Iran attacks leave political wounds amid infra damage

In June Israeli air strikes sent shockwaves through Iran, killing over 900 citizens, according to state officials, and damaging key infrastructure. A month on and the country was exporting at high levels, but Iran’s political leadership will need to work to keep a grip on its power at home in the longer-term, analysts told Gas Outlook.

The attack was seen by many analysts and media as an emboldened move by Israeli forces due to the ease with which Israel carried out such extensive attacks on foreign soil, highlighting the power of the Israeli military system. In addition to the attacks, Israel has sought to weaken Iran’s regional proxy networks over recent months and years, quietly eroding the depth and breadth of Iran’s strategic reach and power.

There has been some infrastructure damage across Iran as a result of the attacks, but the political ramifications have proved much more extensive.

Attacks on key energy infrastructure sites have exacerbated electricity supply concerns, which has the potential to stoke domestic discontent and highlight security vulnerabilities to the Iranian population.

“The Israeli strikes were tactically precise, targeting important military infrastructure, elements of the nuclear program, and high-level scientific and security leadership, but arguably, their psychological impact was far more extensive,” Justin Dargin, Middle East energy expert at the Middle East Council on Global Affairs told Gas Outlook.

Though initially the attacks seemed to invigorate nationalist sentiment in parts of the Iranian population, overall, the impact of the strikes has been a confirmation of long-held doubts around the Iranian government’s willingness to be engaged in ongoing regional conflict, and has created a deeper erosion of trust in the state’s ability to look after its citizens, analysts said.

Internally, the Iranian regime will be increasingly concerned about the ability of Israel to interfere in domestic concerns and this will likely lead to a greater role being adopted by the Islamic Revolutionary Guard Corps, a group which answers directly to the Iranian Supreme Leader Ali Khamenei, in political affairs.

“More important than the physical destruction was what the strikes exposed: serious gaps in Iran’s security and intelligence networks,” Dargin said. “The fact that both Israeli and American forces could so precisely target high-value facilities demonstrates a deep and serious level of intelligence penetration.”

Global alliances, which have been changing rapidly over recent years, have been taking greater shape, with more openness around Israel’s increasing links with the Gulf States as a result of mutual security concerns. Similarly, closer trading ties are forming between Russia, China and Iran, who will support the latter diplomatically and buy oil, Dargin explained.

Trade with China

Although proving to be a strength for Iran at the moment, a heavy reliance on China as a buyer of Iranian crude could become a vulnerability for Iran if Chinese compliance with U.S. sanctions on Iran becomes a bargaining chip in U.S.-China trade negotiations, Torbjorn Soltvedt, Associate Director of Global Risk Insight and Middle East & North Africa expert at Verisk Maplecroft, told Gas Outlook.

“China’s independent teapot refiners have become somewhat of a lifeline for Iranian crude, being able to absorb large volumes through intermediaries, often rebranded or trans-shipped from other countries,” Dargin said. “However, this channel is extremely fragile. Increased regulatory scrutiny from Beijing, or maximalist pressure from Washington, could rapidly constrict this flow.”

In the wake of the Israeli strikes, Iran has threatened to leave the Non-Proliferation Treaty, an agreement centred on a commitment not to develop nuclear weapons. Its threat has brought the topic of a European sanctions snapback to the forefront of diplomatic discussions again.

European counterparts have been attempting to lay groundwork for fruitful discussions between Iran and the U.S., but the likelihood of success is remote, analysts said.

As things stand, U.S. sanctions are already a massive deterrent to importing Iranian crude, since the dollar acts as a worldwide hard currency in which all major commodities are bought and traded, with the exception of China. This is made possible through China’s ability to access refineries without circumventing international banking restrictions on Iran.

“A snapback of non-U.S. sanctions would deepen Iran’s economic isolation. But U.S. sanctions already prevent most companies from carrying out transactions with Iran or investing in the country,” Soltvedt said.

As Iran has already been dealing with decades of global isolation as a result of U.S. sanctions, the attacks will be seen widely as further contributing to a sense of instability around the country as an investment or political partner. The Iranian oil and gas sector will continue to feel the effects of underinvestment as a lack of foreign investment and domestic corruption. Ageing oil fields in Iran are now at a critical stage and require funds to enable enhanced oil recovery, Soltvedt added.

Iran might recover from the physical damage of the airstrikes, but the psychological damage of the attacks on the Iranian leadership, the local population, foreign investors, and its international diplomatic standing have left deep wounds that will take much longer to repair.

(Writing by Miriam Malek; editing by Sophie Davies)