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The U.S. Navy amphibious assault ship USS Kearsarge and the Arleigh Burke-class guided-missile destroyer USS Bainbridge sail in the Arabian Sea, 17 May 2019. REUTERS/ U.S. Navy/Mass Communication Specialist 1st Class Brian M. Wilbur

Averting the Middle East’s 1914 Moment

Today’s standoff between the U.S. and Iran is reminiscent of tensions on the eve of World War I. A small incident could blow up into region-spanning conflict. Third-party mediation is urgently needed to begin de-escalation that could lead to renewing broader talks.

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What’s new? The Trump administration designed its “maximum pressure” campaign to curb Iran’s nuclear program and regional reach by draining its finances. But Iran has pushed back in a series of incidents, showing its ability to harm U.S. interests and potentially the world economy. Meanwhile, the 2015 nuclear accord is slowly unravelling.

Why does it matter? Growing tensions between Iran and the U.S. have put the two countries on the precipice of military confrontation. A spark could set off not just a limited clash between the two adversaries but a conflagration spreading across regional flashpoints.

What should be done? In the absence of direct communication between the two sides, third parties should intensify efforts to defuse the crisis, taking steps to salvage the nuclear accord and de-escalate regional tensions.

Executive Summary

More than a century after World War I, the Middle East is experiencing its own 1914 moment. Then, the assassin’s bullet that killed Archduke Franz Ferdinand of Austria put the entire European continent on fire. Today, a single attack by rocket, drone or limpet mine could set off a military escalation between the U.S. and Iran and their respective regional allies and proxies that could prove impossible to contain. Left to their own devices – and determined not to lose face amid the legacy of 40 years of enmity – Washington and Tehran have placed themselves on a collision course. In the absence of direct communication channels, third-party mediation seems the most likely avenue to avert a war that both sides claim they do not seek. Now is the time for international and regional diplomacy to escalate in turn: to persuade the U.S. and Iran to step back from the brink and point the way toward a regional process of communication and dialogue that might set the stage for a mutual accommodation.

The dangerous standoff between the U.S. and Iran calls to mind the question of what happens when an irresistible force meets an immovable object. The force is the Trump administration’s “maximum pressure” campaign, which seems willing to stop at nothing – whether it be sanctioning Iran’s senior political and military leadership or forcing the country’s oil exports down to zero – to bring Tehran to its knees. The object is Iran’s resolve not to yield but to resist – whether by restarting its nuclear program or targeting the U.S. and its regional allies. The increasingly likely result is a military confrontation, a scenario of which Crisis Group has warned ever since the Trump administration pulled out of the Iran nuclear accord, the Joint Comprehensive Plan of Action (JCPOA), in May 2018.

The contours of a future conflict are already apparent. Iran has warned that it will gradually accelerate its breaches of the nuclear agreement if unilateral U.S. sanctions continue to deny it the economic dividends promised by the deal and instead drive the Iranian economy into the ground. Should Tehran act on its threat, the accord will unravel, triggering broader international sanctions and raising the possibility of U.S. and/or Israeli military strikes against a nuclear program that is currently contained. The more immediate risk, underscored by a spate of limited military incidents since early May, is that the standoff will draw regional actors, aligned with either side, into an escalatory spiral.

Iraq, long an arena of U.S.-Iran competition, may increasingly find itself a battle-ground, even as its central government desperately tries not to be dragged into a fight it does not consider its own. In Yemen, Huthi cross-border strikes on Saudi Arabia or attacks on Red Sea traffic could start an escalatory cycle that draws in the U.S. In the Gulf and the Strait of Hormuz, a key energy chokepoint, further incidents could bring military intervention aimed at protecting oil trade and, thus, the world economy. In Syria, a cat-and-mouse game between Iran and Israel could spin out of control and undo the mutual deterrence between Israel and Hizbollah that has kept the Israel-Lebanon border quiet since 2006.

The best hope for lessening tensions may well lie in third-party mediation. President Emmanuel Macron of France seemed to seize the moment in July when he sent a senior emissary to Tehran and engaged his Iranian and U.S. counterparts personally in an effort to persuade both sides to pull back from the brink. Successful mediation would be no mean feat, given the two adversaries’ accumulated hostility and what, for now, appear to be incompatible objectives: Tehran, deeming surrender to maximum pressure more dangerous than suffering from sanctions, seeks a loosening of restrictions on its oil exports and repatriation of revenues in return for making symbolic adjustments to the nuclear deal and showing restraint in the region. For its part, Washington remains loath to loosen the noose of sanctions it believes are working absent significant concessions from Iran on its nuclear, missile and regional policies.

A possible first step toward de-escalation might be a mutual defusing of tensions. The U.S. would agree to partially reinstate its sanctions waivers regarding Iranian oil exports (which have caused Tehran the most damage) and in return Tehran would resume full compliance with the nuclear agreement and refrain from endangering shipping in the Gulf. Negotiators could also make progress toward the release of at least some of the dual nationals Iran has imprisoned on dubious charges. In other words, the parties could revert to an enhanced version of the pre-May 2019 status quo, with a commitment to resume broader negotiations in a format to be determined. Such a freeze would not bring peace and stability to the Middle East, but it could at least prevent one scenario the world now faces: an all-out war triggered by a lighted match tossed carelessly onto the region’s accumulated tinder.

Washington/Tehran/Brussels, 1 August 2019

I. Introduction

The year 1914 began with the great powers of Europe engaged in arms build-ups and entangled in alliances aimed at containing colonial intrigues and maintaining a balance of power on the continent. Meant to be stable, the compound was explosive: it took just one assassination to set Europe and much of the world aflame for the next four years.

In the Middle East today, a rivalry spanning four decades may be reaching a comparable point of volatility. Relations between Iran and the U.S. since 1979 have seen strategic competition as well as tactical cooperation, but rarely have they been as fraught as they are now. The U.S.-Iran struggle is one that extends beyond its two central protagonists and involves their respective allies on the regional stage.

The year 2019 has witnessed increasingly worrying omens of war between the U.S. and Iran. As in Europe in 1914, a minor incident could spark a military confrontation that could in turn rapidly engulf the entire region. Such a regional war would be devastating.

This report details the dangers of such conflagration in the various theatres where U.S. and Iranian interests – and those of their respective allies – are at loggerheads. It then maps a route to de-escalatory steps that could keep the worst 2019 scenarios for the region at bay. It is based on dozens of interviews with serving U.S. and Iranian officials, representatives of U.S.- and Iranian-allied governments and movements, and independent analysts throughout the region. It also draws on past Crisis Group research on how U.S.-Iranian antipathy plays out in the broader Middle East.

II. From Maximum Pressure to Maximum Peril

More than a year of coercive U.S. policy aimed at achieving a “better” nuclear deal and inducing a substantial change in Iran’s regional posture has produced neither. Instead, Iran has expanded (albeit modestly) its nuclear program and ramped up its regional military activities, bringing the region closer to war. After the Trump administration withdrew from the Joint Comprehensive Plan of Action (JCPOA) in May 2018, it launched a sweeping, economically debilitating unilateral sanctions campaign against Iran.[fn]Crisis Group Statement, “Saving the Iran Nuclear Deal Without the U.S.”, 8 May 2018. U.S. sanctions can be tracked in Crisis Group’s interactive online feature, “Iran Sanctions under the Trump Administration”.Hide Footnote Tehran initially responded with what it described as a policy of “strategic patience”, continuing to comply with the JCPOA and hoping the deal’s remaining parties would deliver at least the bulk of the economic dividends envisaged by the agreement in return.[fn]Crisis Group Middle East Report N°195, On Thin Ice: The Iran Nuclear Deal at Three, 16 January 2019.Hide Footnote It also avoided tangling with the U.S. Navy in the Strait of Hormuz or retaliating militarily against Israeli strikes on its assets in Syria.[fn]A senior Iranian official said, “The Trump administration and Israel are doing everything in their power to provoke us. We’re not going to commit that mistake”. Crisis Group interview, New York, April 2019. U.S. Central Command recorded 36 “unsafe” interactions with Iranian naval forces in 2016, which fell to fourteen in 2017, zero in 2018 and none reported through May 2019. See Todd South, Kyle Rempfer, Shawn Snow, Howard Altman and David Larter, “What war with Iran could look like”, Military Times, 4 June 2019.Hide Footnote

If the U.S. continues its maximalist strategy and Iran refuses to cede ground, the short- to medium-prospects point to a real possibility of military conflict.

