Protests have erupted across multiple Iranian cities, with demonstrators chanting “death to the dictator.” Such unrest is not new: major waves occurred in 2009, 2017–2018, and 2022–2023. What appears different in the current cycle is its socioeconomic base. Reporting suggests mobilization began in poorer and working-class communities that have historically provided key regime support, before extending into more familiar youth dissident ranks. This pattern points to economic stress as the primary catalyst for the current wave of unrest.

Iran’s economic deterioration has sharpened the underlying drivers of these ongoing protests. Inflation and currency depreciation have eroded purchasing power, while chronic underinvestment has compounded basic-service failures, including acute water stress. With limited fiscal room to stabilize living conditions at scale, the state has increasingly relied on coercive containment—reinforcing incentives for households and elites alike to externalize wealth.

Iran’s accelerating economic crisis is not solely the product of sanctions or mismanagement. It is increasingly driven by capital flight embedded within the same networks initially developed to foster state resilience—networks that now operate beyond effective control. Under pressure, opaque networks built for sanctions resilience and regional power projection now function as conduits for capital flight.

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A siege economy overseen by a multidimensional security actor

Iran is among the world’s most heavily sanctioned states, and has been for nearly five decades, severely constraining its access to formal financial systems and conventional trade finance. To function, the Iranian state and economy rely on a fragmented but resilient ecosystem of informal, semi-formal, and illicit channels to sustain trade, preserve value, and maintain currency stability.

Within this environment, the Islamic Revolutionary Guard Corps (IRGC)—a multiservice institution with paramilitary, intelligence, and economic roles—has emerged as a central coordinating actor. While not the sole driver of sanctions evasion, the IRGC plays a critical role in overseeing and stabilizing the networks that enable Iran to operate under prolonged economic pressure. The Quds Force, IRGC’s elite external operations arm, oversees these foreign facing networks.

These networks include shadow tanker fleets moving discounted Iranian crude to global markets, procurement channels sourcing dual-use components for domestic weapons production, and trade and logistics firms facilitating the movement of high-value commodities such as physical gold, and informal financial institutions. In several cases, Iranian proxy organizations participate directly in these systems, often in exchange for financing, logistical support, or political backing facilitated by the IRGC.

For example, Hezbollah-linked networks in Venezuela have participated in gold smuggling operations connected to Venezuelan supply chains, while Houthi-linked facilitators have played roles in brokering oil shipments to independent refiners in China. Across these pathways, IRGC-affiliated actors frequently provide coordination, protection, or logistical oversight, giving them visibility into — and influence over — critical flows of capital and goods.

By anchoring these networks, the Quds Force does not merely facilitate sanctions evasion; it effectively underwrites the movement of value into and out of the Iranian economy. This role has helped sustain economic functionality under extreme external pressure – driving export revenue and necessary imports while arming regional proxies – but it has also enabled significant capital outflows. In this sense, the Quds Force operates not only as a military or intelligence institution, but as a central node in Iran’s siege-economy infrastructure — one that governs access, risk, and continuity across otherwise fragmented financial and trade networks. Because these networks operate through opaque and compartmentalized channels, and because the IRGC ultimately answers only to the Supreme Leader - an 86-year-old man who frequently avoids the spotlight amid health speculations - they are structurally vulnerable to elite capture and internal rent-seeking.

Within Iran, the broader IRGC organization has consolidated control over much of the domestic economy. Companies such as Khatam al-Anbiya, an IRGC-linked engineering firm, have vast interests across the Iranian economy ranging from fuels and hydrocarbons to agriculture, mining, real estate, and infrastructure. IRGC functionaries have even intervened to prevent a major tech company from going public last year, presumably as a means of managing control over it. Major defense contractors such as Shahed Aviation – responsible for Iran’s Shahed drone program – also fall under the control of the IRGC’s vast portfolio of domestic assets.

The IRGC also captures a large share of state spending through defense and infrastructure procurement. Estimates suggest it receives roughly 34% of total military expenditure, which rose sharply in 2025 (to an estimated $23.1 billion). Given the IRGC’s influence over key suppliers and contractors, a significant portion of this spending flows into opaque channels it controls.

Taken together, these dynamics form the architecture of a vertically integrated siege economy. The broader IRGC consolidates and captures liquidity domestically through control of procurement, infrastructure, defense production, and budgetary flows, while the Quds Force manages the external channels that move value across borders, absorb sanctions risk, and interface with deniable networks. Under conditions of sustained pressure, this division of labor preserves regime functionality but also facilitates capital flight, as assets accumulated within the domestic system are routed outward through opaque, compartmentalized pathways beyond effective oversight.

Stress Test Conditions

Iran’s economic system is undergoing a sustained stress test shaped by three converging pressures: intensifying sanctions, escalating regional conflict with Israel, and accelerating capital flight. The latter of these has been enabled by informal financial mechanisms and weak regulatory enforcement, and comes in response to the former two. Together, these forces are pushing the country beyond episodic economic strain and toward a deeper crisis of economic governance, resulting in widespread capital flight and the erosion of monetary stability.

Regional Conflict, Military Costs, and Collapsing Revenue

The financial burden of Iran’s expanding regional confrontation has grown sharply. Analysts estimate that the country’s direct and indirect costs from its recent 12-day conflict with Israel alone were $24 - $35 billion, a figure that does not account for the ongoing and open-ended costs of proxy warfare across Lebanon, Iraq, Syria, and Yemen. Even conservatively assessed, this level of expenditure represents a meaningful share of national output—exceeding 6% of GDP—at a time when Iran’s economy is already contracting under sanctions pressure.

These military outlays are colliding with mounting stress on the state’s primary revenue base. Petroleum and mineral fuel exports—historically comprising over 30% of government revenue, and some 80% of export earnings—have come under increasing strain. Demand for Iranian crude has softened as Chinese buyers grow more cautious amid escalating foreign pressure and enforcement risk. Moreover, the discounted oil market became more saturated after 2022 as sanctioned Russian crude expanded supply, compressing margins.

Compounding these pressures, recent seizures of oil tankers linked to sanctioned networks—particularly off the Venezuelan coast—have cast doubt on the long-term viability of shadow tanker fleets. While some speculate that Chinese buyers will purchase Iranian crude to make up for their recently disrupted Venezuelan supplies, this ongoing enforcement against shadow tanker fleets could further impact these shipments. With a Russian-flagged tanker seized by US forces in the Atlantic on January 7, ship owners and crews may become unwilling to transport sanctioned oil supplies, especially amid questions of whether Chinese and Russian state-owned and shell company insurers will cover losses from vessel seizures. These developments raise concerns that Iran could face a sharp disruption in export capacity as early as 2026, undermining one of the last remaining pillars of fiscal stability.

Weaponized Fintech: Digitalizing the Siege Economy

Under prolonged sanctions, Iran emerged as an early adopter of crypto and alternative digital payment systems designed to bypass formal banking channels. What initially functioned as a tool of sanctions resilience has increasingly devolved into a dual-use financial infrastructure—supporting both state procurement and large-scale capital outflows. While crypto does not replace trade-based channels in volume, it compresses settlement time, reduces visibility, and lowers exit friction for elite capital flight.

Iran’s largest domestic exchange, Nobitex, illustrates this dynamic. Investigations by blockchain analytics firms have linked the platform to wallet clusters and transaction patterns consistent with IRGC-aligned financial activity, suggesting that it functions not merely as a commercial exchange, but as a critical node within Iran’s cross-border sanctions-evasion architecture. These channels have reportedly been used to facilitate procurement of dual-use components for Iran’s drone and weapons programs, particularly where conventional trade finance is unavailable.

At the same time, this infrastructure has facilitated massive capital flight. Transaction data indicate that crypto outflows surged sharply during periods of heightened geopolitical tension—including a reported 150 percent spike in mid-2025 amid escalating confrontation with Israel—highlighting how digital financial tools simultaneously enhance regime resilience and accelerate elite asset externalization.

In this sense, fintech is the digital extension of Iran’s siege economy—one that further erodes state visibility, weakens monetary control, and compresses the boundary between sanctions evasion and private capital flight. As pressure on physical export channels has intensified, Iran’s reliance on non-physical and digitally mediated settlement mechanisms has increased in parallel. Without regulatory accountability, these digital channels give elites an unprecedented opportunity to hollow out the Iranian economy while their assets come under stress.

Capital Flight and Monetary Erosion

At the same time, capital flight has accelerated through informal channels operating beyond effective state oversight. In 2024, Iranian capital outflows reached $20.7 billion, triple what they were in 2020: estimates for 2025 could place these at $36 billion, roughly 10% of GDP. These movements reflect not only popular distrust in the rial, but also growing elite efforts to externalize wealth amid political uncertainty, inflation, and deteriorating public services. Iran’s widespread adoption of crypto has become a dual-use enabler, allowing the regime to purchase critical components outside sanctions controls, but also permitting wealth to flow out of the country with minimal restriction – all through loosely regulated IRGC-managed channels.

The monetary and social consequences have been severe. Central bank assets have continued to decline as the government increasingly relies on monetary expansion to cover rising debts and budget shortfalls created by falling export revenue. This dynamic has accelerated the depreciation of the rial, fueled persistent inflation, and eroded household purchasing power. Rising living costs—combined with structural stresses such as water mismanagement and infrastructure decay—have triggered repeated protest waves, further reinforcing elite incentives to offshore capital rather than reinvest domestically.

A Governance Crisis, Not a Liquidity Shock

What is emerging is not a temporary liquidity squeeze, but a deeper crisis of financial governance. The Iranian state increasingly struggles to manage the very systems it once used to project power, enforce political control, and buffer external pressure. Informal mechanisms that once enhanced resilience—shadow trade, opaque financial channels, and coercive enforcement—are now amplifying instability by enabling capital flight, weakening fiscal discipline, and reducing the state’s visibility over its own economic base.

Under these stress-test conditions, Iran’s economic challenge is no longer simply sanctions survival. It is the erosion of the state’s capacity to govern liquidity, allocate resources, and retain elite confidence—an imbalance that becomes progressively harder to correct the longer it persists.

Three-Tier Financial Architecture

Understanding Iran’s capital flight dynamics requires moving beyond linear models that separate state finance, sanctions evasion, and proxy activity into discrete domains. In practice, these functions are integrated through a three-tier financial architecture that deliberately separates control, mobility, and utilization of capital. This structure has enhanced Iran’s resilience under sanctions, but it has also accelerated elite capital flight. These factors externalize financial risk onto regional and global markets, and security risk into the broader global community.

A model of the three-tiered framework applied to Iran

Tier 1: Iran

At the apex of this system sits Tier 1, composed of state and private institutions, politically connected elites, and intermediaries who generate, authorize, or appropriate economic value. This tier includes state-linked corporations, import–export firms, and wealthy individuals with preferential access to foreign exchange, trade licenses, and protected commercial channels – all increasingly under the influence of the broader IRGC organization. Under sustained sanctions pressure, Tier 1 actors have increasingly prioritized wealth preservation over domestic reinvestment. Rather than functioning as anchors of economic stability, many now behave as rational extractors, externalizing capital while maintaining nominal alignment with the system.

Loosely regulated and opaque by design, this tier leaks much more liquidity out of the country than is sustainable under current stress conditions. This leakage creates downstream threats at the Tier 3 level. Importantly, this tier does not move capital efficiently on its own. It depends on Tier 2 intermediaries capable of operating in opaque environments where formal institutions cannot function.

Tier 2: IRGC-Quds Force-linked Networks

That intermediary role is fulfilled by Tier 2, the facilitation and mobility layer. This tier converts domestically constrained or politically sensitive value into mobile, sanctions-resilient capital. It encompasses logistics firms, ports, trade companies, crypto exchanges, and financial intermediaries that operate at the boundary between legality and informality. Within this layer, the IRGC-Quds Force plays a central structural role. Rather than acting as a universal operator, it functions as a guarantor of enforcement, protection, and continuity. Through its influence over logistics corridors, customs chokepoints, and security arrangements, it underwrites the reliability of transactions that would otherwise be too risky to sustain. As a result, Tier 2 infrastructure processes state funds, elite capital, and proxy-generated revenue through the same channels, blurring distinctions that once separated these streams.

Although not the sole agent, the Quds Force serves as the operational backbone of this layer, underwriting vast networks linked to domestic institutions such as logistics and trading firms as well as exchanges such as Nobitex. This shadow banking system extends to foreign brokers in places such as the Persian Gulf and Hong Kong: some of these run over the counter (OTC) crypto trading desks and many more are nodes in vast informal hawala networks – all operating outside formal and regulated banking channels.

Tier 3: Proxies and other downstream threats

At the downstream end of the architecture sits Tier 3, composed of Iran’s proxies and other threat actors. Often mischaracterized as passive recipients of state financing, many of these groups now operate as semi-autonomous financial entities, enabled by Tier 2 facilitators. Through trade, logistics, smuggling, construction, and real estate activity, they circulate capital across regional markets and embed themselves within local commercial ecosystems.

Several proxies have diversified beyond reliance on Tehran’s fiscal health, reducing exposure to Iran’s domestic instability while increasing financial independence from the state. Examples include the Houthis’ use of Southeast Asia’s gray finance networks and Iraqi militias’ manipulation of local cash economies. Proxy revenues, however, are not fully externalized. Capital is frequently cycled back through Tier 2 infrastructure, where IRGC-linked facilitators provide conversion, protection, and partial normalization under state cover. Once processed, these funds are redeployed into longer-term assets, particularly high-end real estate and commercial investments in Iraq and the Gulf. This circular flow collapses traditional distinctions between state finance, proxy finance, and private capital flight.

The risks extend beyond Iranian proxies themselves. Tier 3 networks are opaque by design and difficult to control, generating spillover effects. The Houthis maintain ties with Somalia’s al-Shabaab, which sells illegally exported charcoal through Iranian-linked ports and logistics firms. Al-Qaeda retains a residual presence inside Iran under nominal state protection, while the Taliban launder funds through Iranian Tier 2 channels. In one example, an Iranian official in the pharmaceutical industry warned that underground exports of Iranian medicine to Taliban-controlled Afghanistan could lead to critical shortages at home.

Together, these linkages illustrate how Tier 3 actors increasingly function as connective tissue between sanctioned states and transnational militant economies, amplifying risk well beyond Tehran’s nominal strategic intent.

Implications: Why the three-tiered model matters

This three-tier structure explains why Iran’s economic stress manifests not as sudden collapse, but as progressive governance erosion:

• Tier 1 extracts value faster than it reinvests.

