Middle East – all change or more of the same?

• Despite apparent shifts in the distribution of power in the Middle East since the October 7 2023, attack on Israel, the region is not in a phase of sustainable change for the better, at least not yet.
  
• The drivers of the June war between Israel/US and Iran have not fundamentally changed and the ceasefire lacks the strategic framework necessary for sustainability. Israel’s other conflicts are far from over and the Palestinian issue remains at the heart of regional politics.  
  
• Iran is weakened but remains resilient. The war does not appear to have decisively undermined the regime’s grip on power. While it has no choice but to resume talks with the US, it is unlikely to give up its nuclear ambitions. 
  
• The US under Trump remains the most influential external actor in the Middle East but lacks a strategic plan. Trump still hankers after a big regional deal and will be a factor of unpredictability as the region looks for a new security equilibrium. Europe has been largely sidelined. 
  
• The Israel-Iran war was contained and business confidence in uninvolved countries returned quickly after the ceasefire. Regional escalation and sustained damage to the Gulf economies remain unlikely.

Israel/US - Iran War: A hiding to nothing

Almost two years of grinding war on several fronts in the Levant tipped last month into the war the region has feared for decades – a direct Israel-Iran confrontation. Following the high-risk intervention of the US, and relatively modest casualties on both sides, it ended in a ceasefire. But this will not be the end of the story. The truce will prove fragile over time, unless it is underpinned by measures addressing the causes.

Iran still has the capacity and intent – if reduced current capability – to make a nuclear device, which would threaten regional stability. Regardless of its public narrative, it is unlikely to relinquish its nuclear program, especially now its conventional military weakness has been exposed.

But Israel has undertaken to prevent Iran securing this capability, by whatever means. It sees a nuclear-armed Iran (correctly, under current leadership) as an existential threat.

Regime leaders whose desire is to create a nuclear deterrent will be more tenacious following their humiliation by Israel and the US. Ironically, the war may result in Iran quietly doubling down on a nuclear capability, though the destruction of nuclear sites and knowledge will have put back the program substantially. What remains of the program may well go underground. While Iran hasn’t withdrawn from the Nuclear Non-Proliferation Treaty, it has suspended its cooperation with the International Atomic Energy Agency, preventing IAEA monitoring, and IAEA inspectors have departed the country.

The region’s stability would be vastly improved by Iran deciding to step away from nuclear ambitions, but this is most unlikely under the present management. The war does not appear to have sufficiently weakened the regime to bring about its collapse, so the prospects for early regime change remain slim.

Meaningful diplomatic engagement looks unlikely for now, and this is another risk to a stable ceasefire. A smarting Iran needs time to lick its wounds. If talks ensue, Iran is unlikely to engage seriously without an offer of substantial sanctions relief up front.  

Israel's other wars

There are some prospects for a temporary cessation of hostilities in Gaza, but a permanent, sustainable peace is not in prospect as long as Hamas keeps fighting and hostages are not handed over.

Israel has built a high tolerance for international criticism of disproportionate civilian deaths and destruction, and will keep the pressure on Gaza (and the West Bank). Its renewed bombardment in Gaza and controlling chokehold on humanitarian assistance signal a determination to secure maximum advantage before the White House seeks to extract a ceasefire.

Israel’s war with Hezbollah in Lebanon has not resumed since the ceasefire agreement of November 2024, but tensions and violence persist across the border.

Israel continues to operate unilaterally against insurgents and to occupy territory in Syria, although the leadership of these two countries are now in contact, which should prevent outright major conflict.

The domestic political environment in Israel shifts in response to developments on the battlefield, as well as internal matters. Prime Minister Netanyahu’s leadership is dependent on a fragile right-wing coalition with views which divide Israeli society and international opinion. He remains stubbornly in place, but under legal threat. Netanyahu will face parliamentary elections next year.

Impacts on Trade

While regional aviation has returned to normal after the 12-day war, the Gulf hosts critical global hubs for the movement of people and cargo, and closures of airspace were unnerving for business confidence.

The lifting of most sanctions by the US, the EU and the UK on Syria marks a step change in the fortunes of that country, which should soon be able to engage more fruitfully with the world, but is not a major economy.

An uneasy truce settled by the US in May with the Houthis has not translated into a full return to shipping via the Red Sea, as operators continue to reroute out of the region, awaiting more solid assurances.

Following an initial spike in the oil price during the 12-day war, once the ceasefire was announced and a closure of the Straits of Hormuz looked unlikely, prices rapidly fell back below USD70. This looks likely to hold, absent further shocks.

Gulf states are relieved to have avoided a wider war, though they are unhappy at the damage to the image of a stable Gulf, focused on doing business. And they will be alert to the risks of a further episode.  

Is sustainable peace conceivable in the region?

Perhaps, but not yet.

While Israel’s undeniable military preeminence has been established, it does not translate into a more settled region. Israel has few natural friends and no military partners in the Middle East. It wants a network of commercially-focused partners with whom prosperity would become a dividend of peace.

Wider normalisation of relations with Israel among Arab states has been on hold since October 7 2023, and the events of the past weeks have unnerved prospective partners even further. Gaza remains a highly controversial issue, and any attempt at regional detente which ignores the Palestinians is now indefensible for Arab governments. While not impossible, additional regional ties with Israel appear more distant as its conflict with Iran is deepening.

Russia and China were conspicuously absent as Iran came under pressure during the June conflict. The anti-US sentiment that binds these countries does not cut across their self-interest, and they both judged intervention to be unwise. Chinese interests in oil exports through the Strait of Hormuz would have played into its calculations. The US remains the only country with the necessary convening power across all relevant actors to deliver and underpin a sustainable peace, or at least the absence of live conflict. But US influence has limits in both Israel and Iran, and consistent White House engagement seems unlikely. 

This blog was written by Senior Adviser Heidi Venamore, with contributions from Founding Partner Sir Simon Fraser and Director François-Joseph Schichan. 

Heidi leads Flint's work on the Middle East and advises clients on Middle Eastern politics and policy across the Gulf States and Levant. She was previously a senior Australian diplomat, including postings as Ambassador to the United Arab Emirates and Jordan. Earlier in her career, she also served in Israel and Iraq, and worked for the World Bank’s West Bank and Gaza Mission. Over her career, Heidi has been deeply involved in security and crisis issues in the Middle East, as well as supporting business growth, trade and investment.

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