Earlier this year, in the absence of signs that Tehran was coming back to the negotiating table or tangible shifts in its foreign and domestic policies, the Trump administration doubled down on its efforts to isolate Iran and strangle its economy. In February, it organised a conference in Warsaw to expand the informal coalition against Iran beyond the U.S., Israel, Saudi Arabia and the UAE, and pressed Europe to join it in withdrawing from the nuclear deal.[fn]Alex Ward, “The US held a global summit to isolate Iran. America isolated itself instead”, Vox, 15 February 2019.Hide Footnote In April, it announced a new push to reduce Iran’s oil exports to zero.[fn]Edward Wong and Clifford Krauss, “U.S. moves to stop all nations from buying Iranian oil, but China is defiant”, The New York Times, 22 April 2019. When the U.S. reimposed energy sanctions in November 2018, it provided 180-day exemptions to eight countries; it did not extend them when they expired in May 2019.Hide Footnote It also designated the Islamic Revolutionary Guard Corps (IRGC), a state security force that is the tip of Iran’s military spear projecting power beyond its borders, as a foreign terrorist organisation.[fn]“Statement from the President on the Designation of the Islamic Revolutionary Guard Corps as a Foreign Terrorist Organization”, White House, 8 April 2019.Hide Footnote In parallel, the Trump administration flexed its own military muscle by deploying troops, warships, bomber jets and missile defence batteries to the Middle East to counter “escalatory indications and warnings”.[fn]“Statement from the National Security Advisor Ambassador John Bolton”, White House, 5 May 2019.Hide Footnote

The combined effect of these escalatory steps from Washington, notably its success in driving Iran’s oil exports to historical lows, coupled with Europe’s unwillingness or inability to find effective workarounds to circumvent the sanctions, seemingly led Tehran’s leaders to conclude that strategic patience had become unsustainable.[fn]Iran’s crude exports are estimated to have declined from 2.5 million barrels per day (mb/d) before the U.S. exited the JCPOA in May 2018 to 0.3 mb/d in June 2019. Alex Lawler, “As Trump’s sanctions bite, Iran’s oil exports slide further in June”, Reuters, 24 June 2019. The International Monetary Fund projects that Iran’s 2019 gross domestic product (GDP) will contract by 6 per cent and that inflation will exceed 37 per cent. IMF, “World Economic Outlook: Growth Slowdown, Precarious Recovery”, April 2019.Hide Footnote Since May 2019, Iran has taken retaliatory measures of its own, both in the nuclear realm and in the region. It committed incremental breaches of key JCPOA limits on Iran’s enriched uranium stockpile size and enrichment rates.[fn]David Kirkpatrick and David Sanger, “Iran announces new breach of nuclear deal limits and threatens further violations”, The New York Times, 9 July 2019.Hide Footnote Regional tensions have also risen sharply following a string of incidents, notably but not exclusively in and around the Gulf, for which the U.S. holds Iran responsible but which Iran either disputes or denies.[fn]U.S. Secretary of State Mike Pompeo on 13 June characterised two separate attacks against six tankers and additional incidents in Saudi Arabia, Iraq and Afghanistan over the previous month as “a series of attacks instigated by the Islamic Republic of Iran and its surrogates against American and allied interests”. Quoted in “Secretary of State Michael R. Pompeo’s Remarks to the Press”, U.S. State Department, 13 June 2019. The head of Israel’s Mossad intelligence agency, Yossi Cohen, on 1 July assessed that the incidents “are a single campaign initiated by a single party”. Quoted in David M. Halbfinger, “Mossad chief bluntly blames Iran for tanker attacks”, The New York Times, 1 July 2019.Hide Footnote In June, the U.S. was, according to President Donald Trump, minutes away from airstrikes against Iran after the IRGC – by its own admission – downed a U.S. drone that Tehran claimed had entered Iranian airspace.[fn]Iran claimed, and the U.S. military denied, that the RQ-4 Global Hawk drone had breached Iranian airspace. According to President Trump, the U.S. was “cocked and loaded to retaliate” until he called off the operation, which would have targeted three Iranian sites, due to casualty estimates he considered disproportionate. Tweet by Donald J. Trump, @realDonaldTrump, 6:03am, 21 June 2019. For an alternative reading of Trump’s reasoning for changing course at the last minute, see Peter Baker, Maggie Haberman and Thomans Gibbons-Neff, “Urged to launch an attack, Trump listened to the skeptics who said it would be a costly mistake”, The New York Times, 21 June 2019. On 18 July, Trump asserted that a U.S. vessel had brought down an Iranian drone that “was threatening the safety of the ship and the ship’s crew” in the Strait of Hormuz. Quoted in “Remarks by President Trump at a Flag Presentation Ceremony”, White House, 18 July 2019. Iran denied losing a drone. “No Iranian drone has been downed, IRGC chief reaffirms”, Tehran Times, 24 July 2019.Hide Footnote

If the U.S. continues its maximalist strategy and Iran refuses to cede ground, the short- to medium-prospects point to a real possibility of military conflict, either waged through local state and/or non-state allies or through a direct U.S.-Iran clash. Some in Washington may welcome an opportunity to bloody Iran and cut its military capabilities down to size. Likewise, some hardline elements in Tehran may be itching to harass their principal adversary by targeting international shipping and/or Washington’s allies in the region, confident that the U.S. will not want to provoke a full-fledged war and that the Islamic Republic will survive a limited conflict. They may believe that this eventuality will allow them to sideline their domestic political rivals while rallying the population around the flag ahead of parliamentary and presidential elections in 2020 and 2021, respectively.[fn]An Israeli security official echoed this assessment: “Some here say that strategically this is the best moment to go to war against Iran. That worries me. There are no internal cracks in Iran; people will rally around the flag”. Crisis Group interview, Jerusalem, 14 July 2019.Hide Footnote But such approaches raise the risk that tit-for-tat exchanges will trigger precisely the region-wide conflagration that all affected parties say they do not seek.

III. From Limited to Regional War

The Trump administration has pursued a coercive policy toward Iran that is as confusing as it is maximalist. Is the aim, as it has stated, to rein in Iran’s regional power projection and push its leadership to negotiate a broader deal? Or is it, as many surmise (and indeed some U.S. officials have intimated), to change the regime itself? The demands made on Iran seem to constantly fluctuate, from President Trump’s rather low threshold (no nuclear weapons) to the very ambitious objectives of some of his advisers. “I’m not looking to hurt Iran at all. I’m looking to have Iran say, ‘no nuclear weapons’”, Trump said. “No nuclear weapons for Iran and I think we will make a deal”.[fn]Quoted in Ladane Nasseri and Zainab Fattah, “Trump says he's not looking to topple Iranian leadership”, Bloomberg, 27 May 2019.Hide Footnote National Security Adviser John Bolton argued that “there should be no enrichment for Iran. Maximum pressure continues until Iran abandons its nuclear ambitions and malign activities”.[fn]Tweet by John Bolton, @AmbJohnBolton, U.S. National Security Advisor, 1:36pm, 18 July 2019.Hide Footnote For his part, Secretary of State Pompeo has listed a series of requirements, entailing an overhaul of Iran’s nuclear, foreign and defence policies.[fn]See “After the deal: A new Iran strategy”, State Department, 21 May 2018; and the Iranian foreign minister’s response: “Zarif’s response to Pompeo’s 12 demands”, Iran Daily, 20 June 2018. Faced with criticism that the U.S. had not demanded improvement of human rights in Iran, Pompeo subsequently added that demand to the list. Michael Pompeo, “Confronting Iran”, Foreign Affairs, November-December 2018. Pompeo contended that “the Iranian regime has to make a decision that it wants to behave like a normal nation, and if they do that we’re prepared to negotiate across a broad spectrum of issues with no preconditions”. U.S. State Department, 20 July 2019.Hide Footnote

U.S. sanctions target not just Iran directly, but extend to state allies such as Syria.