• Tier 2 optimizes mobility rather than oversight.

• Tier 3 diversifies and entrenches capital beyond the state’s reach.

The architecture that once enhanced sanctions resilience now amplifies capital flight, reduces monetary visibility, and exports financial and security risk into neighboring markets. Over time, the state shifts from governor of liquidity to one participant among many—struggling to reassert control over systems it helped build but can no longer fully supervise.

China’s role as the primary buyer of smuggled Iranian oil extends this architecture beyond Iran’s control space. Revenue routed through Tier 2 facilitators returns to state-linked channels, with evidence that portions leak into proxy finance. If Houthi-linked oil sales and the subsequent movement of at least $39 million through the Chinese-language Huione platform in Cambodia are connected to Iranian oil revenue streams, they suggest that Tier 2 infrastructure enables not only cross-tier proxy funding but also intra-tier diversion of state-linked proceeds.

Crucially, this infrastructure is not exclusively used by Iranian proxies. The same Tier 2 channels that facilitate proxy finance also provide liquidity, laundering, and settlement pathways for non-proxy militant actors operating in proximity to Iranian networks. Taliban-linked actors have laundered funds through Iranian facilitation channels, while residual al-Qaeda networks have exploited Iran-based logistics, transit, and financial intermediaries under varying degrees of state tolerance. These interactions need not reflect unified strategic intent to generate risk: they emerge from the availability of deniable, sanctions-resilient infrastructure operating beyond effective oversight.

The cumulative effect is the emergence of shadow financial systems that are increasingly more resilient than the state structures that enabled them. These networks adapt quickly, move capital efficiently, and operate across jurisdictions with minimal accountability—shaping regional security dynamics regardless of regime outcomes and, in some cases, enabling coercive or violent activity well beyond Iran’s nominal strategic priorities.

A model of how Tier 1 Iranian oil smuggling indirectly facilitates Tier 3 proxy funding through Tier 2 facilitators.

Conclusion

Capital outflows are not the sole cause of Iran’s economic crisis, but they serve as a critical accelerant. By weakening monetary stability, empowering unaccountable actors, and eroding institutional authority, they deepen systemic fragility. What remains is an economy increasingly governed by survival logic rather than policy, where financial power resides not within the state but within the shadow structures that have grown around it.

This is an article I recently wrote for the Global Network of Extremism and Technology (GNET). You can find the original link here.

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In early 2024, the U.S. Treasury’s Office of Foreign Asset Control (OFAC) sanctioned a Syria-based hawala operator, Tawfiq Muhammad Said al-Law, for managing digital wallets used by Hezbollah operatives. According to blockchain analytics firm TRM Labs, his wallets had moved tens of millions of dollars—primarily in the stablecoin Tether (USDT)—through the Tron network. The case revealed a deeper truth: even as Hezbollah faces military and financial strain in the Middle East, its global fundraising networks remain intact—and increasingly agile, particularly in Latin America.

From the illicit gold trade in Venezuela to the smuggling routes of the Tri-Border Area, Hezbollah has long relied on Latin America for money laundering and logistical support. These networks are not just legacy holdovers: they actively sustain Hezbollah’s operations abroad and may prove essential in its financial reconstruction. Recent years have seen the group shift toward crypto, especially USDT, and trade-based money laundering that blends seamlessly with Latin America’s booming illicit economies. Recent U.S. and South American enforcement actions, along with growing evidence of digital asset use by Hezbollah-linked facilitators, point to an increasingly sophisticated and decentralised financial footprint.

This Insight explores how Hezbollah’s networks in Venezuela and the Tri-Border Area are adapting to new financial realities, how they exploit regional instability and permissive crypto markets, and what this means for fintech firms, compliance professionals, and policymakers trying to stay ahead of this evolving threat.

Venezuela: Financial Sanctuary and Crypto Gateway

Venezuela’s illicit financial architecture has flourished amid the collapse of its traditional economy. This collapse—marked by hyperinflation, sanctions, and erosion of the rule of law—has made the country a permissive zone for money laundering, black-market trade, and militant financial networks. Hezbollah has long maintained links to Venezuela through diaspora networks, political connections, and transnational criminal partners. Today, those ties could evolve into a lifeline.

The Maduro regime’s relationship with Hezbollah-linked actors has ranged from passive tolerance to active complicity. Senior figures in Venezuela’s government—many of whom face U.S. indictments or sanctions—have maintained relationships with groups affiliated with Hezbollah or with its primary state sponsor, Iran. This geopolitical proximity has allowed facilitators to operate with relative impunity, blending militant finance with narcotrafficking, gold smuggling, and sanctioned oil trades.

Venezuela’s growing role in global crypto-laundering has further empowered these actors. The country has turned to stablecoins—especially Tether (USDT)—to fuel both licit and illicit commerce amid its ongoing liquidity crisis. Over the counter (OTC) brokers in Caracas, operating in informal cash-to-crypto markets, are now central to a parallel economy. According to the U.S. Treasury’s Office of Foreign Asset Control (OFAC) and Israeli counterterrorism authorities, Hezbollah-linked money launderers have increasingly relied on USDT to move value across borders, especially when coordinating with Syrian and Iranian financial intermediaries.

In one example of Hezbollah’s penetration of Venezuela’s permissive crypto environment, OFAC designated BCI Technologies C.A. in 2023 for being owned or controlled by Samer Akil Rada, a known Hezbollah operative. Samer Akil Rada has been previously linked to narcotics trafficking and Hezbollah financing. Whilst specific crypto transactions have not been disclosed, this designation highlights that Hezbollah-linked actors are embedded within Venezuela’s informal crypto markets. According to OFAC, Samer Akil Rada previously engaged in drug trafficking and money laundering on behalf of Hezbollah across Latin America. OFAC also identified Samer’s brother, Amer Akil Rada, as a senior Hezbollah operative managing trade-based schemes—such as charcoal exports—in the Tri-Border Area and beyond.

BCI’s operations reflect a broader trend: the use of local crypto firms in sanctioned or economically unstable jurisdictions to build informal financial architecture that supports illicit actors. These firms often operate through OTC brokers, cash-to-crypto networks, and anonymous wallets—tools that provide the discretion and deniability militant-linked facilitators require. A similar model has emerged in Cambodia’s Huione Group, a Telegram-based fintech and escrow provider recently designated by OFAC and FinCEN for laundering billions in scam proceeds, including funds tied to entities associated with the Iran-backed Houthis. Whilst BCI Technologies has not been publicly linked to specific crypto transactions, its control by a Hezbollah-affiliated figure and presence in Venezuela’s high-volume USDT market suggests a parallel risk architecture: a firm embedded in a permissive environment that could conceivably bridge illicit capital—whether from narcotrafficking, gold smuggling, or militant finance—into usable digital assets. These cases illustrate how today’s financial battlefield is shaped less by the banking system and more by opaque digital service providers that operate in legal grey zones.

Trade-based money laundering remains central to this ecosystem. According to a leaked confidential client report from Lloyd’s, Hezbollah has been implicated in the smuggling of Venezuelan gold. The report details how Hezbollah purchases it through local intermediaries and resells it to Iran, which resells it to buyers in Türkiye and other Middle Eastern countries to finance terrorist activity. A 2025 Research and Development (RAND) Corporation study also identifies illegal gold mining in Venezuela’s Orinoco River region as a growing Hezbollah revenue source, supported by Iranian and militant networks. Meanwhile, an OECD investigation highlights vulnerabilities in gold trade across Latin America, and in 2019, OFAC sanctioned a Venezuelan state-owned mining company for illicit gold practices. Hezbollah’s presence in this architecture is not incidental; it is strategic, sustained, and digital. In this way, there is likely much more to uncover regarding the group’s financial operations in Venezuela and beyond.

Tri-Border Area: Old Stronghold, New Relevance

The Tri-Border Area (TBA)—where Paraguay, Argentina, and Brazil converge—has long been a logistical and financial hub for Hezbollah-linked activity. Since the late 1980s, this region has served as a base for fundraising, facilitation, and laundering, supported by a sizable Lebanese diaspora and enabled by widespread smuggling, porous borders, and weak state enforcement.

Historically, Hezbollah operatives in the TBA have generated revenue through licit and illicit commercial ventures, including casinos and the trafficking of narcotics, charcoal, diamonds, and more. In previous years, Hezbollah moved much of this income via bulk cash smuggling and informal remittance systems, channelling these proceeds to support operational activities abroad. These networks are often structured around diaspora-based family and business ties, making them difficult to dismantle, even when specific actors are sanctioned.

Whilst there is no direct evidence that Hezbollah uses crypto in the TBA, the regional convergence of crypto adoption and persistent money laundering risk heightens concerns. Stablecoins like USDT, accessible through WhatsApp-based OTC markets and regional P2P platforms, are reportedly circulating alongside more traditional cash-based methods. Efforts to crack down on Hezbollah activity in the TBA have been uneven. Moreover, stablecoin usage in Argentina and Brazil has surged in recent years due to their ease of use in cross-border payments and remittances, combined with currency instability in Argentina.

Argentina and Brazil have taken a more proactive stance on Hezbollah’s TBA-based activity, with Argentine authorities designating the group as a terrorist organisation in 2019 and freezing assets tied to its operatives. Paraguay, by contrast, remains a soft spot: its enforcement capacity is limited, and key facilitators—such as members of the Hezbollah-linked Barakat network—have long operated with relative freedom despite periodic arrests and brief detentions. As Hezbollah adapts to global financial pressure, the Tri-Border Area is once again gaining strategic importance. Its entrenched commercial networks, cross-border access, and proximity to established crypto networks position it as a likely node in any future financial reconstitution of the group.

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Crypto and Illicit Finance: New Tools, Old Patterns

Hezbollah’s financial networks have adapted to new tools, but their strategy remains familiar: leverage whatever financial tools enable cross-border access, anonymity, and deniability. In recent years, the group’s facilitators have increasingly turned to USDT and other stablecoins—not as speculative assets, but as functional cash in informal economies across Latin America and the Middle East.

The appeal of stablecoins is straightforward. USDT offers dollar stability in hyperinflationary economies like Lebanon and Venezuela, is widely accepted by OTC brokers, and can move across borders without relying on banks or formal money service businesses. Hezbollah-linked actors and affiliates—already embedded in hawala networks, trade routes, and illicit value chains—have begun integrating crypto into these same pipelines. In 2023, Israeli authorities—assisted by blockchain analytics firm Chainalysis—seized over USD $1.7 million in USDT on the Tron blockchain linked to Hezbollah and Iran’s Quds Force. The operation marked the first publicly confirmed seizure of stablecoins from Hezbollah-linked facilitators, underscoring the group’s growing reliance on digital assets for operational finance.

Stablecoin usage isn’t a revolution in terrorist financing. It is the digitisation of existing laundering infrastructure, enabling known Hezbollah nodes to mask transactions, layer value, and circumvent formal scrutiny more efficiently. Whilst headlines focus on blockchain, the reality is that Hezbollah’s crypto operations are less about innovation than adaptation—adding another layer to a decades-old system built on trade, trust, and transnational criminal convergence.

Conclusions and Implications for Fintech and Trade

For compliance teams in fintech, crypto, and trade logistics, Hezbollah’s Latin American laundering ecosystem presents a growing challenge. The convergence of stablecoin use, weak regional enforcement, and transnational criminal partnerships makes compliance enforcement especially challenging.

Key red flags include:

• The widespread presence of crypto trading in high-risk jurisdictions like Venezuela, where Hezbollah maintains known operations;

• The presence of Hezbollah-linked front companies in Venezuela and the Tri-Border Area involved in trade-based money laundering;

• Wallets operating on the Tron network, especially those using OTC services linked to high-volume stablecoin movement on behalf of Hezbollah.

Whilst FATF, the U.S. Treasury, and other agencies have issued advisories and sanctioned key facilitators, the burden of early detection still falls largely on fintech, crypto platforms, and logistics providers. Hezbollah’s financial operatives rarely use flagged wallets or overt identifiers—they move funds through proxy actors, family networks, and trusted intermediaries embedded in legitimate trade and remittance channels.

To disrupt these networks, compliance teams must go beyond conventional anti-money laundering (AML) controls. This includes investing in region-specific risk modelling, behavioural wallet analytics, and interdisciplinary intelligence that links crypto, trade, and militant finance. Blockchain forensics teams should focus on tailoring their existing expertise to Latin America’s unique illicit landscape and Hezbollah’s activities within it.

Independent researchers—particularly those tracking stablecoin flows and illicit finance—offer critical early-warning capabilities. Partnering with these investigative specialists can surface threats before they trigger enforcement or reputational fallout.

This challenge underscores a broader reality: illicit liquidity is not merely a byproduct of criminal activity—it functions as strategic infrastructure. Recent analytical frameworks have emphasised that Hezbollah and similar networks do not simply hide money; they build financial arteries designed for plausible deniability, resilience, and speed, regularly outpacing conventional enforcement. Recognising these shadow liquidity systems as core operational enablers—rather than peripheral vulnerabilities—is critical for truly effective disruption.

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Tehran is reporting that several apartment blocks have been hit in the attack, likely in the attempted assassination of high-level targets. Image source

I received news of Israel’s attack on Iran just as I was going to bed last night. Here’s what we know so far and my analysis on what’s may be on the horizon. Here’s what I’ve gathered:

• What happened: On 13 June 2025, Israel launched Operation “Rising Lion”, a large-scale pre-emptive strike on Iran’s nuclear and military infrastructure .

• Aircraft & Sabotage Elements: Over 200 Israeli aircraft, including F-16s and F-35I “Adirs” dropped more than 330 munitions across five strike waves.

• Mossad covert operations assisted in the strikes, including embedded nodes, precision weapons, and drone sabotage against Iranian air defenses .

• Sites targeted: Approximately 100 sites in several places — including in the capital, Tehran, the main Natanz nuclear enrichment facility near Isfahan, missile factories, radar systems, IRGC bases, and high-ranking officers’ private residences .

• Casualties: Iranian state media and Western intelligence report at least 78+ killed and 329+ injured, notably killing top Iranian Revolutionary Guard Corps (IRGC) officials such as Hossein Salami, Mohammad Bagheri, Gholam Ali Rashid, Amir Ali Hajizadeh, Quds Force leader Esmail Qaani, and multiple nuclear scientists.

• U.S. Response: Amid rising tensions, the U.S. has evacuated non-essential staff from embassies in Iraq, Bahrain, and Kuwait, repositioned two destroyers to the Eastern Mediterranean, increased regional fighter patrols, and raised troop alert levels to 40,000.

