April 15, 2024

By Daniel Silverberg and Elena McGovern, co-heads of Capstone’s National Security Practice

As crazy as it seems, a favorable scenario between Iran and Israel appears to be playing out amidst red-hot tensions in the Middle East. Iran was expected to strike Israel directly in response to an Israeli strike on an Iranian diplomatic compound in Damascus, Syria, last week that killed two senior Iranian commanders.  Iran chose a relatively measured response, including telegraphing strikes over an extended period and firing 300 ballistic missiles and drones that could be shot down.  Iran also signaled when the attack had concluded, consistent with the precedent of trying to avoid significant direct escalation and signaling via intermediaries the scope of its response. This was striking, given internal pressure likely from Iran’s Revolutionary Guard Corps (IRGC) on Iran’s leadership for a strong retaliatory strike after Israel killed two of their leaders in Damascus.

A favorable scenario between Iran and Israel appears to be playing out amidst red-hot tensions in the Middle East.

Hezbollah, likely at the IRGC’s demand, launched 55 Katyusha rockets, but the deployment of these imprecise weapons and the modest size of the barrage similarly signaled restraint.  Finally, Israel and allies knocked out nearly all of the drones and ballistic missiles, with Iran hitting “nothing of value,” according to President Biden.  Militarily, the exchange was a win for Israel, notwithstanding IRGC pronouncements that the operation “was completed more successfully than expected.”

What Happens Next:  Israel will likely respond directly against Iran, but the extent and timing of that response remains a point of debate. The Biden administration is pressing hard to keep Israel’s reaction measured. Axios’ Barak Ravid reported that Biden told Prime Minister Netanyahu, “You got a win.  Take the win.” Besides shooting down most of Iran’s salvo, Israel also showed it is not fighting alone, with multiple Arab countries, the US, and the UK helping defend it, and Biden is organizing steps against Iran via the G7, a move likely intended to assure Israel it has the backing of international powers against Iran.  Even China, a vociferous critic of Israel, expressed “deep concern” about Iran’s attack, highlighting Israel’s recapturing of global sympathy, however briefly. 

‘Taking the win’ would likely mean a diplomatic victory lap for Israel with the Saudis and Arab partners, highlighting that normalization with Israel is a solid bet for the region.  It would also likely mean waiting a bit of time and then re-engaging in cyber warfare against Iran.  For Biden, an aggressive Israeli retaliation would be a grave mistake, one that Israel could only do on the back of American firepower, which Biden is not eager to commit. 

Israeli defense hawks are likely demanding an escalatory response against Iran, including targeting Iranian nuclear facilities, command and control centers, and oil refiners.  Those in the ‘hawkish’ camp argue that the Iranian attack was a failure of deterrence and that the IRGC will be emboldened to attack further if Israel does not hit back hard.  They also point out to IRGC statements that Iran is adopting a “new equation” with Israel, namely to “respond to any aggression from its side directly from Iranian territory.”  For this camp, failing to respond would be “October 6 thinking.”

For Biden, an aggressive Israeli retaliation would be a grave mistake, one that Israel could only do on the back of American firepower, which Biden is not eager to commit. 

Given that Israel reopened its airspace after the attack, the country is likely to take time before responding. Israel’s military and political leadership is under tremendous pressure to ‘be tough’ given its Oct. 7 failures, but, on balance, Israel will more likely strike against the launch sites of the attack and possibly against missile factories in Lebanon, along with strikes on Iranian proxies in Iraq, Syria, and Yemen that participated in the attack, rather than pursue a more aggressive approach. Given the knife-like tension in the region, this outcome would be as “rosy” as it gets.  Meanwhile, Iran will likely increase clandestine attacks against Israel using cyber tools and proxies – potentially destabilizing actions but also a return to the status quo shadow war between the two countries. 

Investors and companies should take note of several critical takeaways: 

• Iran’s willingness to attack directly.  Iran traditionally resists direct engagement with adversaries and instead relies on proxies and terrorist groups to execute its foreign policy, and this direct attack could set a dangerous precedent next time Israel retaliates against an Iranian proxy.  Iran has its own internal politics between the IRGC and Iran’s leadership, the latter of which prioritizes stability and might not be eager for an all-out war with Israel. 

• Continued proxy attack?   It is not out of the question that Iranian proxies will be called upon to strike US targets in Iraq and Syria, or even target an Israeli embassy or even a Jewish Community Center, as they did in Argentina in 1994.  This would be a devastating escalation, and it is more likely Iran will pursue under-the-radar cyber attacks against Israel rather than a proxy terrorist attack, for which it would be held responsible.

• Hezbollah remains deterred.  Hezbollah’s apparent hesitation to join this fight is a modestly positive development.  Hezbollah’s leader, Hasan Nasrallah, made clear last week that Hezbollah would sit out this conflict and that the US would not be the focus of Iran’s efforts.  It appears Hezbollah conformed to Nasrallah’s message. 

• The cost of Asymmetric Warfare is “Astronomical” for the US, leading to investment in counter-drone technology.  Jordan, the US, Israel, and the UK successfully defeated 99 percent of projectiles launched against Israel.  However, the cost for the US to deploy missiles against relatively inexpensive Iranian drones is massive.  This episode could likely lead to greater DOD investment in cheap counter-drone technologies. 

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Read more from Capstone’s National Security Practice:

Biden’s Weak and Failing States Problem
The Five Fronts of Conflict in the Middle East
Five Underappreciated Near-Term Foreign Policy Developments