This inconsistency compounds the Iranians’ mistrust; they believe that any compromise they were to make under duress would invite more pressure, not alleviate it. The maximum pressure campaign is self-contradictory in other ways. The administration simultaneously says it does not want a new U.S. military engagement in the Middle East and predicts that hostilities against the Islamic Republic – should they be initiated – “would not last very long”.[fn]President Trump quoted in John Wagner and Dan Lamothe, “Trump says war with Iran would not involve ground troops or last long”, Washington Post, 26 June 2019.Hide Footnote Furthermore, by waging what Iran considers tantamount to “economic warfare”, it could well pave the way for the war to which it says it does not aspire.[fn]Supreme Leader Ali Khamenei quoted in “We will defeat the enemy, but this is not enough; economic deterrence is required”, Khamenei.ir, 21 March 2019. A senior Iranian official said, “at some point there is no distinction between economic and military warfare: they both take lives and destroy the country’s infrastructure”. Crisis Group interview, New York, May 2019.Hide Footnote As a Lebanese journalist with close ties to Hizbollah put it, “for Trump sanctions are an alternative to war, whereas for Bolton and Pompeo, they are a prelude to war”.[fn]Crisis Group interview, Beirut, 24 May 2019.Hide Footnote While senior U.S. officials tout the success of sanctions in denying Iran billions of dollars in revenue, inducing significant financial distress in Iran and its local allies, the increase in violent incidents in the Gulf underscores the disconnect between imposing economic costs on Tehran and securing favourable strategic shifts from it.[fn]An Israeli official shared the U.S. assessment that sanctions had a direct influence on the financial support provided by Iran to its local allies, with the caution that “there’s a thin line on proxies with their backs to the wall. It could influence their belligerence. On the other hand, allowing them to be funded could allow for greater capabilities”. Crisis Group interview, Jerusalem, June 2019.Hide Footnote

Iran has spent years building a network of partners as part of what it calls its “forward defence” policy.[fn]See Crisis Group Middle East Report N°184, Iran’s Priorities in a Turbulent Middle East, 13 April 2018. For a detailed description of what the authors call Iran’s “forward deterrence” policy, see Hassan Ahmadian and Payam Mohseni, “Iran’s Syria strategy: The evolution of deterrence”, International Affairs, vol. 95, no. 2 (2019).Hide Footnote These relationships offer strategic depth that Iran’s leaders justify saying they are outgunned. Should a military confrontation occur between Iran and the U.S. or its allies, Tehran will likely add fuel to existing fires, including via its local allies, as a way of diffusing the threat to Iran itself.[fn]Crisis Group interview, Beirut, May 2019. As an IRGC official noted, “we just need to cross our borders to the east or the west to find U.S. forces as sitting ducks”. Crisis Group interview, Tehran, November 2018.Hide Footnote An official from the Iranian-backed Lebanese Hizbollah said, “widening the conflict between Iran and the U.S. means that the consequences of a limited strike against Iran are unpredictable, which is precisely the kind of ambiguity that creates deterrence”. Moreover, the U.S. has explicitly warned that operations by Iran-linked groups against U.S. assets/personnel could trigger U.S. retaliation against the Islamic Republic.[fn]As Secretary of State Pompeo put it, “we’ve made clear that we will not allow Iran to hide behind its proxy forces. But if American interests are attacked, whether by Iran directly or through its proxy forces, we will respond in an appropriate away against Iran”. Quoted in “Interview with Hugh Hewitt”, U.S. State Department, 21 May 2019.Hide Footnote In other words, an escalation could arise from either a direct U.S.-Iran confrontation or an incident elsewhere. “It’s hard to see how we avoid a military clash”, said a senior U.S. State Department official, adding: “The administration probably won’t relent on sanctions, and Iran will continue to respond”.[fn]Crisis Group interview, Washington, July 2019.Hide Footnote

Iran and the U.S., and certainly their respective allies, are already in a state of outright or near conflict. U.S. sanctions target not just Iran directly, but extend to state allies such as Syria and non-state actors such as Lebanese Hizbollah and Iraqi paramilitary groups close to Tehran.[fn]In announcing designations on 9 July against three Hizbollah officials, two of whom are members of Lebanon’s parliament, the U.S. Treasury Department said it had “designated 50 Hizbollah-affiliated individuals and entities since 2017”. “Treasury Targets Iranian-Backed Hizbollah Officials for Exploiting Lebanon’s Political and Financial System”, Treasury Department, 9 July 2019. In June, the U.S. reportedly conducted a cyberattack against Kataeb Hizbollah, an Iraqi paramilitary group with close ties to Iran. Barbara Starr, “U.S. carried out cyberattack on Iranian-backed militia”, CNN, 25 June 2019.Hide Footnote The Huthis have been at war against a Saudi-led, U.S.-backed coalition for over four years, while Israeli strikes in Syria occur on a regular basis. A string of incidents involving damage to and harassment and seizure of oil tankers in and around the Gulf have prompted U.S.-led efforts to muster an international naval operation to protect commercial shipping in the Strait of Hormuz as well as the Red Sea.[fn]On 12 May, explosions struck four vessels off the UAE coast; two more were attacked on 13 June, and on 10 July Iranian vessels reportedly engaged a British tanker but its Royal Navy escort warned them off. Barbara Starr and Ryan Browne, “Iranian boats attempted to seize a British tanker in the Strait of Hormuz”, CNN, 11 July 2019. An Iranian tanker suspected of skirting EU sanctions on Syria was detained off Gibraltar in early July, an act which Supreme Leader Khamenei on 16 July described as “piracy” by the UK. Quoted in “Iran will respond to the vicious Britain’s piracy: Imam Khamenei”, Khamenei.ir, 16 July 2019. On 19 July, the IRGC seized a UK-flagged tanker, the Stena Impero; it also detained a second tanker, but allowed it to proceed shortly afterward. Julian Borger, Patrick Wintour and Kevin Rawlinson, “Iran stokes Gulf tensions by seizing two British-linked oil tankers”, The Guardian, 19 July 2019.Hide Footnote

A significant military engagement involving Iran and the U.S. and/or their respective allies would likely be difficult to contain. A senior Iranian official asserted:

The Trump administration is totally misguided if it thinks that we will either negotiate with a gun to our head or that a war started by them would remain a limited tit-for-tat. We will have to deter them from striking again, which means that we would have to inflict significant harm on them.[fn]Crisis Group interview, 30 May 2019. According to senior Gulf state and Iranian officials, Tehran has warned that it would retaliate directly against countries from which U.S. forces launched operations against it or that facilitated U.S. attacks. Crisis Group interviews, July 2019.Hide Footnote

An Israeli official agreed: “a conflict [with Iran] has the potential to ignite conflict with its proxies. … If the need arises, they won’t shy away from it”.[fn]Crisis Group interview, Jerusalem, June 2019.Hide Footnote

The theatres described below are four key flashpoints that could see a trigger for broader confrontation between Iran and the U.S. or suffer its consequences through further escalation.[fn]For analysis of additional flashpoints, see Crisis Group’s “Iran-U.S. Trigger List”.Hide Footnote The current standoff between Iran and the U.S. also prevents peaceful management of other regional tensions by precluding cooperation on areas of mutual interest. For example, a senior Iranian official asked with reference to Afghanistan: “Why should we try to help the U.S. leave? We helped at Bonn [in 2001], and we can help again. But not when the U.S. wants to destroy us”.[fn]Crisis Group interview, July 2019.Hide Footnote