Market Response

• Oil prices spiked: Brent crude jumped ~12% (peaking near $78.50/bbl), later stabilising around $73–75 .

• Market dynamics: Traders noted resilience due to the absence of oil-infrastructure targets, though the risk premium remains elevated .

• Broader effects: Surging safe-haven demand drove gold and USD strength, while U.S. equity futures dipped .

Low Chance of Hormuz Closure at This Time

• Iran has threatened shutting the Strait, a key oil chokepoint, but full closure remains unlikely—notably due to the strategic presence of the U.S. Fifth Fleet .

• Market view: Analysts are cautious but see the current risk as moderate; a closure would elevate oil prices well above $100/bbl, though U.S. and OPEC+ capacity buffers would cushion the blow .

• Worth noting: Around a third of global energy exports transit the Hormuz Strait each day. If closed, the damage to global markets will be catastrophic, particularly in East Asia, which rely heavily on heavy sour crude and LNG from the region.

If It Escalates: Israeli Targets First, Then U.S. Military

• Iranian intent: Tehran threatened retaliation targeting Israeli military and civilian installations, followed by U.S. bases in the region.

• Regional risk path: Should escalation continue, expect an initial wave aimed at Israel’s military infrastructure, with U.S. interests as subsequent potential targets—heightening risk for Western personnel.

Hard to Say if Iran Nuclear Deal Can Be Salvaged

• Diplomatic impact: Iran has cancelled planned nuclear talks this weekend, with Tehran stating negotiations are no longer viable .

• Trump’s position: U.S. President Trump urged Iran to “make a deal,” but with Israeli air strikes underway, prospects for meaningful diplomacy are dim .

• Outlook: With talks paused and mutual suspicion high, chances of reviving any nuclear framework appear low in the near term. However, with a reformist in office in Tehran, there may be a small chance of salvaging these as Iran is likely desperate to avoid a full-scale war.

Conclusion

This unprecedented Israeli air campaign—combining conventional and covert elements—marks a dramatic escalation in the Israel–Iran conflict. While short-term market impact has been significant, the Strait of Hormuz remains open, and oil markets are holding steady. Nonetheless, the pathway to further escalation toward U.S. assets looms if Iran retaliates in kind. Crucially, nuclear diplomacy is now in jeopardy, with scheduled talks cancelled and prospects bleak.

Bottom line: Markets are adapting to initial shocks, but the situation remains fragile. Key indicators to monitor:

• Iran’s next moves targeting Israel or U.S. interests

• Any disruption to oil flows or passage through Hormuz

• Renewal—or permanent collapse—of nuclear diplomacy

To understand this deeper, take a look at some of my previous articles:

This is an article I recently wrote for the Global Network of Extremism and Technology (GNET). You can find the original link here.

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Yemen-based Ansar Allah, widely known as the Houthis, continues to have a profound impact on global security. The group’s ongoing operations in the Red Sea affected an estimated US $1 trillion worth of maritime cargo between October 2023 and May 2024, and despite periodic kinetic attacks, its operations show no signs of abating. Moreover, evidence suggests the Houthis enjoy the financial and military backing of Russia and China, in addition to their established ties with Iran. This Insight explores the Houthis’ financing mechanisms, including leveraging technology to evade sanctions and the involvement of foreign facilitators with demonstrable and plausible ties to foreign governments.

Generating Cash Locally and Abroad

Contrary to some popular conceptions, the Houthis’ relationship with Iran and other foreign backers is not that of a charity case. Although the group benefits from its foreign partnerships, it must generate revenue to pursue its own ends. For this reason, the Houthis oversee vast global financial networks, engaging in illicit trade and leveraging technology to finance its multibillion-dollar operation.

Air attacks against the Houthis in Yemen have constrained their local revenue generation potential. In recent years, the group’s control over ports near Hodeida has been central to its local revenue streams as Yemen highly depends on imports, which serve 90% of its needs, including basic foodstuffs and fuels. The Houthis capitalise on this reality by levying high fees at ports under their control and tariffs of up to 100% on goods brought in from Yemeni ports outside of their control. The group also uses its ports to generate revenue through smuggling operations, reselling Iranian oil and weapons to buyers in East Africa, including the Somalia-based al-Shabaab and Islamic State Somalia (ISS). However, the ongoing war has likely taken a toll on these revenue generation schemes, with the recent bombings of key Houthi ports damaging much of the group’s core infrastructure.

Despite setbacks, the Houthis remain financially resilient, leveraging their ongoing operations against maritime shipping traffic to generate revenue. According to a recent report from the UN Security Council, the Houthis take in an estimated US $180 million per month in fees levied on ships seeking to transit the Bab al-Mandab Strait. According to the report, shipping companies pay these ransoms through Hawala – informal offline financial networks used to transfer money worldwide – in coordination with a company affiliated with a top Houthi leader. Although some maritime experts have expressed scepticism as to the full scope of these figures, the Houthis apparently remain in a strong financial position to continue their Red Sea operations.

The Houthis generate much of their cash revenue from abroad with the help of Yemeni and foreign agents. A Yemeni national named Sa’id al-Jamal is the apparent mastermind of these operations, running a vast Iranian oil smuggling scheme that sells to buyers in East Asia, including privately-owned “teapot” oil refineries on China’s Shandong coast. The US Treasury’s Office of Foreign Asset Control (OFAC) has sanctioned al-Jamal and multiple shipping companies and individuals based in Hong Kong, Malaysia, and elsewhere in relation to these activities. China imports some 90% of Iran’s , an estimated US $500 million annually, including shipments from the al-Jamal network. In March, OFAC issued additional sanctions on a Chinese teapot refinery in relation to its receipt of shipments from the al-Jamal network, prompting Beijing to hold off on its Iranian oil purchases. China’s teapot refineries shield the country’s massive state-owned conglomerates from sanctions, which Beijing is likely more sensitive to amid the country’s ongoing economic downturn and growing protectionism internationally.

Like any sanctioned group, the Houthis cannot utilise established financial systems to purchase its import needs, including weapons. To fully harness their economic potential, the group has partnered with foreign intermediaries to harness blockchain technology. The Houthis have a long history of engaging with cryptocurrencies, which they have been mining since at least 2017. However, poor internet infrastructure and local economic constraints have limited cryptocurrency adoption and usage in Yemen. For this reason, the Houthis have looked abroad for assistance from global facilitators, with the known and likely aid of foreign governments.

Figure 1: Hawala is the most likely missing link between the Houthis’ cash revenue-generating schemes and extensive use of cryptocurrencies.

Converting Cash Into Crypto and Back with Foreign Facilitators

The Houthis’ international financial networks have become highly visible due to the transparent nature of blockchain ledgers and the group’s widespread use of cryptocurrencies. How the Houthis convert their cash proceeds into cryptocurrencies remains unknown, but a likely explanation comes from the growing nexus between hawala and crypto exchanges. In January, US authorities sentenced Indian national Anurag Pramod Muraka to more than ten years in prison for laundering over US $20 million in criminal proceeds using a combination of hawala networks and cryptocurrency transactions, starting with cash hidden in books and envelopes. The Houthis’ initial entry point into the global crypto system could stem from a similar Hawala-based scheme.

The Houthis have leveraged a variety of exchanges worldwide to evade sanctions. Garantex, a Russian crypto exchange founded in 2019 and sanctioned by OFAC in 2022, features prominently, receiving more than US $45 million in known transactions from identified Houthi networks. Moreover, an investigation by Chainalysis found that the al-Jamal network leveraged several mainstream exchanges in its crypto transactions, with cash-out points from these receiving more than US $200 million. At least one of these exchanges was located in Türkiye, possibly in connection to Iran-born and Türkiye-based money launderer Hasan Jafari. Jafari has previously arranged millions of dollars’ worth of payments in support of shipments benefiting the Houthis in connection with the al-Jamal network. The European Council sanctioned Garantex in February 2025, a first for the council. The exchange shut down on 7 March in response to concerted efforts by authorities in Europe and the United States.

On 2 April, OFAC added eight cryptocurrency addresses to its Specially Designated Nationals (SDN) list, all of which were linked to Sa’id al-Jamal’s network. On 17 April, TRM labs announced they had identified nearly US $900 million in outflows across these eight addresses, which exist on the TRON network and received the majority of their funds in Tether (USDT). Further examination of these wallets and transactions reveals a complex network of global facilitators. Given al-Jamal’s Iran-based oil smuggling activities and Iran’s overt support for the Houthis, it is clear the network operates closely with Tehran’s top military leadership. The Houthis’ wielding of sophisticated Iranian weapons, including advanced drones and missiles, further denotes Iranian involvement at the financial and military levels.

Strong Evidence of Moscow’s Official Involvement

Evidence also suggests high-level Russian involvement at the financial and military levels. OFAC included several members of a Russia-based financing network as part of its 2 April sanctions. The network, including Afghan-born brothers Hushang and Sohrab Ghairat, reportedly procured millions of dollars’ worth of goods on behalf of the Houthis, with the latter using three Russian companies included in the sanctions. The Ghairat brothers reportedly worked with Türkiye-based Jafari, who was also designated in the sanctions. Acting under al-Jamal’s direction, the brothers facilitated payments to purchase Russian goods, including weapons and stolen Ukrainian grain, suggesting close ties to the Russian military and the country’s predominantly state-owned defence sector.

Garantex featured prominently in these transactions: the exchange reportedly maintained close ties to the Russian government and criminal groups before ceasing operations in March. Further evidence of high-level Russian involvement includes the provision of targeting data to assist the Houthis in their ongoing attacks and alleged talks between Houthi emissaries and notorious Russian arms dealer Viktor Bout, who maintains close ties to the Kremlin. Finally, US sanctions recently targeted three ships that reportedly carried Russian refined petroleum products to the Houthis in Yemen, providing more evidence of Russian facilitation.

Figure 3: A visual breakdown of the Russia-Yemen export scheme based on what we know.

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Cambodia Connection and Questions Over Beijing’s Involvement

Evidence also suggests China’s financial and military involvement in Houthi Finances, although the ties are less clear, possibly due to Beijing’s efforts to avoid sanctions. Here is what we know:

Investigations by Elliptic show the al-Jamal network worked with Huione Pay, a Cambodian payments and foreign exchange business, via two-hop indirect transactions linked to over-the-counter (OTC) services in Yemen and elsewhere. When sanctioned entities transact in cryptocurrencies, they tend to avoid directly engaging with exchanges and payment processors to evade detection. For this reason, the sanctioned entity transacts through one or more intermediaries that ‘hop’ between licit and illicit vendors. Huione Pay transferred US $39 million in proceeds to the Houthis in one instance via an unknown virtual asset service provider (VASP). Beijing’s presence in Cambodia, and the country’s role as a haven for Chinese criminal activity, raises concerns, as does Huione’s ties to Chinese criminal groups and the country’s ruling family.

Cambodia is a longstanding haven for money laundering operations. Given the country’s widespread use of US dollars as a de-facto currency for foreigners and extensive blockchain ecosystem, it is a likely destination for converting illicit cash into cryptocurrencies, possibly in conjunction with hawala networks. Moreover, Chinese nationals form a large contingent of Cambodia’s criminal underworld, with alleged Chinese criminals extensively trading in Tether (USDT), the Houthis’ cryptocurrency of choice, despite the Cambodian government’s official ban.

Huione Pay is a division of the Cambodian conglomerate Huione Guarantee. The company provides legitimate services such as consumer payments as well as illegitimate ones, such as money laundering for criminal groups, specifically targeting Chinese syndicates. One of the company’s three top directors is a cousin of Cambodian President Hun Manet, whose family has ruled the country for decades while maintaining close economic and military ties to Beijing. The Chinese government and intelligence community also maintain close ties to criminal groups in Cambodia, including the 14K Triad, which routinely conducts covert political activities on Beijing’s behalf, with one of its senior leaders sitting on an official political advisory council in Beijing. Finally, according to US authorities, Huione Pay has served as a ‘critical node’ for laundering the proceeds of cyber heists carried out by criminal groups acting on behalf of North Korea, which maintains an official military alliance with China.

Other factors also signal Beijing’s support for the Houthis. On 17 April, the US State Department accused the Chinese firm Chang Guang Satellite Technology of directly supporting Houthi attacks on the Red Sea, although the company denied the claim. Similarly, officials working for the internationally recognised Yemeni government intercepted Chinese-manufactured hydrogen fuel cell components on their way to Houthi territories last August; it was reportedly the world’s first attempted use of hydrogen fuel in drone technology by a non-state actor. On 24 March, Yemeni authorities intercepted 800 Chinese-made drone propellers headed to Houthi territory from the Omani border. In this way, Beijing’s support for the Houthis, whether witting or unwitting, is increasingly difficult to deny.

Although these factors do not constitute a ‘smoking gun’ regarding Beijing’s financial facilitation of the Houthis via Huione, given other evidence of links between the two, they warrant further investigation. On 1 May, the US Treasury’s Financial Crimes Enforcement Network (FINCEN) issued a notice of proposed rulemaking (NRPM) regarding Huione, a first step toward official sanctions.

Figure 5: The Houthis’ Cambodian crypto connection raises many questions.

Recommendations

Whilst cryptocurrencies offer groups like the Houthis a means to evade sanctions, they also provide unprecedented transparency. In this way, blockchain analytics firms can work closely with law enforcement and other companies to improve the efficacy of measures aimed at stemming Houthi financial networks. Although these companies have provided significant research on Houthi transfers, cross-referencing this research with known information on global illicit finance could strengthen these efforts.

Blockchain researchers should work to identify further cases of the nexus between hawala and crypto exchanges, for example, by examining the entry point for wallet transfers between known locations in the Houthis’ crypto-based financial networks, such as Russia, Türkiye, and Cambodia. One or more of these locations may be where hawaladars convert Houthi cash proceeds into cryptocurrencies. Given the global reach of hawala networks, the international scope of these operations could be much broader. Countries that transact in high volumes of US dollars on a retail level, such as Cambodia and Ecuador, are excellent places to start. Neutralising these hawaladars is essential to stemming illicit cash flows into the global cryptocurrency market.

Uncovering further links between illicit financiers and state actors is essential to enforcing sanctions and stemming the flow of funds to the Houthis. When pressured, Beijing has shown a willingness to hold off on its purchase of illicit Iranian oil when it is demonstrably linked to Houthi finances. If researchers can demonstrate similar linkages, facilitating countries may show greater willingness to enforce compliance to reduce their exposure to sanctions.

