the IRGC. The US Government reports that the IRGC sells some oil on its own behalf, and it also has been authorized to withdraw money from Iran’s sovereign wealth fund, the National Development Fund (NDF); in 2019 alone some $4.8 billion in NDF money was withdrawn for the use of the IRGC and the state broadcaster. No doubt, some of that has gone to IRGC expenses, and some has gone into the pockets of IRGC officers.
The problem is larger than just an embarrassing cash-flow problem. Squeezed by sanctions, mismanagement, and corruption, Iran’s effort to sustain its Axis of Resistance and steadily strengthen its armed forces and security organs are starving Iran’s economic development. Our featured article this week reports that a publication affiliated with the NDF has warned that because Iran has failed to reinvest in its oil and gas infrastructure, it will be able to meet only one-third of the country’s demand for natural gas, and risks becoming an importer of oil. Last week a prominent Iranian economist unloaded on the government for its manifold economic failures, noting the industrial production in Iran has barely grown, thanks to mismanagement, misplaced priorities, corruption, and a lack of transparency. According to economist Farshad Mo’meni, $9 billion in capital fled the country during the current Iranian year alone. The bottom line is continued poverty and underinvestment aggravating public distrust of and dissatisfaction with the Nezam and causing Iran to fall farther behind its neighbors.
Iran’s hardline masters for now may revel in their ability to threaten their rivals and raise the cost to their enemies for policies that threaten the regime’s interests. Their Axis allies help them to limit the threat that weakened states in Lebanon, Iraq, or Yemen might pose to Iranian interests. But Iran’s hard power is not sufficient to do more than delay the normalization of Arab relations with Israel, and its network of radical militias impedes Iran’s ability to establish cooperative, constructive relations with its neighbors. In sum, Tehran has gained its gaudy hard power at the cost of Iran’s long-term development and economic strength. It may be little comfort right now to Israelis defending the border with Lebanon or Western forces trying to keep open the Red Sea, but with every missile it fires off, Iran becomes just a little bit poorer and weaker.