A. Iraq

Iraq has been an arena for U.S.-Iran competition – and even indirect cooperation at times – since the 2003 U.S. invasion. The country’s adjacency and Iran’s support of paramilitary groups provides Tehran with particular advantages relative to other theatres in the event of an escalation with the U.S.[fn]See Crisis Group Middle East Report N°188, Iraq’s Paramilitary Groups: The Challenge of Rebuilding a Functioning State, 30 July 2018.Hide Footnote As a senior Iranian national security official put it, “Iraq is where we have experience, plausible deniability and the requisite capability to hit the U.S. below the threshold that would prompt a direct retaliation”.[fn]Crisis Group interview, Tehran, October 2018. Iran alleges that the U.S. could use Iraq to trigger a conflict, conducting a false-flag operation and pinning the blame on Tehran to justify military retaliation: “Given the number of state and non-state actors in Iraq’s complex scene (including Iranian separatist groups), any sniper can shoot at U.S. special forces and put the blame on our doorstep”. Crisis Group interview, Iranian official, New York, April 2019.Hide Footnote An Israeli official concurred:

Iraq is a good place for the Iranians to retaliate. They are prepping Iraq as a platform with deniability. This is where they want to play. The question is whether they’d act against the U.S. itself.[fn]Crisis Group interview, Jerusalem, April 2019.Hide Footnote

The possibility that an incident in Iraq could trigger an escalation between Iran and the U.S. was apparent even before the rise in tensions beginning in May. Rockets fired near the U.S. Embassy in Baghdad and Consulate in Basra in September 2018 prompted the latter’s evacuation and reportedly led the U.S. National Security Council to request military plans for direct retaliation against Iran.[fn]Dion Nissenbaum, “White House sought options to strike Iran”, Wall Street Journal, 13 January 2019.Hide Footnote On 14 May, the U.S. Central Command indicated that military forces participating in the U.S.-led Global Coalition to Counter ISIS, Operation Inherent Resolve, were “at a high level of alert as we continue to closely monitor credible and possibly imminent threats to U.S. forces in Iraq”.[fn]“CENTCOM Statement on recent comments from OIR’s Deputy Commander”, U.S. Central Command, 14 May 2019.Hide Footnote

More recently, there has been a string of mortar and rocket attacks threatening diplomatic, military and oil facilities across Iraq, including, on 19 May, a Katyusha fired into the Baghdad Green Zone that Pompeo linked to Iran.[fn]“Secretary of State Michael R. Pompeo remarks to the press”, U.S. State Department, 13 June 2019. See also Crisis Group, “Iran Briefing Note #2, 27 June 2019.Hide Footnote In July, the head of Israel’s foreign intelligence service asserted that Iran was setting up “bases and precision missile factories in Iraq” and had a hand in 27 June protests outside Bahrain’s embassy in Baghdad.[fn]Yossi Cohen quoted in Judah Ari Gross, “Mossad chief: Iran definitely behind attacks on Gulf oil sites, embassy in Iraq”, Times of Israel, 1 July 2019. “The Kingdom of Bahrain condemns the unacceptable protesters’ attack on its embassy in Baghdad”, Bahrain Ministry of Foreign Affairs, 28 June 2019.Hide Footnote

Iran can count on several allies in Iraq, including the Shiite popular mobilisation units (al-Hashd al-Shaabi), whose leaders have been unequivocal in expressing their determination to side with Iran against the U.S. if the standoff between the two erupts into armed conflict. As a commander of Asaeb Ahl al-Haq, a Shiite paramilitary group with close ties to Tehran, put it, “Ninety per cent, there will be a war. … When America attacks Iran, we will not be silent”.[fn]The group claimed responsibility for conducting 6,000 attacks targeting U.S. troops during the U.S. occupation of Iraq (2003-2011). Quoted in Simona Foltyn, “These Iraqi militias are prepared to fight the U.S. if it starts a war with Iran”, Vice News, 28 June 2019.Hide Footnote In March, Washington blacklisted one of these groups, Harakat al-Nujaba, citing its links to the IRGC.[fn]“U.S. sanctions the Nujaba militia backed by Iran”, Reuters, 5 March 2019. A paramilitary commander said: “Once you list us among your enemies, we become so!” Crisis Group interview, Basra, 29 May 2019.Hide Footnote It further sanctioned an alleged Iraq-based “weapons smuggling network” in June.[fn]“Treasury Targets IRGC-Qods Force Financial Conduit in Iraq for Trafficking Weapons Worth Hundreds of Millions of Dollars”, U.S. Treasury Department, 12 June 2019.Hide Footnote A Hashd commander said:

Military groups that have remained outside of the political process so far have backed lawmakers’ position that Iraq should stay out of the current U.S.-Iran tensions. Even when the U.S. listed Nujaba as a terrorist organisation, the latter refrained from attacking the U.S. embassy. But if a conflict starts, they are ready to conduct such operations.[fn]Crisis Group interview, Basra, 30 May 2019.Hide Footnote

The Iraqi leadership has tried to rein in the militias and ensure that Iraq maintains its neutrality amid growing tensions between its two key allies, Iran and the U.S. President Barham Salih has worked to forge a national consensus among all the main political factions — even those traditionally closer to Iran — on shielding Iraq from growing U.S.-Iran hostilities.[fn]Crisis Group interviews, Baghdad, June 2019.Hide Footnote In June, Prime Minister Adel Abdel-Mahdi issued a statement prohibiting foreign troops deployed for advisory/training purpose from launching attacks against neighbouring countries from Iraqi soil and banning the acquisition of weapons and operations carried out without government consent.[fn]See Ali Mamouri, “Iran already turning Iraq into a battleground against U.S.”, Al-Monitor, 19 June 2019. U.S. officials say they suspect that a drone that attacked a Saudi Arabian pipeline on 14 May, a strike for which the Huthis took responsibility, took off from Iraqi territory instead. Isabel Coles and Dion Nissenbaum, “U.S.: Saudi pipeline attacks originated in Iraq”, Wall Street Journal, 28 June 2019.Hide Footnote The U.S. administration’s claim that an attack on Saudi Arabia’s oil infrastructure, claimed by the Huthis, was in fact carried out from Iraq renewed pressure on the prime minister to issue a decree reaffirming the government’s authority over the Hashd and to denounce activities conducted outside his command.[fn]The full text of the decree is available at: “Iraqi PM decrees full integration of PMF into Iraqi forces”, Rudaw, 1 July 2017.Hide Footnote

Even if Tehran and Washington can avoid a direct confrontation, their growing antagonism could further polarise Iraqi politics and paralyse the government’s day-to-day operations. Already, Baghdad is struggling to strike a balance between Washington’s insistence that it curb its reliance on Iranian energy imports and impose discipline upon paramilitary groups, and Tehran’s efforts to use its ties to Iraq to skirt U.S. sanctions and deter Washington from attacking Iran.[fn]Crisis Group interviews, Baghdad, October 2018. The U.S. granted Iraq a 45-day waiver for energy imports in November 2018, renewing it in 90-day increments in December 2018 and March 2019; it then issued a new waiver in June 2019 for 120 days, demonstrating awareness of Iraq’s constraints. Isabel Coles and Benoit Faucon, “As Iraq tries to beat the heat, U.S. renews sanctions waiver on power from Iran”, Wall Street Journal, 18 June 2019. A senior Iranian official said: “U.S. efforts to drive our economy into the ground have increased Iraq’s value in our eyes. We have intertwined our economy with Iraq’s precisely because ties with neighbours proved most difficult for the U.S. to sever during the previous round of sanctions [under the Obama administration]. This is when we cash in our check”. Crisis Group interview, Tehran, May 2019. In the first quarter of the Iranian calendar year (March-June 2019), Iraq accounted for 21 per cent of Iranian non-oil exports, second only to China. “Iran’s non-oil trade surplus tops $1.3 billion in Q1”, Eghtesad Online, 8 July 2019.Hide Footnote For now, the Iraqi government has found a way to pay Iran for its energy imports, while trying to diversify its energy sources.[fn]Maya Gebeily, “Iraq sets up ‘loophole’ in US sanctions to buy Iranian power”, Agence France Presse, 2 July 2019; “GE and Siemens sign agreements for Iraq power deals”, Financial Times, 28 October 2018; “Iraq, Jordan agree deal over trade oil and goods”, Reuters, 3 February 2019; “Iraq close to signing $53 billion deal with Exxon, Petrochina”, Reuters, 7 May 2019.Hide Footnote But this balance is both fragile and vulnerable to U.S.-Iran escalation.