China is much more dependent on global markets than Russia due to its economy’s high dependence on raw commodity imports and manufactured exports. Given China’s ongoing economic slowdown, Beijing may be even more risk-averse regarding sanctions than ever. In this way, finding any demonstrable links between the Houthis and actors with ties to the Chinese state, or any state, is essential to disrupting the group’s financial networks. Blockchain analysis firms are at the forefront of such research, especially as these firms continue to improve their analysis of multi-hop transactions.

Cryptocurrency exchanges should proactively adopt improved transparency measures, lest they fall victim to regulators. Recent examples of regulatory reforms in major markets include Nigeria and Türkiye, whose crackdowns have disrupted significant portions of terrorist financial operations. Global regulators have increasingly forced exchanges to comply with various anti-money laundering (AML) measures, including know-your-customer (KYC) standards, delivering harsh penalties for non-compliance. KYC standards can include identification and document checks, biometric verification, politically exposed person (PEP) and watchlist checks, and more. Such standards are essential for identifying illicit financial networks, such as those operated by the Houthis. As regulators continue to exert pressure, crypto exchanges would do well to adopt such measures before facing penalties for non-compliance in the future.

Finally, researchers, law enforcement agencies, and global governments should consider humanitarian needs in Yemen. Although the Houthis import deadly weapons, they also import vast quantities of food for their people, who are among the world’s poorest. Advocating for the provision of humanitarian aid to the population under Houthi control could reduce the group’s dependence on illicit financial networks for basic foodstuffs, many of which have been stolen from Ukraine. There are no easy answers regarding exerting pressure on the Houthis but starving Yemen’s civilian population should be viewed as an unacceptable outcome.

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Syria’s recently reignited civil war has drawn in power from around the world that will likely make it much more complicated. Image source

On November 30, Syrian rebel forces retook Aleppo, the country's second-largest city with a population of over two million, for the first time in eight years. This development came shortly after the announcement of a shaky ceasefire between Israel and Hezbollah in southern Lebanon, opening up a new theatre of conflict with the potential to draw even more foreign power into the region. Here's a look at the war from the perspective of the international powers shaping it.

The lines are drawn (sort of)

Russia and Iran have been backing the Assad regime since Syria's civil war began in 2011. The Iranian Revolutionary Guard (IRGC), combined with Russian air and ground forces and troops from Iran-backed Hezbollah and Iraqi militias, have proven essential in Assad's fight against various rebel forces, including those aligned with the Islamic State Iraq and Syria (ISIS). Iran and Russia’s efforts to support Assad resulted in a stalemate that began in 2020, and although the fighting subsided, these foreign actors continued to work closely with the Assad regime. However, things have changed considerably in the past two years.

First, Russia's 'special operation' in Ukraine has lasted much longer than anyone in Moscow anticipated, limiting their ability to project power in Syria. Moreover, Israel's recent assault on southern Lebanon has significantly degraded Hezbollah, Iran's largest and most potent proxy. From Russia and Iran's perspective, this latest flare-up in Syria could not have come at a worse time. It was also bad timing for China, which sent companies and personnel at the invitation of the Assad regime to help reconstruct the country last year. Beijing is generally weary of escalations in the Middle East as China relies heavily on regional shipping lanes to meet its energy needs and fulfil global export orders.

Waning foreign support for Assad presents an opportunity for Turkiye, which has been generally quiet on Russia and Iran's regional power projections. This relative neutrality reflects factors such as Türkiye's NATO membership amid NATO's role in arming Ukraine, as well as its position as a significant oil and gas transit hub for Russia. It also reflects the government's base of popular support, as the Palestinian cause resonates powerfully within President Erogan's ruling conservative Justice and Development Party. With Iran supporting its regional proxies against Israel and Erdogan's government increasingly under fire for continuing to sell energy to Israel, a strong anti-Iranian stance could have further damaged relations between the government and its most stalwart base of support amid waning support from the general public. However, Turkiye has been expanding its influence in the Middle East for over a decade, and a weakened Iran and Russia present an opportunity it likely could not resist.

A map of Syria and the factions that controlled it in 2020. Image source

Türkiye pushes for influence

Türkiye has been cultivating power and influence in Syria since its civil war started in 2011, with Turkish troops occupying much of the country's north and Ankara providing material support to multiple Syrian resistance groups well after the 2020 stalemate. With Russia and Iran distracted for the past year, Ankara made inroads into the Assad regime this August by attempting to restore diplomatic relations between the two countries. However, Assad's unwillingness to proceed left Ankara with few options to expand its influence in Syria diplomatically, the primary issue being that the Syrian regime refused to accept the return of the nearly 4 million Syrian refugees currently living in Türkiye. Moreover, Assad’s latest push against rebel forces threatened to drive more refugees across the Turkish border. With Turkish-backed forces launching a full-on offensive on Assad, including engagement with Russian troops, one could view Ankara's recent calls for reconciliation between rebel forces and the Assad regime as a coercive negotiation tactic. Now, with Assad having fled the country and Iranian-backed militias pouring in and Russia launching airstrikes, the risk of yet another bloody, long-term proxy war looms large over Syria.

Türkiye’s influence over the rebel groups is not entirely clear cut. While it enjoys close relations with and extensively arms the Syria National Army (SNA), its relationship with Hayat Tahrir al-Sham (HTS) is more complicated. HTS is an offshoot of al-Qaeda and although Türkiye currently supports its offensive, it has had contentious relations with the group in the past. Moreover, HTS operates with a high degree of independence, recently reaching out diplomatically to Assad allies Russia and China for support (it was rebuffed). Finally, HTS is a highly factional organization and fissures within it could emerge over time. It remains to be see whether this conflict will draw Ankara and HTS closer together, or create points of contention that could further complicate the war.

Heightened tensions in US-Turkish Relations

US-backed Kurdish rebels have also recently seized territory in Syria. Washington's support for Kurdish resistance groups since the 1991 Gulf War is a significant point of contention between it and Ankara. During the Clinton administration, Washington avoided this issue by supporting Kurdish forces in Iraq while knowingly arming Turkiye with weapons it used against Kurds within its borders. However, with Washington now more involved in the region due to its support for Syrian as well as Iraqi Kurds, the stakes are higher.

Kurds are the world's largest stateless ethnicity - a victim of the poorly conceived 1916 Sykes-Picot Agreement. Now, American support for Kurdish groups in Syria and northern Iraq runs counter to Turkiye's decades of conflict with Kurdish resistance movements in its southeast. In October, the Turkish Airforce launched strikes against Kurdish targets in Syria and Iraq in retaliation for a previous attack on a Turkish state-run defence contractor. Although Washington and Ankara remain NATO partners, this issue could strain their relations, potentially pushing the incoming Trump administration into a more nuanced stance on the broader Syrian conflict.

Turkiye's push to exert influence in a united Syria governed by a friendly regime stands in contrast to the hard-won gains of Syria's Kurdish resistance since the start of the civil war. Whether the Trump administration continues to support the Kurdish cause or abandons it in favor of its relations with Ankara is anyone's guess. However, Turkiye will likely take issue with any talk of Kurdish autonomy in a future united Syria due to the threat Kurdish self determination poses to its territories. This could put the interests of Washington and Ankara at odds for some time. Whatever happens, Washington will have to make tough decisions that will define its relations between Ankara and the Kurds moving forward.

Syrian rebel forces recently flew the Palestinian flag next to their own in Aleppo. Image source

Turkey plays both sides; Iran is in a corner; and other things to consider…

For now, the rebels and possibly Türkiye are playing both sides vis-a-vis Washington and the West. With rebel forces recently calling for locals to respect the rights of Christians and other ethnic and religious minorities in northern Syria, they are signalling that their cause is sympathetic to Western values over the Jihadist leanings of many of their constituent groups. Meanwhile, the rebels' recent flying of the Palestinian flag over Aleppo sends a signal to the people of the region, who increasingly support Palestinian armed resistance, to not associate their cause with that of Israel or its Western backers. With Türkiye extensively arming Syrian resistance groups, such political signallings could underpin sentiments impressed upon them by Ankara

Iran's position in the Middle East is under threat from both Israel's war on Hezbollah and a resurgent civil war that has put their ally Assad in a vulnerable position. However, Tehran is highly adept at co-opting resistance movements from across the region and arming them with cheap and effective weapons. While Iran has primarily recruited proxies based on their religious affiliation to date, under further pressure, it might extend this to ethnicity as well. The Kurds are also Iranian people, and like the Tajiks and Pashtun of Central Asia, they are cousins of Iran's dominant Persian ethnicity. If Iran began supporting Kurdish resistance groups based on ethnic lines the way the Turks do in the South Caucasus, things could get much uglier between them moving forward. Meanwhile, Israel is taking time to replenish its munitions stocks amid a loosely upheld ceasefire in Lebanon, increasingly the likelihood of an expanded war on that front.

What all this will add up to is anyone's guess, but it will undoubtedly be interesting.

Lebanon’s military remains on the edge of crisis. Image source

On November 27, the United States and France brokered a ceasefire agreement between Israel and Hezbollah in southern Lebanon. At its crux lay the future of southern Lebanon, from which Hezbollah has agreed to withdraw north of the Litani River, making way for the Lebanese armed forces to occupy the troubled border region between the two countries. However, both the Lebanese and Israeli governments have already blamed each other for violating the agreement, with Beirut noting Israel's ongoing operations in Gaza and Israel firing upon what it calls 'suspects' in the southern zone. Israeli Prime Minister Benjamin Netanyahu has vowed to respond to all truce violations with military force, stating, "The war is not over until we realize all of its goals, including the return of residents of the north safely home."

With the truce already on shaky ground, its future viability depends on a robust Lebanese military to occupy the country’s south. However, with Lebanon continuing to reel from a catastrophic economic and political crisis that began years before Israel's October invasion, the country's military has fallen upon hard times. Before the 2019 crisis, the average enlisted Lebanese soldier earned a monthly salary of $800; now, that figure has fallen to little over $100, with even high-ranking officers earning around just $250. Things have become so bad for the Lebanese government that Washington rerouted $72 million in aid to Lebanon to keep these paltry salaries flowing. Qatar donated another $20 million to this end last July. However, the Lebanese military and state will require much more to maintain any semblance of stability in the future.

In less than two months, Israeli strikes have damaged or destroyed an estimated 30% of structures south of the Litani River (image source)

A government in crisis

With the Lebanese government incapable of maintaining military and police salaries under current circumstances, the Lebanese military is also woefully underequipped. South of the Litani, the Lebanese Armed Forces (LAF) have just two mechanized infantry brigades, one special forces regiment, and a complete lack of air power. Writing for Responsible Statecraft last month, Jennifer Kavanagh notes, "The LAF lacks the resources, modernized equipment, skilled manpower, leadership, or institutions required to manage the country's security anytime in the foreseeable future, especially during or right after a destructive Israeli invasion." Moreover, the LAF lacks the manpower to contend with Hezbollah, with just 70,000 – 80,000 active duty soldiers compared to Hezbollah's estimated more than 100,000.

There is also the matter of maintaining an occupation in southern Lebanon. The region is primarily home to two different groups: a Lebanese Shi'a majority and a Palestinian refugee minority. Both groups have bitter memories of past clashes with Lebanese militias drawn from other groups in the country, especially the Palestinians, who endured brutal attacks by the Israel-backed Maronite Christian Phalange militia that killed as many as 3,500 people in the Sabra and Shatila refugee camps in 1982. For the LAF to effectively hold the region, locals will need to view these forces positively and not perceive them as outsiders. With roughly 85% of Lebanese Shi'as trusting Hezbollah, according to a poll from this summer, the LAF will face severe obstacles to winning hearts and minds in the country's south.

French President Emmanuel Macron (right) hugs Lebanese Prime Minister Najib Mikati (left) during the conference on Lebanon in Paris on October 24 (image source)

Assistance needed

For Lebanon and the LAF to succeed in this daunting task, significant help from the outside world will be required. Last month, France offered $108 million in military aid for Lebanon to expand its armed forces, and the US offered $157 million in humanitarian aid specifically targeted at internally displaced persons. For Lebanese soldiers to do their work effectively and be above bribery from groups such as Hezbollah, their salaries must also rise substantially. These forces must also provide an adequate security blanket for reconstruction efforts. With as many as 30% of the buildings in southern Lebanon damaged or destroyed by Israeli strikes and damages incurred elsewhere in the country, the total cost for reconstruction could be as high as $3.7 billion, according to Mercy Corps, an international aid organization operating in the region. Only by providing tangible benefits to the people of southern Lebanon will the LAF have a chance of successfully occupying the region in the long term.

For Lebanon to maintain this military operation in the long term, it will need massive amounts of foreign investment in its ailing economy. In addition to corruption, one of the key factors that scared away Lebanon's primarily Gulf State investors was the rising power of Hezbollah and the growing Iranian influence in the country. With the Gulf and Iran now on better terms, their tolerance for Hezbollah's presence may have improved. Still, the state will need a more robust economy to keep Hezbollah's ambitions in check, particularly with Israel ready to strike again at a moment's notice. Currently, Hezbollah is one of the only entities capable of offering cash to Lebanon's struggling populace, of which some 80% live in poverty, with most reliant on foreign remittances. For the Lebanese government to inspire the confidence of its people, especially those in southern Lebanon, it will need to rebuild the country's largely destroyed banking sector from the ground up. Such an effort requires reintegration with the global economy after more than five years of near-total neglect.

Although this truce is shaky, it may be the Lebanese people's best chance at a safer and more prosperous life. However, with the 2006 ceasefire agreement failing to curb Hezbollah’s influence in the country and Israel maintaining the ability to unilaterally conduct further strikes, one cannot help but be pessimistic. Although aid has begun to pour into Lebanon, much more will be needed to rebuild it into a place that can maintain peace and regional stability moving forward. If this does not occur, or if one of both sides refuses to give this agreement a fair chance, the situation will likely devolve into one of increased hostility, as it has before. In this war, one takes whatever sliver of hope one can get.

A map demonstrating the range of Somali pirate attacks in 2011. Source

Iranian Shahed-136 kamikaze drones stacked and ready to launch. Each unit costs as little as $20,000. Source

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Vision 2030’s NEOM Line City is Saudi Arabia’s most ambitious and costliest project to date. Image source

Saudi Arabia has laid out an ambitious plan to revitalize the Kingdom and reduce its dependence on oil exports. Vision 2030 is vast in scope, including hundreds of billions of dollars in urban revitalization, resorts, sports and entertainment, parks, and metro lines. Its most ambitious project - the NEOM Line – is a planned zero-emissions city comprised of two mirrored skyscrapers stretching 170 kilometers across the Arabian desert to the Red Sea. This plan, combined with other strategic realities, has resulted in Riyadh's most profound strategic shift in decades, with the Kingdom drawing closer to Iran and taking a more balanced approach to East-West tensions. This shift may also offer a means to bring greater stability to the Middle East.