B. The Arabian Peninsula and the Gulf

Indirectly, U.S.-Iran tensions are growing in Yemen as well. A sharp increase in drone attacks and missile strikes by the Huthis, who receive support from Iran, upon Saudi Arabia and an intensification of Saudi airstrikes in Yemen are drawing that conflict further into the U.S.-Iran standoff; conversely, a U.S.-Iran confrontation almost certainly would exacerbate the Yemeni conflict.[fn]Crisis Group Middle East Report N°203, Saving the Stockholm Agreement and Averting a Regional Conflagration in Yemen, 18 July 2019.Hide Footnote “If the situation [with Iran] deteriorates”, noted a senior U.S. official, “it’s hard to see how the situation in Yemen won’t be affected”.[fn]Crisis Group interview, Washington, July 2019. In a statement following a Huthi drone attack against a Saudi airport, Secretary of State Pompeo argued that “some want to portray the Yemen conflict as an isolated civil war, without a clear aggressor. It is neither. It is spreading conflict [sic] and humanitarian disaster that was conceived of and perpetuated by the Islamic Republic of Iran”. “Houthi Attack on Abha Airport”, U.S. State Department, 24 June 2019.Hide Footnote Saudi officials contend that the Huthis conduct their operations at Tehran’s instruction. [fn]The Saudi deputy defence minister argued after a 12 June Huthi attack on Abha airport that the Huthis’ “targeting of a civilian airport exposes to the world the recklessness of Iran’s escalation and the danger it poses to regional security and stability”. Tweet by Khalid bin Salman, @kbsalsaud, 3:44pm, 12 June 2019.Hide Footnote Riyadh wants to see the Huthis demonstrate a rupture in relations with Iran as a sign that they are ready to end the war and mend relations with the kingdom.[fn]Crisis Group interviews, Riyadh, March 2019.Hide Footnote Huthi officials readily admit that their links to Tehran have grown stronger during the conflict, but maintain that the relationship is based on pragmatic, not ideological, considerations, and reject the notion that they are Iran’s proxies. As one put it: “If we are under attack by Saudi Arabia, and the only country willing to help us is Iran, then, yes, we will grow closer to them”.[fn]Crisis Group correspondence, Huthi official, March 2019. A senior U.S. official suggested that “Pompeo sees the Huthis as entirely malignant actors aligned with Iran that need to be further pressured”. Crisis Group interview, Washington, July 2019.Hide Footnote

Tehran has warned regional countries hosting U.S. bases that any attack originating from their soil or benefiting from their help will prompt Iranian retaliation against them.

It is possible that Iran has encouraged the uptick in Huthi attacks, though the Huthis have their own rationale for increasing military pressure on Saudi Arabia: they see it as the best way to push Riyadh toward direct talks.[fn]Crisis Group interviews, Huthi officials, Sanaa, November 2015; New York, May 2019.Hide Footnote In either case, there are two risks: that the rising tempo and severity of Huthi attacks on Saudi or Emirati targets – including offshore oil platforms, electrical grids and especially desalination plants – or on Red Sea shipping results in an incident so significant as to prompt escalation by Riyadh and/or Abu Dhabi, either on their own or with direct U.S. military involvement; or that a regional confrontation between Tehran and Riyadh prompts more Huthi attacks on Saudi soil.[fn]Crisis Group interviews, Iranian officials, Beirut and Oslo, May-July 2019. A Huthi politburo member in May said a “great war” between Iran’s “resistance axis” and the U.S. and its regional allies “has begun to loom on the horizon”; other Huthi officials have struck the same note. Some believe that such a regional war could break the deadlock in the Yemeni war and redound to their benefit. Crisis Group interviews, individuals close to the Huthi movement, May-June 2019.Hide Footnote The Huthis are clear that if a war starts involving the U.S., Saudi Arabia and Iran while the Yemen war continues, they will support Tehran in part by making military advances on Saudi territory.[fn]If, however, the Saudis ended their war in Yemen, the Huthis claim they would not enter a regional confrontation between Riyadh and Tehran. Crisis Group interviews, Huthi leaders and supporters, Sanaa, July 2019; Crisis Group interview, Huthi representatives, Sanaa, July 2019. This promise of neutrality may be conditioned on issues beyond the Yemen war. A Huthi member said that if Israel, for example, participated in a broader regional conflict against Iran, the Huthi position would be different, regardless of whether Saudi Arabia were no longer at war with them. Crisis Group interview, Sanaa, July 2019.Hide Footnote Any of these scenarios would make prospects for peace in Yemen even more remote, and undo the progress achieved in Hodeida under the UN-brokered Stockholm Agreement, while further sucking Yemen into a regional quagmire.

Tensions are also high elsewhere in the Gulf. As attacks on tankers and shipping suggest, a U.S.-Iran flare-up will have broad consequences. Tehran has warned regional countries hosting U.S. bases that any attack originating from their soil or benefiting from their help will prompt Iranian retaliation against them.[fn]Crisis Group interviews, senior Iranian and Gulf officials, July 2019.Hide Footnote Iranian officials contend that a conflict that draws in the UAE, among others, will inflict enormous costs on the Emirati economy in terms of capital flight and damage to infrastructure.[fn]Crisis Group interview, Tehran, July 2019.Hide Footnote Emirati officials seem particularly aware of these risks; they have adopted a noticeably careful tone since tensions escalated. Despite being privately persuaded of Iranian culpability, UAE officials have been careful not to publicly blame Iran for attacks on tankers in the port of Fujaira. A senior UAE official said, “what good would it do to point fingers at Iran? At this point, we need to lessen tensions, not exacerbate them”.[fn]Crisis Group interview, June 2019.Hide Footnote Another expressed concern about the gravity of the situation:

We are in fragile times. War is not something that we want or seek with Iran. The events leave us concerned but not surprised. It’s not good for us, or for anyone. We are very alarmed at the sporadic nature of the escalation. We’re at the brink of something.[fn]Crisis Group interview, Abu Dhabi, June 2019.Hide Footnote

C. Syria

In Syria, a high-risk cat-and-mouse game between Iran and Israel has heightened tensions in recent years to what one Israeli official described as a “quasi-state of war” and another as “a war between the wars”.[fn]Crisis Group interviews,​ senior Israeli defence official, Tel Aviv, 7 November 2018; Israeli official, Jerusalem, November 2018. See also Crisis Group Middle East Report N°182, Israel, Hizbollah and Iran: Preventing Another War in Syria, 8 February 2018.Hide Footnote The duel manifests itself most frequently and visibly in Israeli airstrikes, often but not always unacknowledged, against Iran and Iran-linked assets in Syria.[fn]Gadi Eisenkot, then chief of staff of the Israel Defence Forces, estimated in January 2019 that Israel had “struck thousands of targets” as part of the campaign. Quoted in Bret Stephens, “The man who humbled Qassim Suleimani”, The New York Times, 11 January 2019. In July 2019, the head of Mossad indicated that “Israel has taken action in the past four years, overtly and covertly, about which only a small amount has been published”. Quoted in Judah Ari Gross, “Mossad chief: Iran definitely behind attacks on Gulf oil sites, embassy in Iraq”, Times of Israel, 1 July 2019.Hide Footnote

There is a risk that Syria and Israel will both be pulled into a U.S.-Iran confrontation triggered elsewhere.

Israeli concerns over Iran’s presence and role in Syria and neighbouring Lebanon focus on various perceived threats. Most importantly, Israel sees Iran transferring sophisticated weaponry through Syria to Hizbollah in Lebanon and helping Hizbollah establish its own production facilities for precision-guided missiles.[fn]An Israeli security official said: “In comparison to Syria, Lebanon and Yemen are poor states with no strategic resources. Syria has military-industrial capabilities. The Huthis can’t make weapons, but Syrians can, boosting Iran’s capabilities”. Crisis Group interview, Tel Aviv, June 2019.Hide Footnote More broadly, Israel is concerned about the presence of tens of thousands of Iran-sponsored fighters in Syria, and the possibility that Iran will mass some of these fighters, along with heavy equipment, on or near the armistice line on the Golan Heights.[fn]Eisenkot asserted that around mid-2016, “we noticed a significant change in Iran’s strategy. Their vision was to have significant influence in Syria by building a force of up to 100,000 Shiite fighters from Pakistan, Afghanistan and Iraq”. Quoted in Stephens, “The man who humbled Qassim Suleimani”, op. cit. In March 2019, the Israeli military claimed to have uncovered a Hizbollah presence which “is new and currently focused on becoming familiarised with the Golan Heights area. It is intended to eventually control teams of Syrian operatives who will launch attacks against Israel”. IDF statement quoted in Judah Ari Gross, “IDF says it exposed new Hizbollah cell in Syrian Golan Heights”, Times of Israel, 13 March 2019.Hide Footnote Beyond that, Israel has been concerned about long-term Iranian influence in Syria.[fn]A Syria specialist for the Israeli government noted that while discussions of Iran’s role in Syria were typically centred around military capabilities, “that’s only part of the picture. Iran is building on its experience in Lebanon and Iraq for political influence and economic entrenchment, and we see involvement in other fields like culture and education. Some of this is known by the [Syrian] regime but some of it is under the radar”. Crisis Group interview, Jerusalem, June 2019.Hide Footnote Israeli officials see the threat of Iran-allied fighters receding, as the Syrian war around Damascus has wound down and, they say, U.S. sanctions on Iran have taken their toll, but the other concerns remain very much alive.[fn]Crisis Group interviews, Israeli officials, Tel Aviv and Jerusalem, April-July 2019.Hide Footnote They link these to Iran’s overall strategy in the region, including its nuclear and missile programs.[fn]As an Israeli defence official argued, “the Iranians are strategic, smart and pragmatic. They can give up part of their nuclear program but come back to it later. In the meantime, they build a conventional umbrella in the region. If they have this conventional capacity to target regional capitals in ten years, who will act against the nuclear threshold then?” Crisis Group interview, Tel Aviv, June 2019.Hide Footnote In response, as a senior Israeli official put it: “Our number one goal is ‘TRB’: total rollback of Iran and its proxies”.[fn]Crisis Group interview, February 2019.Hide Footnote

The Israeli strikes in Syria have thus far elicited no major retaliation from Tehran, and whatever responses there have been Israel met with even wider retaliatory strikes.[fn]In one particularly significant strike dubbed Operation House of Cards, Israeli forces in May 2018 hit tens of purported Iranian facilities in response to what it claimed was a barrage of 32 rockets launched by Iranian forces at Israeli positions in the Golan Heights. A senior Israeli official remarked: “In the past, the U.S. would restrain us, and we would thus be constrained in what we did. That’s no longer the case. The U.S. says we can do what we want. So we do more. Of course, that raises the question of what will happen if we cross a line and Iran reacts?” Crisis Group interview, February 2019.Hide Footnote “We exercise restraint as we’re not there [in Syria] to fight Israel”, argued a senior Iranian official.[fn]Crisis Group interview, senior Iranian official, New York, April 2019. An Iranian diplomat remarked that “our priority in Syria isn’t Israel. But the Israelis want to draw us into a limited war to reverse our gains. We’re not going to take the bait”. Crisis Group interview, Beirut, May 2019. In a different analysis of Israeli motives, a Hizbollah official said: “Israel does not want escalation. Sometimes they even send text messages before they strike a storage facility to make sure they do not cause significant fatalities that would warrant a response”. Crisis Group interview, Beirut, May 2019. A Russian diplomat remarked that “we take the Israeli narrative seriously … [but] the Israelis are averting a war the Iranians aren’t planning”. Crisis Group interview, Jerusalem, April 2019. See also Michael Herzog, “Iran Across the Border: Israel’s Pushback in Syria”, Washington Institute for Near East Policy, July 2019.Hide Footnote An Israeli official noted that on occasions when Iranian or Iran-backed forces did respond, they appeared to follow “unmentioned rules” by limiting attacks on Israeli-occupied Syrian territory.[fn]Crisis Group interview, Israeli official, Jerusalem, June 2019. The official added that “we haven’t targeted Iranian soil, but this policy could be revised”.Hide Footnote

That said, in light of growing tensions, past patterns of limited action and restrained reaction may not be sustainable.[fn]A senior Iranian official assessed already in February that in Syria “the current situation is very unsustainable. Everyone in the region is worried about a confrontation between us and the Israelis. … [Prime Minister Netanyahu] has to be careful because we have exercised too much restraint. Continuing to do that will be extremely difficult if they pass certain red lines”. Crisis Group interview, February 2019.Hide Footnote Israel’s civilian leadership and the security establishment have generally embraced the military strategy in Syria, and consider it to have been largely successful so far in checking Iran’s perceived ambitions.[fn]A senior Israeli official said: “We have been successful so far, but it is a risky game. … I remain convinced we have no idea how the Iranian leadership thinks. It is a very small group that makes decisions and we are always at risk of a miscalculation”. Crisis Group interview, February 2019.Hide Footnote But Israeli officials say they appreciate its inherent risks. These are three, a former senior Israeli military official said:

Losing a plane, hitting Russians and an escalation with Iran. All three materialised in the last year, but only modestly so. The Iranians wanted to retaliate operationally but have mostly failed. The possibility of a recurrence hasn’t evaporated, and with respect to the third one, [IRGC Qods force commander] Qasem Soleimani is working on low-cost options for retaliation.[fn]Crisis Group interview, Tel Aviv, June 2019.Hide Footnote

Even prior to the sharp rise in regional tensions beginning in May, some Iranian observers saw the growing possibility of a collision course with Israel over Syria, while Israeli officials assessed that the U.S. “maximum pressure” campaign on Iran was producing tactical adjustments by Iran in its regional behaviour but not more substantial shifts in policy.[fn]Crisis Group interviews, Israeli officials, Jerusalem, April 2019. A prominent IRGC strategist said: “The odds [of a confrontation] have gone up in the current year since Israel is more confident to attack Iran because it feels it has a blank cheque from the Trump administration”. Crisis Group interview, Tehran, April 2019. A former senior defence official predicted that Iran “will have less tolerance when it comes to retaliation [against Israel]. Patience in this situation would be perceived as weakness”. Crisis Group interview, Tehran, April 2019.Hide Footnote Since then, however, Israeli officials have come to the conclusion that the incidents in the Gulf and elsewhere may require a recalculation closer to home. “The circumstances are shifting today”, said an Israeli security official. “Iranian disruptions could affect the Syrian case; [there] could be a trigger to make disruptions here. ... I get the feeling that the current ecosystem is not sustainable”.[fn]Crisis Group interview, Tel Aviv, June 2019. Israeli officials diverged as to whether an escalation with Iran was more likely to take place in Syria or in Lebanon. “It’d be easier for the Iranians in Syria than Lebanon – Lebanon’s too risky”. Crisis Group interview, Israeli security official, Tel Aviv, June 2019. “Will the Iranians use an escalatory ladder against us? It could be, but they don’t have the right assets in Syria. Lebanon or Gaza seem more likely options”. Crisis Group interview, Israeli official, Jerusalem, June 2019.Hide Footnote

An escalation between Iran and Israel in Syria would entail high costs for all three parties, undermining Tehran and Damascus’ reconsolidation of control, prolonging the Syrian conflict, raising the possibility of Israeli strikes upon Iran and perhaps drawing Lebanon into conflict as well. Additionally, there is a risk that Syria and Israel will both be pulled into a U.S.-Iran confrontation triggered elsewhere.[fn]Israel seems to be preparing for such eventuality. “Israel says it is bracing militarily for possible U.S.-Iran escalation”, Reuters, 2 July 2019.Hide Footnote An Hizbollah official claimed that years of Iranian support for the Syrian regime have transformed Damascus’ stance against Israel from “political resistance” (mumana‘a) to “armed resistance” (muqawama). He said that change means that the regime might join an Iran-Hizbollah conflict against Israel or allow its territory to be used for retaliation against Israel for Israeli strikes upon Iran.[fn]Crisis Group interview, senior Hizbollah official, Beirut, May 2019.Hide Footnote