Mixed messages from Washington

At the start of this decade, Saudi Arabia was a steadfast partner to Washington in the Middle East, fighting a sustained war against an Iranian proxy in Yemen while on the path to normalized relations with Israel through the Trump-led Abraham Accords process. However, Riyadh has shifted in its outlook amid many new factors.

Starting in April 2015, Saudi Arabia led a coalition against Iran-backed Houthi forces in Yemen with substantial support from Washington in the form of weapons, training, and logistical support. However, upon entering the White House in January 2021, the Biden administration announced plans to cease support for the Saudi-led war effort. Biden's stance on Riyadh came not only in response to the severe humanitarian crisis in Yemen but also to the October 2018 killing of Washington Post journalist Jamaal Khashoggi. In 2019, then-candidate Biden vowed to make human rights a cornerstone of his administration's foreign policy and to turn Saudi Arabia into "the pariah that they are" during a campaign debate, setting a harsh tone for relations between the two countries.

Since Biden's decidedly tougher stance toward the Kingdom, hostilities between Saudi coalition forces and the Houthis have ceased following a March 2022 UN-brokered truce. The two sides also engaged in talks last September, and the Saudis have been much less cooperative with Washington on the Houthi issue. When the United States asked to use Saudi territories to strike at the Houthis earlier this year, Riyadh rebuffed them. Although the Biden administration has softened its stance toward the Kingdom, relations remain mercurial. For example, in October 2022, the president vowed 'consequences' for Riyadh's refusal to increase oil production, only to backtrack from this claim in February 2023.

On August 9, the Biden administration announced the lifting of its ban on offensive weapons sales to Saudi Arabia in response to the Kingdom's efforts to "substantially improve their civilian harm mitigation processes." However, it seems highly unlikely that Riyadh will resume strikes on the Houthis at this time, given all that has happened in Gaza and elsewhere in the Middle East.

Saudi Defense Minister Prince Khalid bin Salman (right) meets with a Houthi delegation in Riyadh on September 19, 2023. Image source

The war in Gaza and the unifying Palestinian cause

Israel's ongoing war in Gaza has dramatically changed Saudi Arabia's regional outlook. Even prior to the war in Gaza, moves toward normalized relations with Israel under the Abraham Accords posed a significant challenge to the regime's image due to public sympathy for the Palestinian cause. After the war commenced last October, 96% of Saudis agreed that "Arab countries should immediately break all diplomatic, political, economic, and other contacts with Israel, in protest of its military action in Gaza," according to a December 2023 survey.

"The Saudi leadership has to contend with public opinion at home," said Giorgio Cafiero, CEO of Gulf State Analytics, a geopolitical risk consulting firm. "Saudi Arabia's leadership is also aware of the fact that Riyadh normalizing with Israel would play into Iranian propaganda, and that is also a factor that officials in Riyadh take into consideration," he added. According to Mr. Cafiero, the war in Gaza has effectively shut the door on any normalization of relations between Saudi Arabia and Israel, at least for now. "I would not go as far as saying that there is no chance of Saudi Arabia normalizing with Israel one day down the road. But within the context of Israel's war on Gaza, I do not see any chance of Saudi Arabia entering the Abraham Accords".

Public sympathy for the Palestinian cause has also likely influenced the Kingdom's stance toward the Houthis, once the target of a protracted Saudi-led military campaign that claimed the lives of some 250,000 Yemenis. With the Houthis now waging an extensive campaign on the Red Sea in support of the Palestinian cause, it is political poison for the leadership in Riyadh or any other Arab capital to publicly support a campaign against them. This shift in outlook toward Yemen has also created a more secure footing for Saudi Arabia to engage with the Houthis' Iranian backers.

A shaky balance between the Kingdom and Tehran

In March 2023, Iran and Saudi Arabia agreed to restore formal diplomatic relations in a landmark agreement brokered by China and Iraq in Beijing, ending a seven-year cessation of all formal engagement between the two countries. Although many were skeptical at the time, the start of hostilities in Gaza has brought the two sides into much closer alignment. For example, Saudi Crown Prince Mohammed bin Salman and then-Iranian President Ibrahim Raisi met face-to-face during the joint Arab-Islamic summit on Gaza in Riyadh in November 2023, a little over a month after the start of hostilities in the Palestinian enclave.

Riyadh's stance toward Tehran remains largely anti-escalatory, with Saudi Arabia and other Gulf States fending off Tehran's calls to arm Palestinian groups and cease all diplomatic ties with Israel during the November 2023 summit of the Organization of Islamic Cooperation (OIC) in Riyadh. Since then, Saudi Arabia has regularly called for a ceasefire in Gaza and deescalating tensions between Israel and Iran. "Ultimately, if Israel and/ or the US is going to take military action against Iran, or if Iran is going to be waging more attacks against Israel, like what happened in April, the Saudis want to ensure that they are not a target. Within this context, Saudi Arabia's leadership is determined to keep the détente with Tehran on track," said Mr. Cafiero. "The leadership in Riyadh remembers very well what happened in September 2019 with the Aramco attacks. Saudi officials want to ensure that the Iranians do not see Saudi Arabia as being in any way complicit with American or Israeli aggression against Iran," he added.  

Saudi Arabia has also found some common ground with Iran in Africa. In Sudan's ongoing civil war, Riyadh and Tehran both support the Sudanese Armed Forces in different ways. While Riyadh calls for ceasefire talks, Tehran offers direct support in the form of drone exports, furthering its burgeoning global industry and countering the UAE's support for the Rapid Support Forces (RSF) rebel group. With Sudan emerging as a proxy war between Saudi Arabia and the UAE, Tehran's support for the SAF helps balance the war in Riyadh's favor. On August 10, Saudi Arabia also hosted talks between Iranian and Somali diplomats in Jeddah to discuss deepening ties between the two countries. In this way, Riyadh and Tehran have found avenues for win-win cooperation in Africa, albeit through unofficial and unconventional means.

In April 2023, Saudi Finance Minister Mohammed Al-Jadaan stated that Saudi investment in Iran's sanctions-crippled energy sector could happen "very quickly… as long as the terms of any agreement would be respected." Although Riyadh has made no such investments to date, the prospect offers a significant incentive for Tehran to cooperate with Riyadh moving forward.

Saudi Crown Prince Mohammed bin Salman meets with then-Iranian President Ibrahim Raisi on November 11, 2023. Image source

Vision 2030 needs regional stability, as do global markets

Vision 2030's success requires vast sums of cash: since its 2016 inception, the plan's budget has surpassed $1.3 trillion, and the Kingdom aims to attract $3 trillion in total investment by 2030. The plan also carries substantial risk as it relies heavily on the completion of 14 giga projects, the largest of which—NEOM Line City—carried an initial budget of over $500 billion, 50% of Saudi Arabia's entire federal budget for 2024.

According to Bent Flyvbjerg, an economist who has consulted on over 100 billion-dollar-plus projects and collected data on 16,000 others, around 50% of projects at this scale come in on budget, around 9% come in on budget and on time, and less than 1% come in on budget, on time, and deliver their expected benefits. New estimates claim that NEOM's actual cost could reach $1.5 trillion, and expectations have already been scaled back, with the Kingdom recently announcing that by 2030, the project will only be 2.4 kilometers long as opposed to the planned 170 kilometers. In this way, the success of Vision 2030 requires stable cash flow for many years moving forward.

Although Vision 2030 plans to reduce Riyadh's dependence on oil, much of its success hinges on Saudi oil exports, which provide 80% of the country's export revenue and contribute to more than 40% of its GDP. Moreover, oil prices have been falling steadily in recent months on weakening global demand – particularly in the Asian markets – further straining the Kingdom's primary revenue source. In this way, an all-out regional war between Iran, Israel, and potentially the United States – one which could result in the closure of key petroleum export routes in the Persian Gulf and the Red Sea – would be anathema to the Kingdom's grand strategy. "The Saudi leadership's priority right now is making Vision 2030 successful. This requires stability in the Kingdom and stability in the neighborhood," said Mr. Cafiero.

China also fits heavily into this equation. It is the world's single largest buyer of Saudi oil, accounting for nearly 24% of the Saudi crude exports in 2022. The East and South Asian markets accounted for over 79% of Saudi oil exports that year. China also fits heavily into Vision 2030. "There's also a big focus on Chinese tourism," said Mr. Cafiero. This interdependence helps explain last year's China-brokered rapprochement between Saudi Arabia and Iran. It also explains how China and other Asian countries repeatedly join Riyadh in calling for a ceasefire in Gaza and regional de-escalation.

The Asian markets (red) account for the vast majority of Saudi Arabia’s current oil exports. Image source

Conclusion

Taking on a plan as ambitious as Vision 2030 has forced Saudi Arabia into a more balanced and nuanced foreign policy that reflects the country's many interests. Although Riyadh has moved away from the West, this multipolar approach is not without merit for Washington. With tensions with Iran and Israel escalating and Washington possessing limited means to engage Tehran due to its lack of formal relations with the country, Saudi Arabia's continued dialogue with Iran could prove invaluable to an American administration seeking to de-escalate. Moreover, the prospect of Saudi investment in Iran's ailing and sanctions-crippled economy offers much more than dialogue and de-escalation as incentives for Tehran to cooperate in improving regional stability.

The Bonn talks, which commenced briefly after the 9/11 attacks, were the first high-level official meetings between US and Iranian representatives since 1979. Image source

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Masoud Pezeshkian’s inauguration was quickly followed by another event that threatens to escalate rising tension in the Middle East. Image source

On July 31, an explosion inside a heavily guarded Iranian Revolutionary Guard Corps (IRGC) guest house in Tehran killed Hamas political leader Ismael Haniyeh, along with his bodyguard. Reports indicate that agents – presumed acting on behalf of Israel – smuggled an explosive device into the guest house weeks prior. Haniyeh – a key negotiator in ongoing multilateral ceasefire talks between Hamas and Israel – was in Tehran attending the inauguration of newly-elected Iranian president Masoud Pezeshkian.

This incident is the latest in a series of incidents threatening to escalate the ongoing conflict across much of the Middle East. As tensions continue to mount, Pezeshkian – a reformist – represents the possibility that a negotiated settlement may be reached before the situation spirals out of control. However, as with previous Iranian reformist administrations, there are also many possibilities for derailment.

Skeptics are missing the bigger picture

Most Western observers had little positive to say about the July 6 election of Masoud Pezeskhian, a 69-year-old former surgeon-turned-reformist presidential candidate. The Hill ran the headline "Iran's new president is no moderate," noting the lack of fairness in Iran's electoral process and Perzeshkian's admitted loyalty to Supreme Leader Ali Khamenei. Similarly, a spokesperson for the US State Department declared that "The elections in Iran were not free or fair. As a result, many Iranians chose not to participate at all…We have no expectation these elections will lead to fundamental change in Iran's direction or more respect for the human rights of its citizens."

These assessments are not wrong, but they miss the bigger picture. Yes, Iran's elections are notoriously unfair, and the country's human rights record is too abysmal for any president to address during his time in office fundamentally. Indeed, no reformist candidate has ever been elected to the Iranian presidency without the implicit backing of the Supreme Leader, making any chance of reform incremental, at best. But that's the point. The Supreme Leader has even interfered in previous elections to pave the way for reformist candidates, such as in 2017 when he barred notorious hardliner and former president Mahmoud Ahmadinejad from running against reformist president Hassan Rouhani. This time, it's clear the regime has some use for a reformist presidency at this perilous moment in the country's history.

The Supreme Leader's tacit backing of reformists typically signals the regime's desire for a policy shift, usually toward the outside world. Although a reformist president does not signal the kind of complete change the West would like to see in Iran, it can and has led to breakthroughs in US-Iranian relations. Iranian presidents are technically subordinate to the Supreme Leader. Still, the Supreme Leader typically gives presidents broad authority to set their policy agenda, only exercising veto powers through the Guardian Council when deemed necessary. In short, the election of a reformist president means that the regime sees him as the right man for his time and place. With tensions in the Middle East now higher than ever before, the election of a reformist likely signals Iran's willingness to come to the bargaining table with the West. Pezeshkian's recent vow to lift Western sanctions against the country makes this desire abundantly clear.  

Some may argue that the Iranian regime permitted the election of a reformist administration for purely domestic reasons with little hope for a significant change in foreign policy. Regarding domestic politics, there is some truth to these claims. Indeed, Iran's poor economic performance and mass protests in response to widespread human rights abuses under Raisi signaled the need for change domestically. Pezeshkian's Azeri heritage may also help the regime ease rising ethnic tensions. Skeptics of the newly minted administration also point to Pezeshkian's meetings with senior leaders from Hezbollah, Hamas, and the Houthis, as well as his praise for Russia and China, as indicators that the new president lacks the desire to engage with the West meaningfully.

However, the painting of the new administration as unopen to a shift in foreign policy is not entirely fair, given that Pezeshkian entered office at a time unlike any of his reformist forebearers. Iran is effectively locked in a multifaceted regional proxy war, and the regime is not about to turn its back on allies at such a dangerous moment. However, by bringing Iran's allies close, the new president demonstrates that he may hold the keys to a comprehensive deal for the region.

A photo of the IRGC guesthouse following Haniyeh’s July 31 assassination. Image source

The failure of past reformists

Skeptics note that Pezeshkian is not the first Iranian reformist president and that others have failed to improve their country's relations with the West fundamentally. There is some truth to this, but it is far from the whole story.

The 1997 Iranian presidential election delivered the reformist administration of Mohammad Khatami. The administration moved the country toward reconciliation with the West in some key ways, and at a moment of heightened tensions after the 1996 bombing of a residential apartment block in Khobar Saudi Arabia by Iranian proxy, Hezbollah al-Hijaz. Khatami initiated a "dialogue of civilizations" upon reaching office in 1997, prompting President Bill Clinton to send a letter to the Iranian President, the first direct communication between the two countries' leaders since the 1979 overthrow of the Shah and the subsequent Iran Hostage Crisis. Following the events of 9/11, Iran joined the long list of countries that condemned the attacks and offered condolences to Washington. In 2002, Iran entered into high-level talks with US officials in Bonn, Germany, to discuss forming a new Afghan government and ousting their mutual enemy, the Taliban. Such talks were also a first since 1979.