D. Lebanon

Among Tehran’s various local allies, Hizbollah holds an elevated position based on the depth of its relationship with Iran, its political influence in Lebanon and its military capabilities. These factors put it squarely in the sights of the U.S. campaign against Iran, primarily through the application of sanctions and calls for other countries to blacklist the organisation.[fn]“Sanctioning of Three Senior Hizbollah Officials”, U.S. State Department, 9 July 2019.Hide Footnote “The Lebanese people should no longer be made to suffer for the political and military ambitions of an outlaw state and its terrorist affiliate”, said Secretary of State Pompeo during a May visit to Beirut.[fn]Pompeo quoted in “Remarks – Secretary of State Michael R. Pompeo and Lebanese Foreign Minister Gebran Bassil”, U.S. State Department, 22 March 2019.Hide Footnote

As in the case of U.S. sanctions against Iran, the impact of financial pressure on Hizbollah is mixed. U.S. and Israeli officials claim that the group has taken a significant hit in its access to financial resources.[fn]An Israeli official assessed that “Hizbollah is in its worst financial crisis ever”. Crisis Group interview, Jerusalem, 14 July 2019.Hide Footnote Crisis Group’s field research shows that the party is indeed taking austerity measures, partly because of mismanagement and corruption that is dragging down the whole Lebanese economy, and partly because of U.S. sanctions.[fn]Senior Hizbollah officials claimed that Iran’s financial support for the party has not diminished as a result of sanctions. Crisis Group interviews, Beirut, May 2019.Hide Footnote Hizbollah and Israeli officials, however, contend that, regardless of financial setbacks, the group’s capabilities have not been substantially degraded.[fn]A journalist close to Hizbollah noted: “There is a difference between austerity and retrenchment. The party might not be organising lavish iftar receptions during Ramadan, but it is still converting two rockets into precision-guided missiles every week and expanding its arsenal”. Crisis Group interview, Beirut, May 2019. Echoing a similar view, an Israeli official indicated that “the number of Hizbollah forces in Syria is down, but that doesn’t mean its footprint there is shrinking. Hizbollah recruits locals and uses them as its proxies. So the picture is not quite clear”. Crisis Group interview, Jerusalem, June 2019.Hide Footnote Of particular concern in Israel are Hizbollah’s ongoing efforts to develop precision-missile capabilities.[fn]An Israel official indicated: “They already have capacities but are now working on establishing local production that would operate at a higher pace, and on bringing in components for such production as well as already made weapons”. Crisis Group interview, Jerusalem, 14 July 2019. In a 12 July interview, Hizbollah Secretary General Hassan Nasrallah stated that “our weapons have been developed in both quality and quantity; we have precision missiles and drones”, adding that “we adopt [a] policy of constructive ambiguity” with respect to anti-aircraft missiles. Quoted in “Sayyed Nasrallah confident of victory: ‘We will pray in al-Quds’”, Al-Manar, 16 July 2019. Prime Minister Netanyahu responded: “It should be clear that if Hizbollah dares to foolishly attack Israel, we will hit him and Lebanon with a crushing military blow. As opposed to Nasrallah, I do not intend to detail our plans”. Quoted in “Excerpt from PM Netanyahu’s Remarks at the Start of the Weekly Cabinet Meeting”, Prime Minister’s Office, 14 July 2019.Hide Footnote So far, the potential of a clash between Hizbollah and Israel has been tempered by the “balance of terror” they have established – a state of mutual deterrence that has held since the 2006 Israel-Lebanon war.[fn]Eisenkot assessed that “Israeli deterrence is still strong, as demonstrated by the years of relative quiet on Israel’s northern border”. He further noted that “Hizbollah is capable of launching missiles into Israel on an even larger scale than 2006. Yet Israel’s defensive and offensive capabilities against the group have greatly improved, and the IDF enjoys major intelligence, aerial and ground superiority – enough to ensure victory in a future conflict and make Iran and Hizbollah pay a heavy price”. Gadi Eisenkot, “Thirteen Years Since the Hizbollah-Israel War”, Washington Institute for Near East Policy, 8 July 2019.Hide Footnote Nevertheless, a direct U.S. or Israeli strike on Iranian soil could destroy this equilibrium, as could miscalculation by either Israel or Hizbollah.[fn]Crisis Group interview, Iranian official, Beirut, May 2019.Hide Footnote A senior Iranian official said:

Hizbollah has proven to be a rational actor. It knows that a war with Israel could lead to its demise. But it also knows that Israel is wary of the havoc Hizbollah’s thousands of rockets and missiles could wreak. Yes, Hizbollah will suffer more, but Israel will suffer, too.[fn]Crisis Group interview, New York, July 2019.Hide Footnote

In May, Hizbollah Secretary General Hassan Nasrallah warned that an attack on Iran “will mean the whole region will erupt”, adding that, “any American forces and American interests will be permissible” as targets.[fn]“Nasrallah warns region to burn if Iran attacked”, NaharNet, 31 May 2019.Hide Footnote Other Hizbollah officials noted that if the group fails to take action against Israel under those circumstances, it might lose credibility with its main backer while giving Israel the impression that it is weak, which could invite an Israel strike in turn.[fn]Crisis Group interviews, Hizbollah officials, Beirut, May 2019.Hide Footnote “If Iran is attacked, it is primarily because of its support for the resistance against Israel. That is why Iran’s regional allies will not sit on their hands if the ‘mother ship’ is attacked”, argued a journalist close to Hizbollah.[fn]Crisis Group interviews, Beirut, May 2019. A Russian official said: “The Iranians consider Israel as an extension of the U.S., so Hizbollah in Lebanon is a check in case the U.S. decides for military action”. Crisis Group interview, Tel Aviv, April 2019.Hide Footnote Some Hizbollah officials believe that Israel will not miss an opportunity to roll back the party’s recent gains, especially its expanded missile arsenal and drones, before the cost of doing so becomes prohibitive.[fn]Crisis Group interviews, Beirut, May 2019.Hide Footnote A senior Hizbollah official said, “we know this will be very costly to us and will result in the destruction of Lebanon, but it will be very costly for Israel, too. And besides, the alternatives are not more palatable”.[fn]Crisis Group interview, Beirut, May 2019.Hide Footnote

IV. Stepping Back from the Brink

A U.S.-Iran clash, which is more likely than not to trigger a devastating regional war, is far from inevitable. Neither President Trump nor the Iranian leadership appears to want one. As a result, Iran might carefully calibrate its moves, making them sufficient to signal resistance but insufficient to spark a strong military response. Alternatively, Europe could provide Iran with just enough economic benefits through its newly established trade mechanism (INSTEX) to persuade the Islamic Republic to await the results of the 2020 U.S. presidential election.[fn]Laurence Norman, “Europeans plan to inject capital into Iranian trade effort”, Wall Street Journal, 26 June 2019.Hide Footnote The U.S. might also display its own version of strategic patience, confident that sanctions will produce their desired effect and prepare to absorb Iranian provocations in the meantime. Indeed, some administration officials point to Tehran’s actions on the nuclear and regional fronts as proof that U.S. policy is working; they now just need to wait until the economic pain is such that Iran will limp back to the table. Besides, Iran’s violations of the JCPOA could lead Europe to side with the U.S. and reimpose its own sanctions, which Washington would welcome.[fn]Crisis Group interviews, U.S. officials and analysts, Washington, June-July 2019. See also David Ignatius, “The U.S. is trying to let Iran punch itself out”, Washington Post, 16 July 2019.Hide Footnote

Success would require the U.S. to moderate its 'maximum pressure' campaign against Iran in exchange for equally limited Iranian concessions.

Still, these are fragile “ifs” on which to rest one’s hope of avoiding a military conflagration. Shifting from their present collision course will require both sides taking de-escalatory measures. One possibility is to aim for mutual de-escalation, whereby the U.S. would agree to partially reinstate its sanctions waivers on Iranian oil exports, in exchange for Tehran resuming full compliance with the nuclear agreement and refraining from targeting shipping in the Gulf. Diplomats could also make progress toward the release of at least some of the dual nationals Iran has imprisoned on dubious charges. In other words, the parties could revert to an enhanced version of the pre-May 2019 status quo, with a commitment to resume broader negotiations in a format to be determined. Success would require the U.S. to moderate its “maximum pressure” campaign against Iran in exchange for equally limited Iranian concessions.

Whether either side would accept such a deal is unclear. Some U.S. officials say they must not lower their pressure prematurely – as they argue President Barack Obama did – but rather maintain them until Iran meaningfully changes its posture.[fn]A senior U.S. official indicated: “The problem is that the part of the administration that is working on Iran is on autopilot and determined to increase pressure. They are convinced that pressure is working and that this is why Iran is lashing out”. Crisis Group interview, Washington, July 2019.Hide Footnote They would hardly view return to the JCPOA as an achievement, since Iran was in compliance until recently and since they have repeatedly assailed the deal as woefully insufficient. At most, they might consider a temporary relaxation of sanctions tied to the outcome of resumed negotiations – an offer Tehran could well reject, both because time-bound relief would have uncertain benefits and because it will not want to negotiate under the threat of the sanctions being reimposed.

By the same token, Iran might be only mildly interested in a deal that would allow it to increase its oil exports somewhat but not – due to banking sanctions – to repatriate the funds it would receive in exchange.[fn]A senior Iranian official asked, “Why should we go back into full compliance if Trump is only to accept the export of a million barrels of Iranian oil? That is not even 10 per cent of U.S. commitments under the deal”. Crisis Group interview, July 2019.Hide Footnote The Iranians are also unsure if Trump could wear down resistance to a tactical détente with Iran within his administration; and even if he could, whether a deal with him would last.[fn]A senior Iranian official said, “The problem is we don't know what Trump wants. Some say he wants his name on an agreement, like what happened with renegotiating the North American Free Trade Agreement. But then Trump moves the goalposts and asks Mexico to do more on stemming immigration. How can one trust an administration like this?” Crisis Group interview, July 2019.Hide Footnote That said, if a deal along these lines were to be reached, both sides arguably could claim success: the U.S. in that it could say its pressure had gotten Iran back to the table for more comprehensive talks without Washington having to re-enter the JCPOA or dismantling its broader sanctions program; Iran in that some of the most harmful sanctions would have been relaxed without it having to comply with U.S. demands.

The Iranians prefer quiet back channels and multilateral formats.

Iran has put two ideas on the table to overcome the impasse. One is ratifying the Additional Protocol to the comprehensive safeguards agreement that would allow for permanent rigorous inspections by the International Atomic Energy Agency, the UN nuclear watchdog, in return for permanent lifting of U.S. sanctions – steps that would move forward Iran’s commitment under the JCPOA to ratify the Additional Protocol by 2023 in parallel to the U.S. Congress lifting (as opposed to waiving) nuclear-related sanctions. Likewise, Tehran has proposed turning Ayatollah Khamenei’s fatwa against nuclear weapons into a legal document registered at the UN. The Trump administration scoffs at both ideas: the first because it does not address its complaints about Iran’s nuclear program, notably the JCPOA’s sunset clauses, which would allow Iran to ratchet up its nuclear capabilities as of 2023; and the second because U.S. concerns are primarily over Iran’s nuclear capabilities, not its professed commitments. Nonetheless, they could potentially be read as opening gambits showing that Iran is ready to entertain creative solutions.[fn]Crisis Group interviews, Iranian officials, New York, July 2019. See also Julian Borger, “Iran makes ‘substantial’ nuclear offer in return for US lifting sanctions”, The Guardian, 18 July 2019.Hide Footnote

There also are differences in preferred modalities, be it for a narrow de-escalation or marginal improvements to the JCPOA or even a grand bargain: the Iranians prefer quiet back channels and multilateral formats, whereas Trump almost certainly would favour a leader-to-leader summit.

So far, Tehran, uninterested in initiating direct negotiations with the U.S. while its maximum pressure campaign remains in force, has worked through intermediaries, like President Emmanuel Macron of France and, possibly, Senator Rand Paul, Republican of Kentucky, to explore options for stepping back from the brink.[fn]Crisis Group interviews, French and Iranian officials, July 2019. See also “Rouhani tells Macron Iran determined to ‘leave all doors open’ to save 2015 deal”, Reuters, 18 July 2019; and Laura Rozen, “Iran FM met Rand Paul to feel out possible US-Iran talks”, Al-Monitor, 19 July 2019.Hide Footnote Both men have direct access to Trump.

U.S. allies have good reason to press for a mutual ceasefire of sorts. The Europeans are at the forefront of efforts to salvage the JCPOA, as they fear a return to the crisis over Iran’s nuclear program as well as heightened tensions in the region. For their part, they ought to do more to render INSTEX operational, including by injecting export credit into it and having more EU and non-EU states join in, as High Representative Federica Mogherini has stated is the intention.[fn]“Remarks by High Representative/Vice President Federica Mogherini following the Foreign Affairs Council”, European Union External Action Service, 19 July 2019.Hide Footnote Regional governments such as Qatar, the UAE, Kuwait and Oman, which strongly desire to avert a conflict whose consequences will adversely affect them, should use their influence in Washington and Tehran to push for de-escalation. The immediate goal should be to bring down the temperature and open up the possibility of negotiations on the broader range of issues (eg, potential mutual changes to the nuclear deal and measures to address the parties’ regional security concerns).

V. Conclusion

The rise in tensions between Iran and the U.S., the perilously close brush with direct military confrontation in June and growing dangers of regional spillover from such a confrontation have spurred diplomatic efforts toward de-escalation. The U.S. clearly is able to match the economic damage it has already inflicted with military superiority. But it is a mistake to assume that pressure alone will deter Iran from retaliating on the nuclear and/or regional fronts, especially when it has increasingly less to lose.

War is far from inevitable, not least because neither side wants it. But the absence of a meaningful channel between the U.S. and Iran, the two sides’ determination not to back down, and the multiplicity of potential flashpoints means that a clash – whether born of miscalculation or design – cannot be ruled out. Should it occur, it would be difficult to contain in duration or scope. It could also cause local conflicts to mutate and metastasise, dimming prospects for their resolution.

Achieving a temporary, tactical U.S.-Iran détente would hardly be a panacea. Nor would it ensure that the region’s many conflicts would be resolved. But it would, at minimum, avert a 1914 moment in the Middle East, diluting a potent accelerant toward a dangerous military confrontation and diminishing the risk of historic disaster.

Washington/Tehran/Brussels, 1 August 2019

Appendix A: Map of Iran and the Region

Appendix B: The U.S.-Iran Confrontation: A Timeline

8 April: U.S. designates Iran’s Revolutionary Guard as a terrorist organisation.

2 May: End of U.S. sanctions waivers on Iranian oil sales.

5 May: U.S. announces military deployments in response to “escalatory indications” from Iran.

12 May: Four tankers attacked off the coast of the United Arab Emirates.

14 May: Huthis claim drone attack against Saudi oil pipeline.

13 June: Two oil tankers are attacked in the Gulf of Oman.

20 June: Iran shoots down a U.S. drone; President Trump calls off retaliatory strikes.

24 June: U.S. sanctions Iran’s Supreme Leader and senior military commanders.

1 July: Iran breaches 300kg JCPOA limit on enriched uranium stockpiles.

4 July: British forces detain an Iranian tanker off Gibraltar allegedly carrying oil to Syria. 

7 July: Iran breaches JCPOA’s 3.67 per cent enriched uranium limit.

18 July: U.S. announces downing of an Iranian drone in the Strait of Hormuz, which Tehran denies. 

19 July: Iran seizes a UK-flagged tanker in the Strait of Hormuz. 

22 July: Iran claims to bust an alleged CIA spy ring; U.S. dismisses it as “more lies and propaganda”.