Although Iran had agreed to cooperate with the United States in matters related to Afghanistan, the Bush administration soon sidelined the regime amid the War on Terror. President Bush's "axis of evil" speech occurred some 11 months before the Bonn agreement and relations between the US and Iran remained cold after the former's 2003 invasion of Iraq, with the White House hitting Tehran with additional sanctions in 2004. Although Khatami's time in office remained generally conciliatory until its end in 2005 – the president even shook hands with Israeli President Moshe Katsav at the 2005 funeral of Pope John Paul II – the moment for meaningful reconciliation with Washington was lost. In 2004, US talks with Iran over Iraqi security accomplished little. Moreover, the 2005 Iranian election delivered the hardline presidency of Mahmoud Ahmadinejad, during whose tenure Iran greatly expanded its influence in Iraq and across the Middle East through various proxy groups. In this way, the opportunities for rapprochement presented during the Khatami years were mainly lost to diverging interests between Washington and Tehran.

In 2013, reformist candidate Hasan Rouhani won the presidency to widespread international praise, with Time Magazine naming him one of its 100 most influential people that year. Rouhani's most important foreign policy achievement was reaching a landmark nuclear deal with the Obama administration in 2015. However, President Donald Trump heavily criticized the deal during his 2016 campaign and pulled out of it entirely in 2018. Without getting political, it is safe to say that Washington's interests shifted, thus also rendering Rouhani's efforts at reconciliation moot.

Conservative hardliner Ibrahim Raisi replaced Rouhani as president following the 2021 election. US-Iranian tensions reached new heights under his tenure amid the war in Gaza and a flareup of Iranian proxy activity across the Middle East. With Raisi's death in May and his elected successor now in office, the mutual interests of Tehran and Washington are now more aligned than during previous reformist administrations, when the stakes were much lower.

The Bonn talks, which commenced briefly after the 9/11 attacks, were the first high-level official meetings between US and Iranian representatives since 1979. Image source

President Ibrahim Raisi’s death in a May 19 helicopter crash in northwest Iran resulted in the snap election that ultimately brought about Pezeshkian’s presidency. Image source

This time is different

Current tensions between Israel and Iran represent a clear and present danger of drawing the US into an intense regional conflict, making the stakes much higher than ever. Washington's top policymakers continually call for de-escalation, and there is generally a consensus in this regard among unelected officials and politicians in both parties. This bipartisan consensus is even apparent between both hopefuls in the 2024 US presidential election, with Vice President Harris calling for de-escalation and former President Trump admitting in 2019 that he did not want war with Iran.

Although Trump's rhetoric on Iran remains consistently intense, the former president's stance on all-out war has not likely changed in the past five years, given the persistent risks such a prospect poses to American interests and those of its partners. Moreover, President Biden's recent pledge to help Israel counter the looming Iranian attack in response to Haniyeh's killing but not to support Israel should it seek to escalate the situation underlines the persistent fear of war in Washington. I've outlined many of the risks behind these fears in previous articles.

The threat of an all-out war with Israel and the US also poses significant and potentially existential risks to the Iranian regime. With neither Washington nor Tehran wanting to engage in a war of such magnitude, the interests of both countries are aligned more significantly than they have been since 1979. However, the threat of escalatory actions looms large over both countries, be it from Israel or one of Iran's proxies.

Just as Washington does not dictate Israel's actions, Tehran does not exercise complete control over its many regional proxies. If the two sides are to avoid a conflict that neither wants, they will likely need to work through diplomatic backchannels that include their regional partners. Although daunting, Tehran just signaled a willingness to engage by anointing a reformist candidate in its recent snap presidential election. For the sake of global security, let's hope this time is different.

Houthi militants strike on an oil tanker in the Red Sea, July 15. Image Source

Recent evidence suggests increased cooperation between the Houthis and al-Shabaab that could increase the scope of the ongoing conflict in the Red Sea, something we noted in a January 29 article. Last month, US intelligence agencies announced they were investigating a possible arms transfer agreement between the two groups, citing recent discussions between them. With the possibility of Iranian involvement looming large over the region, this relationship signals Tehran's expanded threat to global security.   

Growing Unrest and the Spector of Iranian Involvement

On June 15, Houthi militants targeted two vessels on the Red Sea. That month, Houthi attacks on commercial vessels increased to levels not seen since December 2023, according to the US Navy-led Joint Maritime Information Center. These attacks have disrupted shipping between over 65 countries and caused at least 29 major energy and shipping firms to reroute, often around the Cape of Good Hope, adding weeks to their journeys that have collectively cost billions of dollars. Although a US-led coalition has led strikes against the Houthis since January, these efforts have not deterred the militant group thus far.

Across the Gulf of Aden in Somalia, the al-Shabaab militant group continues to grow in strength despite decades of multinational efforts to counter its influence. Today, al-Shabaab is al-Shabaab is Al-Qaeda's largest and wealthiest affiliate group, controlling much of southern Somalia's most fertile agricultural lands in a country perpetually prone to food shortages. In a 2022 senate hearing, former United States Africa Command (AFRICOM) commander Gen. Stephen Townsend called al-Shabaab "the greatest threat to US persons and interests" in the Horn of Africa. As of last month, the group has reversed all of the gains made by the US and African Union-backed Somali National Army over the past two years in just six months. With over 12,000 fighters and as much as $150 million in annual revenue, the group will likely continue to make gains amid the ongoing withdrawal of the African Union Transition Mission in Somalia (ATMIS), which plans to fully exit Somalia by December 31, when a much smaller force will replace it.

Iran continues to overtly support the Houthis materially, with Tehran playing a growing role in arming the group in recent years, especially amid its ongoing attacks in the Red Sea. On July 15, newly elected Iranian President Masoud Pezeshkian phoned a senior Houthi leader in Yemen and later praised the group and its ongoing assault on commercial shipping lanes in a public statement. Moreover, Tehran allegedly offers covert support to Al-Qaeda by harboring senior leaders in the country, according to a 2021 list published by the US State Department. Through Al-Qaeda, Iran also reportedly provides funding and weapons to al-Shabaab in Somalia, with Tehran reportedly paying al-Shabaab operatives to target US forces in the region in 2019 and 2020.

Iran's Quds force has previously used smuggling routes between Yemen and Somalia, exporting oil in violation of sanctions while funneling weapons to Somalia as well as other African countries, such as Kenya, Tanzania, South Sudan, Mozambique, and the Central African Republic. In a January 29 article, Adam Rousselle speculated that the hijackings of five Iranian fishing vessels off the Somali coast in a relatively short period may be a covert way of smuggling Iranian weapons to al-Shabaab. Indeed, in 2016, Australian and French naval forces intercepted Iranian fishing vessels loaded with weapons likely headed for Yemen and Somalia.

Known smuggling routes and some arms seizures, 2015-2021. Image Source

Broadening cooperation and Iran's expanding regional nexus

Although the degree of Iranian involvement in facilitating relations between the Houthis and al-Shabaab is unknown, there is little doubt that Tehran views this pairing as positive for its broader regional interests. Through its proxies, Iran's influence extends across the greater Middle East, and should the Houthis and al-Shabaab continue to expand their ties, Tehran's influence could expand further south into the geostrategically important Horn of Africa. Should these ties expand, al-Shabaab's offensive capacity would expand significantly, given the Houthi's possession of advanced weaponry, such as aerial and maritime drones and short-range ballistic missiles. With an estimated 450 US soldiers still stationed in Somalia, these forces could be in much greater danger as a result.

Conversely, the Houthis also stand to benefit from weapons transfers from al-Shabaab. Last December, the United Nations lifted Somalia's weapons embargo, allowing for an influx of sophisticated Western weapons to the country. This influx, combined with the planned ATMIS withdrawal and the relative weakness of the Somali security forces, could result in al-Shabaab taking possession of vast quantities of these weapons. Because much of the Houthi arsenal comprises Western weapons, many of which were seized from Emirati forces during the Saudi-led coalition against them, these Western weapons and weapon components in Somalia could be beneficial to the Houthis moving forward. Additionally, the Houthis could benefit from al-Shabaab links to other Islamist movements in Africa, potentially broadening Iran's presence in the continent.

Known transfers of missiles and related components from Iran to the Houthis intercepted by Western forces. Image Source

A map of the threat posed by Somali pirates, who operate in conjunction with al-Shabaab militants. Image source

Conclusion

An expanded partnership between the Houthis and al-Shabaab could result in an even more significant threat to global shipping and maritime activity by expanding the current conflict in the Red Sea to much of the Indian Ocean. With Iran already exerting an outsized influence across the Middle East, this potential relationship could signal Tehran's expanding influence in the Indian Ocean and the African continent.

Image source

On April 23, Interpol issued a red notice against Iranian Interior Minister Ahmad Vahidi in response to a request from Argentina. The Interpol red notice – a request for worldwide law enforcement to provisionally arrest an individual – is in response to the 1994 bombing of a Jewish community center in Buenos Aires. Argentine authorities allege that Iran’s Lebanon-based proxy, Hezbollah, carried out the attack, which killed 85 people and injured over 300, at the direction of authorities in Iran. Argentine authorities also allege that Iran and Hezbollah carried out the 1992 bombing of the Israeli embassy in Buenos Aires that killed 29 people.

Although these cases are decades old, evidence suggests that Hezbollah has steadily expanded its operations in Latin America in the years since, operating with general impunity in Brazil, Bolivia, Chile, Costa Rica, Ecuador, El Salvador, Mexico, Peru, Venezuela, and possibly others. It maintains relationships with organized criminal syndicates, runs espionage rings out of Iranian embassies and aids in the spread of Tehran’s soft power in the region. Most importantly, Hezbollah’s presence in Latin America funds its activities in Lebanon, as well as Iran’s activities in the Middle East and beyond, to the tune of billions of dollars annually.

The 1994 attack, allegedly perpetrated by Hezbollah, remains the deadliest in Argentina’s history. Image source

Background

Hezbollah reportedly arrived in South America sometime in the late 1980s. It established itself in the tri-border area (TBA) between Argentina, Brazil, and Paraguay. Due to its many tax incentives and strategic location, the TBA is a longstanding hub for illicit activity, earning it the label of the “largest illicit economy in the Western hemisphere.”  The TBA has also attracted operatives from the region’s many ethnic communities, including Lebanese, of which more than five million reside in Argentina and Brazil. Moreover, a substantial number of Lebanese Shi’a Muslims escaping their country’s civil war arrived in the TBA in the mid-1980s. In this way, Hezbollah could simultaneously benefit from the region’s lax financial oversight while infiltrating the its Arab Shi’a communities.

Hezbollah chose Ciudad del Este, Paraguay, as its base of operations due to its distinct locational advantages for smuggling and counterfeiting, which allow it to raise vast sums of cash. Current estimates claim over $18 billion worth of illicit trade—including drugs, arms, and even humans—passes between Ciudad del Este and its nearby border with Brazil annually. For Hezbollah, this hotbed of illicit activity has significantly helped further its primary goal of establishing illicit funding networks to finance its operations at home.  

The TBA is a hotbed of global illicit activity. Image source

Hezbollah’s rise and organizational evolution

Hezbollah’s illicit operations in South America allowed it to raise substantial sums of cash despite being listed as a foreign terrorist organization by the US State Department in 1997. The group has since flourished into a massive international crime syndicate spanning dozens of countries, making it an invaluable partner to Iran, which must also seek alternative ways to raise funds after decades of international sanctions.

Hezbollah is heavily involved in the regional narcotics trade, including in relatively remote places such as Curacao. In 2007, US and Colombian authorities found that Hezbollah had been arranging cocaine shipments from the TBA and other parts of the region to the Middle East. In 2008, the US Drug Enforcement Administration (DEA) launched Project Cassandra to combat this trade, eventually uncovering evidence of Hezbollah drug trafficking and other activities to the tune of over $1 billion annually. According to Emanuele Ottolenghi, a Senior Fellow at the Foundation for Defense of Democracies, Hezbollah today has built a “well-oiled, multi-billion-dollar drug trafficking machine.”

Top Hezbollah figures in Lebanon reportedly orchestrate the group’s drug trafficking operations in conjunction with pro-Iranian business families in South America. These local families also provide logistical support and invaluable conduits to local criminal syndicates, governments, and other stakeholders. For example, Hezbollah’s crime networks in Venezuela comprise several such families, such as the Saleh clan, who control local drug, arms, and other illicit networks in the coastal city of Maracaibo while liaising with the Maduro regime. Another of these Venezuelan families is the Nassereddine clan, who run an array of enterprises that include Hezbollah training centers on Margarita Island, money laundering rings, arms trafficking networks, and more. In 2022, Israeli authorities found that Hezbollah facilitated vast shipments of gold from Venezuela to Iran.

Hezbollah uses legitimate businesses to mask its regional operations. For example, it hides many of its cocaine shipments to Lebanon in regional charcoal exports, as well as companies selling beef, textiles, and more. In Lebanon, Hezbollah financiers such as Adham Tabaja control networks that provide cover for vast money laundering operations in Latin America and Africa. This multi-layered approach allows Hezbollah to avoid detection while offering plausible deniability to its operatives on the ground.

Hezbollah helps regional narcotics syndicates by providing services to gangs and helping them reach their end markets in return for a share of their revenue. In 2014, Hezbollah-linked traffickers sold arms to the Brazilian prison gang First Capital Command in exchange for protecting Lebanese-Brazilian prisoners. Hezbollah has also formed alliances with Mexican drug cartels such as Los Zetas, using them in assassination plots while laundering their money.

Although Hezbollah has primarily focused on illicit fundraising, it has at times attacked Jewish people and Israeli nationals in the region. In 2014, Peruvian counterterrorism officials apprehended a suspected Hezbollah operative who was planning attacks in Lima. More recently, there have been direct or indirect (through intermediaries hired by Iranian security forces) plots in places such as Brazil and Colombia, with the threat level also being raised intermittently in Argentina. Hezbollah has also attempted to mount attacks in North America, with some of these traced back to its South American networks.

Evidence seized from one of Hezbollah’s smuggling operations in Latin America. Image source

Counterterrorism efforts

Hezbollah’s presence in the TBA has long been on the radar of local and international authorities. For example, reports from 2002 indicate that Hezbollah operated ‘weekend training camps’ in the jungles near Foz do Iguaçú. Similarly, in 2003, US federal authorities wrote about Hezbollah and other groups’ fund-raising, drug trafficking, and money laundering in the TBA. However, these assessments seemingly fell to the wayside in the ever-evolving counterterrorism agenda of the post-9/11 era.

Inherent challenges related to local law enforcement in much of Latin America also make countering Hezbollah extremely difficult. In addition to the general lawlessness of the TBA, Hezbollah has reportedly made inroads into local high-ranking politicians and law enforcement officials. In 2014, the son of Suriname’s president admitted to accepting millions of dollars in exchange for allowing Hezbollah fighters to attack the US using his country as a base. In 2020, US authorities charged a former member of Venezuela’s national assembly with narco-terrorism, alleging he shared links with Hezbollah and Hamas.

In some cases, Hezbollah has evaded US law enforcement by benefitting from shifts in relations between Washington and Tehran. In 2017, an investigation by Politico revealed that officials at the US Justice and Treasury departments obstructed Project Cassandra by denying approval for the prosecution and arrest of Hezbollah operatives. These moves allegedly came from the Obama administration to avoid derailing its attempt at rapprochement with Iran. The Politico team claims that significant players, such as Hezbollah’s envoy to Iran, were let off the hook, even as cocaine shipments made their way into the US and the proceeds from them made it into Hezbollah’s coffers.

Venezuelan President Nicolas Maduro (left) maintains close ties with Iran, and allegedly with Hezbollah. Image source

Conclusion

Hezbollah poses a severe threat to the South American countries it is entrenched in, not least because it facilitates regional crime syndicates. The group has only grown bolder over the years, particularly following the war in Gaza, and could conduct further attacks in the region in addition to its vast illicit fundraising activities. With little coordination or intent among South American partners to stop the group, Hezbollah’s position in Latin America will likely expand in the coming years, funding even more operations in the Middle East amid rising tensions with Israel.

The British-developed DragonFire directed energy (DE) system remains untested in the battlefield, but will likely arrive in Ukraine soon. Image source

On April 13, Israel’s Iron Dome and Arrow air defense systems, in conjunction with Israeli Air Force and allied assistance, reportedly shot down 99% of the munitions launched by Iran that day. Despite these successful efforts, four Iranian ballistic missiles struck Nevatim Airbase – one of the most secure sites in the country and home to the F-35 aircraft Israel reportedly used to strike Iranian assets in Damascus. The damage was minimal, but the strikes sent a clear message that Iran could evade the best air defense capabilities of Israel and its allies to hit the highly protected area. Although Iran apparently did not target the Negev Nuclear Research Center at Dimona – the alleged site of Israel’s nuclear weapons program – there are growing fears that it could successfully do so in the event of another strike. 

Estimates claim that both Iran and Hezbollah possess the capacity to overwhelm Israel’s air defense systems. If they launched a joint attack, or if Iran used hypersonic missiles – missiles that travel faster than the speed of sound – Israel’s air defense systems are unlikely to prevent significant damage to critical infrastructure across the country. In Ukraine, the country continues to struggle with the cost of the ongoing Russian invasion, including in its missile defense capabilities. These factors are accelerating development into experimental areas that will likely define the new generation of air defense technology. 

Israel’s Iron Dome air defense system intercepts rockets fired by Hamas. Image source

High-cost systems amid increasingly low-cost munitions

The costs of running an air defense system are staggering, with Israeli media reporting that countering the April 13 attack cost as much as $1.35 billion in missile defense. This is because intercepting each incoming munition requires launching a very expensive surface-to-air missile (SAM). In Israel, one medium–long-range ‘David’s Sling’ SAM costs $1 million, while an Arrow-3 costs $3.5 million. In Ukraine, the PATRIOT interceptor missiles provided under the recently approved $6 billion U.S. aid package cost around $4 million each and each battery costs $1.1 billion. For Israel’s Iron Dome defense system – designed to counter small, short-range attacks – the cost for each Tamir interceptor missile ranges between $20,000 - $100,000 compared to the $300 per round Katyusha rockets favored by groups such as Hamas. 

Just as the Soviet Union excelled at producing low-cost and highly versatile weapons such as Katyusha rockets and the AK-47 assault rifle, Iran and Russia now excel at producing low-cost munitions in large quantities. Although it is not known for certain, estimates claim Iranian ballistic missiles cost around $100,000 each, and low-cost drones such as the domestically-produced Shahed 136 loitering drone cost as little as $20,000. Russia now manufactures its own Shahed 136 drones at a special facility in Tatarstan; estimates claim it now produces some 226 units monthly and will produce 6,000 units annually by September 2025. Although hacks reveal that these units are much more expensive to produce than the often reported $20,000 price tag, they can cost Ukraine as much as $500,000 each to shoot down. Moreover, Russia is now buying hundreds of Iranian ballistic missiles, and these likely cost much less than the multi-million-dollar units it produces domestically.  

Air defense systems were initially designed with a different kind of enemy in mind, with the first modern systems developed during the early Cold War. Although these systems have significantly evolved—at an enormous cost—so too have the munitions programs of those seeking to penetrate them. With Iran and Russia developing low-cost ways to overwhelm these systems and Iran sharing much of these technologies with proxies across the Middle East, the cost and efficacy of air defense systems are increasingly coming into question. 

Some estimates claim that Iranian ballistic missiles cost as little as $100,000 each, a far cry from their multimillion-dollar Western counterparts, even with failure rate as high as 50%. Image source

Experimental technologies underway

Given the high cost of interceptor missiles, weapons contractors have increasingly looked to directed-energy weapons as an alternative. In the U.K., researchers successfully fired a high-powered laser weapon known as DragonFire at an aerial target during a trial. The weapon is reportedly so precise that it hit a £1 coin from a kilometer away. Moreover, the British Ministry of Defence (MoD) claims that firing the weapon for ten seconds costs the equivalent of running a regular heater for an hour and that each shot typically costs less than £10 (~$12.50). By contrast, the Standard Missile-2 used by the U.S. Navy for air defense costs more than $2 million per shot. 

DE systems have limitations: they remain untested on the battlefield, and weather issues such as fog and rain cause their beams to scatter, limiting their effectiveness. These weapons also release a lot of heat and require large cooling systems and regular battery changes; they must also remain locked on a moving target for at least 10 seconds to burn holes in them. Regardless, Britain’s MoD announced plans to “speed up” delivery of the weapon to Ukraine before it is fully tested, citing Kyiv’s pressing need for a cost-effective method to counter Russian drone attacks. 

Artificial intelligence (AI)-enabled swarming drones are a subject I’ve covered a lot here as an emerging technology in missile defense. This technology is already in the advanced stages of development. It will likely play an instrumental role in scenarios such as downing multiple munitions launched at a target at once and intercepting hypersonic missiles, which can currently evade most air defense systems due to their high speeds and unpredictable maneuvers. In the longer term, these systems will likely play a critical role in missile defense but remain untested in the battlefield. Not to be outdone, China is also reportedly focusing on AI swarming drones, although Beijing’s restricted access to AI chips could hinder its development in this area. 

AI swarm drones are likely a critical part in the next generation of missile defense. Image source

Conclusion 

Iran and other countries are proliferating low-cost munitions, necessitating a shift in air defense technology. With deficiencies in air defense increasingly apparent amid the war in Ukraine and rising tensions in the Middle East, experimental alternatives are underway. However, the rush to deploy these untested technologies on the battlefield could produce unforeseen consequences, which, I know, is a regular theme in my work here. 

Starlink provides high-speed internet access to much of the earth’s surface via satellites in low-Earth orbit (LEO). Image source

One Russia-based online retailer who identified himself to the Wall Street Journal only as 'Oleg' sells Starlink satellite internet terminals to Russian soldiers in what he calls 'the new territories' – also known as Ukraine. Although he used to sell vacuum cleaners and car phone mounts mostly, now he makes most of his living selling these advanced devices despite the international sanctions on his country.

Oleg is not alone. One Russian website, Topmachines.ru, advertises Starlink sets for 220,000 rubles (around $2,200) plus a $100 monthly subscription fee. Reports indicate that Russian troops have access to thousands of Starlink terminals in Ukraine, which they reportedly procured from various intermediaries to evade international sanctions. Once hailed as a significant and exclusive advantage in Ukraine's war effort, Starlink is now increasingly in the hands of Russian forces, producing unforeseen battlefield consequences.

Far beyond the battlefields of Ukraine, Starlink is a game-changer at the forefront of advances in military technology. In this article, we examine the purpose and function of this technology, its current usage, and its potential usage moving forward.

What is Starlink? 

Launched by SpaceX in 2019, Starlink offers high-speed internet from "almost anywhere on earth," according to its official website. This connectivity is achieved via a receiver that links to an ever-increasing number of satellites orbiting 342 miles (550 kilometers) above Earth's surface, providing access to around 2.6 million users worldwide. There are currently over 5,700 Starlink satellites in orbit, each with a lifespan of just five years. With new launches regularly, SpaceX has permission to have as many as 12,000 satellites in low-earth orbit (LEO) and recently applied to have as many as 30,000. China, already concerned about the ramifications of this technology, plans to launch nearly 13,000 satellites to keep SpaceX from "hogging low-orbit resources."

Starlink provides fast, reliable internet access outside the global fiber optic network with signals that are difficult to jam: this offers a broad array of military applications and advantages, including communications, mapping, and more. Undersea fiber optic cables currently account for some 95% of global internet traffic, and as the Houthis recently demonstrated, these cables are highly vulnerable to sabotage. Moreover, with China cutting off subsea cable access to parts of Taiwan, the threat that states could sabotage each other's internet access poses a threat to global connectivity. This way, Starlink provides a powerful alternative in a world of growing instability.

Starlink's expanding global presence notably excludes several countries with poor relations with the United States. These include major geopolitical rivals China, Iran, and Russia, less powerful rivals such as Cuba, North Korea, and Venezuela, and state terrorism sponsors such as Syria and Afghanistan. Theoretically, this excludes these geopolitical rivals from accessing the network while allowing reliable access to America's allies. However, in practice, the distinction becomes much murkier.

According to its official website, Starlink is available or about to be available in most countries worldwide. Note the exceptions. Image source

Ukraine and beyond

The first batch of Starlink terminals arrived in Ukraine on February 28, 2022 – just four days after the Russian invasion – with SpaceX CEO Elon Musk promising that more were "en route." Two years later, Starlink has become an essential tool for Ukraine's war effort, enabling civilian and military commutations as well as the growing presence of drones, an area where Ukraine has made many decisive gains. However, controversy emerged in 2022 when Starlink refused to extend service to Crimea during a Ukrainian maritime drone attack on Russia's Black Sea Fleet, causing the units to lose connectivity and wash ashore "harmlessly." According to Elon Musk biographer Walter Isaacson, the SpaceX CEO made this decision because he thought it would cause a major war. Regardless of the moral implications of this incident, private control over such a crucial piece of military technology raises several concerns.

Russia's increased use of Starlink systems is another significant source of controversy. Ukraine's top military intelligence officer, Lt. Gen. Kyrylo Budanov, claims that Russian troops were using thousands of Starlink terminals in Ukraine as of this February. On February 11, Musk denied selling Starlink products directly or indirectly to Russian buyers, whom sanctions forbid from purchasing the product directly. Two days later, Ukrainian officials alleged that Russian buyers had purchased the Starlink units from Arab countries, releasing audio tapes that allegedly record Russian soldiers discussing how they obtained the system. Although Musk previously described Starlink as offering Ukraine a "major battlefield advantage," Russia's use of the system appears to have eroded this substantially.

Russia has always maintained a battlefield advantage in Ukraine regarding firepower and personnel. Still, Starlink allowed Ukraine to 'punch above its weight' by securely accessing the internet from anywhere to launch highly successful drone attacks. Ukraine also relies on Starlink for civilian functions such as running hospitals, businesses, and aid organizations. With Russia now reportedly using thousands of Starlink terminals in Ukraine, their communications are likely more secure and more challenging for Ukraine and its allies to hack. Moreover, Starlink's connection speed is reportedly much slower than before, apparently due to the rise in Russian usage, which some claim has doubled the number of users in Ukraine.

With global coverage growing steadily, Starlink is a much-debated topic in many of the world's most militarily contested regions. In Sudan, Russian mercenaries use Starlink systems in their effort to aid the controversial Rapid Support Forces (RSF) in the country's ongoing civil war, which has claimed thousands of civilian lives to date. In Israel and the occupied territories, SpaceX was granted permission to operate in parts of Gaza for uses such as field hospitals, but only after negotiations wherein SpaceX agreed to a series of measures to prevent usage by Hamas.  

In Vietnam, talks with SpaceX halted last November when the Vietnamese Communist Party refused to soften their stance on Starlink's foreign ownership. Before this, the Vietnamese Coast Guard used Starlink to guide drones in the South China Sea, parts of which are highly contested between Vietnam and China. Vietnam also claims it needs satellite internet to provide access in its mountainous northern reaches, much of which are also contested by China. In Brazil, criminal groups have already been found to have Starlink terminals at illegal mining sites. The likelihood of major crime organizations accessing this technology elsewhere in Latin America and globally  - if they haven't already - grows daily.

This broadening use of Starlink in international conflict zones, its unintended use by enemy forces, its status as owned by a private corporation, and its adoption by criminal organizations will likely be subjects of much debate in the coming years.

Starlink terminals are now commonly found on both sides of the war in Ukraine. Image source

The big picture

As mentioned in one of my previous articles, artificial intelligence (AI)-enabled drones are the most important technological means by which the U.S. and its allies can counter the anti-access area denial (A2AD) strategies of countries such as Iran and China. A2AD relies on advanced missile and drone technologies to deny vast space to an advancing military. These advanced weapons may be stopped – at least in theory – by technological advances in areas such as AI-enabled swarming drones. These swarms may even be capable of intercepting hypersonic missiles, which can effectively penetrate most air defense systems and are currently possessed by China, Iran, and Russia. By offering broad geographic connectivity to these potential swarms, Starlink will likely play a crucial war in developing and using these weapons systems moving forward.

By offering connectivity in practically any potential global conflict zone, Starlink is helping to advance AI-driven reconnaissance and targeting systems. However, like every significant military technological advance, maintaining exclusive control over it is difficult. Moreover, with so many AI technologies currently in the experimental stages, the consequences of their potentially uninterrupted usage across the globe remains unknown.

AI swarming drones, enabled by Starlink, are likely to play a big role in future conflicts. Image source

Conclusion

Starlink offers so many potential advantages that no armed group – state or otherwise – will likely be able to ignore it in the near future. Moreover, the crucial role Starlink will play in AI development will likely make it an area of growing concern for governments worldwide. With new satellites launching monthly and its coverage area expanding steadily, Starlink will likely take a defining role in military and civilian institutions in the coming years. That it is steadily falling into the hands of unintended actors is likely only the beginning of the unforeseen consequences that will need to be addressed moving forward.

The Singapore-flagged Norman Atlantic in the Strait of Hormuz after an Iranian attack in the 1987 Tanker War. Just one of many scenarios that could occur in the event of a broader escalation today. Source

At any hour of any day, on land or at sea, and in practically any location across the Middle East, the interests of the United States and its allies ar…

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The Singapore-flagged Norman Atlantic in the Strait of Hormuz after an Iranian attack in the 1987 Tanker War. Just one of many scenarios that could occur in the event of a broader escalation today. Source

At any hour of any day, on land or at sea, and in practically any location across the Middle East, the interests of the United States and its allies are under threat like never before. A destroyed oil field, troops killed while sleeping in their barracks, or even a whole aircraft carrier sunk – these are just some of the nightmare scenarios faced by the United States and its allies as a result of Iran’s grand strategy of regional anti-access area denial (A2AD) should an all-out war ensue. This strategy has been developed over decades and relies heavily on proxies formed out of the rubble of shattered states across the region and sectarian divisions underpinning the societies within them for centuries.

In this article, we explore how Iran and its proxies exert an outsized influence across the Middle East and the implications of what this means as tensions between these groups and US forces continue to mount throughout the region.

Tehran harnesses Shia groups to extend influence far beyond its borders

Although Shia communities are a minority in the Arab world, Iranian-backed Shia militias exert outsized influence across the Middle East.

In Lebanon, Iran-backed Hezbollah reportedly has more firepower at its disposal than 95% of the world’s conventional militaries. Borne out of southern Lebanon’s Shia community during the country’s brutal civil war of the 1980s and aided extensively by Iranian patronage ever since the group now possesses the means to inflict severe damage to critical infrastructure across Israel and beyond. With the conflict between Hezbollah and the Jewish state intensifying in recent months, Hezbollah is the crucial factor as to whether the current regional war will escalate moving forward. Moreover, Hezbollah operatives can be found throughout the region, helping other Iran-aligned groups militarily and logistically. These activities have been fueled in part by the group’s global crime network, which generates vast sums of cash each year used to solidify its control over much of Lebanon and shield it from the sweeping sanctions placed upon it by Washington. Some estimates put Hezbollah’s total fighting force at over 100,000 individuals.

Tehran wields so much influence over Iraq that an article in Time Magazine last March was titled “How Iran Won the Iraq War.” Iran currently has ties to over a dozen political parties represented in Iraq: these form the Shi’a Coalition Framework (CF), which governs the country nationally and recently gained a plurality of seats in the December 18 provincial elections. Perhaps more importantly, Iraq’s Popular Mobilization Force (PMF) – an umbrella organization for multiple Iran-backed Shi’a militant groups – has become the most potent paramilitary force in the country. Closely aligned with the ruling CF, the PMF has gained access to Iraq’s state budget and enjoys extensive legal protections without any of the responsibilities associated with submission to the state: this allows them to dually serve the interests of the Iran-backed government of Baghdad as well as those of Tehran itself. The number of reported personnel under the PMF banner has grown substantially as of late: a report issued by the Iraqi parliamentary Finance Committee stated that the PMF’s total fighting force increased by 95% to 238,000 in 2023.

Syria’s Iran-backed Shi’ite militias gained global prominence on January 28 when one of these groups targeted and killed three US service members at the Tower 22 outpost near the Jordanian border using a one-way attack drone. Since descending into civil war in 2011, the regime of Bashar al-Assad has become increasingly reliant on Tehran for providing internal security. While the war was at its most intense, Iran recruited heavily from abroad and locally to form armed militias, drawing heavily from the local Shia minority and paying attractive salaries to fighters from its coffers. With the security situation having improved since 2017, Tehran has focused on infiltrating Syrian society by co-opting local business figures and forming private security companies, ostensibly to protect their interests. Estimates claim that Syria is home to at least 60,000 operatives from Iranian-backed militias.

In Yemen, Iranian-backed Houthis have gained global attention in recent months for their ability to disrupt shipping traffic on the Red Sea, one of the world’s most important waterways. Before that, the group fought against the forces of Saudi Arabia and other Gulf States in a lengthy civil war that has ultimately brought them much closer to Tehran. Originating out of a Yemeni Shia minority that comprises some 35% of the Yemeni populace, the Houthis now control territory that is home to as much as 80% of the country’s population, including the capital of Sana’a and key coastal areas that have allowed it to practically close off the Bab el-Mendeb Strait at the mouth of the Red Sea. Reports indicate the group maintains a fighting force of some 20,000 soldiers.

In Iraq, the line between the military and the state-sponsored paramilitary PMF forces (pictured) is not entirely clear. Source

Iran capitalized on Syria’s civil war to greatly extend its influence over the country. Source

Yemeni Houthis boarding a Israel-linked ship on the Red Sea. Source

Anti-access area denial: how sectarianism fuels Iran’s grand strategy

Tehran has excelled at co-opting Shi’a groups across the greater Middle East and incorporating these into its geopolitical strategy. Historical divisions between Sunni and Shi’a that date back centuries and include the Ottoman-Persian wars of the 16^th century where the two sides engaged in massacres, deportations, and forced conversions in the name of religious sectarianism. Thanks in large part to the state failures of recent decades – brought about by factors such as foreign intervention, civil wars, and economic crises – Iran has once again been able to capitalize on these divisions for its own strategic advantage while arming these groups with its domestically-produced 21^st century technologies.

Israeli intelligence reports that Iran is developing a one tonne missile with a range of up to 5,000 kilometers and the country is currently in possession of missiles with a range of 2,000 kilometers. In 2022, Tehran unveiled the latest version of its Mohajer attack drone, which resembles the American MQ-9 Reaper and is capable of striking Israel from a takeoff locations inside Iran. Although these technologies have not been transferred to Iran’s proxies, they underline Tehran’s vast defence capabilities. Instead, Iranian proxies across the Middle East are heavily armed with low-cost and low-tech weapons capable of striking a vast array of targets in the region such as the Shahed 131 and 136 drones. These units cost as little as $20,000 each and went completely undetected by US forces in Jordan when one was used to strike Tower 22 last month. Tehran has also been outsourcing missile production to its proxies since at least 2014: in one example,  Hezbollah was found to be producing its own precision-guided missiles at a factory run by a site manager who visited Iran regularly in 2020.

With ranges of hundreds or even thousands of kilometers, these missiles and drones can be used to strike a wide range of targets with relative ease and anonymity. In the hands of Iranian-backed militias, they fit into Tehran’s strategy of anti-access area denial (A2AD). As mentioned in my previous article, an A2AD strategy seeks to inflict maximal damage to an opposing force and thereby limit its ability to maneuver throughout a region. It allows critical damage to be inflicted on a wide variety of military targets such as bases and aircraft carriers, civilian targets such as other the infrastructure of other countries, and foreign investments such as energy extraction operations in Iraq and the Persian Gulf. In the event of a full escalation, practically everything in the region associated with Iran’s enemies would become a target, leaving no one area safe: this is the essence of A2AD. The number of casualties under such as scenario would be staggering and so too would the impact on global energy prices: as such, practically every corner of the planet would feel the consequences in one way or another.

Tehran’s apparent lack of control over its aligned groups makes this strategy all the more dangerous. In recent weeks, Iranian officials have urged their proxies to exercise restraint following multiple attacks on US forces. Although this has resulted in an unusual lull in violent incidents from these groups, it nonetheless indicates that Tehran is not entirely calling the shots with regard to their actions. Examples of when these proxies have disregarded Tehran’s advice include the Houthis’  2014 capture of Sana’a, or the fact that some PMF groups in Iraq have continued to attack US forces despite Tehran’s calls for restraint. Given the series of challenges that threaten Iran’s own internal stability and the power of its regime, these armed groups could become even more volatile in the coming years, potentially posing a regional threat even in the absence of Iranian patronage.

Iran and its proxies hold sway over much of the Middle East and can hit targets throughout the region. Source

Conclusion

By capitalizing on the systemic breakdown of order across much of the Middle East, Iran has weaponized centuries of sectarian divisions across the region to form a grand strategy that threatens the interests of the United States and its allies there. Decades of isolation and antagonization by the United States have made Tehran and its proxies particularly well-suited to asymmetrical warfare. If this is put to the test, the consequences could be severe and global in scope. For this reason, factors such as further attacks on US troops in the region, tensions between Israel and Hezbollah, and the situation in the Red Sea should be monitored closely moving forward.

Hezbollah soldiers Marching in a parade in Beirut last April. The group claims to have 100,000 trained fighters at its disposal. Source

Hezbollah is more than just a proxy: it is a regional powerhouse with a global reach. In addition to having as many as 200,000 missiles, the Lebanon-based group is now manufacturing its own military drones and claims to …

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Hezbollah soldiers Marching in a parade in Beirut last April. The group claims to have 100,000 trained fighters at its disposal. Source

Hezbollah is more than just a proxy: it is a regional powerhouse with a global reach. In addition to having as many as 200,000 missiles, the Lebanon-based group is now manufacturing its own military drones and claims to have the ability to turn thousands of its missiles into precision-guided munitions. Hezbollah also claims to have 100,000 trained fighters – men who must be paid, fed, and equipped on a regular basis. In 2016, retired Israeli colonel Alon Ben-David warned that Hezbollah possessed more firepower than 95 per cent of the world’s conventional militaries. A force of this strength is not merely the product of Iranian patronage: it requires the kind of financial means previously unseen among non-state militant groups.

With a global reach that includes mining, narcotics, conflict diamonds, energy, and even fine art, Hezbollah is a behemoth in the world of international organized crime. This activity has helped it to raise the kind of cash needed to solidify its grip over much of Lebanon and prepare for a protracted and asymmetrical regional war. With tensions between Hezbollah and Israel continuing to mount – tensions that could raise the possibility of US involvement – these extensive financial preparations on the part of Hezbollah may be put to the test in the near future.

A masterclass in high level corruption

Former Gambian President Yahya Jammeh ran his country like a crime boss and helped Hezbollah raise millions in cash in exchange for favors. Source

On February 24, 2023, authorities arrested Lebanese nationals Mohammad Ibrahim Bazzi, 59, and Talal Chahine, 78 at Bucharest’s Henri Coandă International Airport. The US Department of Justice had issued warrants for the two men in response to accusations that they had attempted to illegally transfer funds from the United States to Lebanon while under sanctions. Chahine previously made headlines in 2006 when he fled his Detroit-area home for Lebanon after it was revealed that he had been illegally funnelling millions of dollars to Hezbollah. However, it is Bazzi’s vast international dealings that demonstrate how Hezbollah has evolved in its illicit activity in the decades since.

Mohammad Ibrahim Bazzi is a dual citizen of Lebanon and Belgium and listed as owning or controlling multiple entities sanctioned by the United States Office of Foreign Assets Control (OFAC) for their alleged role in providing funds to Hezbollah. An investigation by ProPublica revealed that Bazzi was one of 500 “shadow” diplomats involved in widespread abuses globally: as a so-called honorary consul of Lebanon, he volunteered to represent the interests of foreign governments in exchange for the same legal protections and benefits afforded to career diplomats. It was this status that allowed him to join the inner circle of former Gambian President Yahya Jammeh, who “ran the country like an organized crime syndicate” until his 2017 ouster according to Jeggen Grey Johnson of the Open Society Foundation (OSF).

Bazzi was reportedly implicated in almost every big deal connected to Jammeh’s presidency and used much of these proceeds for the benefit of Hezbollah. In one example, he was awarded a monopoly on oil import contracts in exchange for supplying the regime with illicit goods and services. Some of these illicit dealings included notorious Lebanese-Colombian drug kingpin Ayman Jouma, who in 2011 was accused of laundering as much as $200 million per month through the now-defunct Lebanese Canadian Bank and its Gambian subsidiary, Prime Bank. While these events were occurring, Bazzi leveraged his substantial shares in Prime Bank to launder money for and transfer millions of dollars to Hezbollah.

Fine art and blood diamonds at the center of London high society

Nazem Ahmad’s alleged global network of illicit diamonds, art, luxury goods, and money laundering. Source

2023 also saw the arrest of a third key figure connected to Hezbollah when on April 18, London-based accountant and Indian national Sundar Nagarajan was detained by British authorities. He was later extradited to the United States on December 19. The U.S. Treasury alleges that Nagarajan was managing the financial ledgers for Nazem Said Ahmad, a Lebanese-Belgian national currently sanctioned by OFAC for allegedly providing material support to Hezbollah. Publicly, Ahmad is a noted figure in the international art world with galleries in Beirut and London and a vast collection that reportedly contains masterworks from the likes of Pablo Picasso and Andy Warhol. Privately, his dealings are alleged to be much more nefarious.

US authorities allege that Ahmad’s vast fortune stems from his involvement in the illegal trade of conflict diamonds involving a vast global network of 52 individuals and entities across Europe, the Middle East, and Africa. Ahmad was born in Sierra Leone where a sizeable Lebanese diaspora community exists and some members of which were heavily involved in the illicit diamond trade of the 1990s during the country’s civil war. Hezbollah is believed to have accessed this and other Lebanese diaspora communities in the years since, infiltrating smuggling networks such as those associated with the illicit diamond trade including Ahmad’s.

The proceeds from Ahmad’s alleged criminal dealings likely enabled his foray into the art scene, which is largely unregulated and frequently used as a vehicle for tax evasion, money laundering and more by global crime rings. According to the US Treasury, Ahmad has used proceeds from his criminal activities to purchase vast quantities of fine art and luxury goods, ship these to Lebanon using falsified undervalued invoices at ports controlled by Hezbollah, resell them at a substantial profit, and channel the proceeds to Hezbollah’s coffers. US Federal prosecutors claim that Ahmad’s network has run an estimated $160 million through the US financial system alone.

Smuggling Venezuelan gold to Iran

Hezbollah is allegedly in control of multiple Venezuelan gold mines, illegally smuggling gold to Iran. Source

Last May, Israeli intelligence found that Hezbollah played a key role in smuggling dozens of kilograms of gold from Venezuela to Iran aboard an Iranian Mahan Air flight, receiving the proceeds from the sale of the gold to the Iranian government. In 2019, Venezuelan opposition lawmaker Americo De Grazia claimed that Hezbollah is in control of “a number of special mines” in Venezuela. Gold is a key means by which sanctioned organizations and states operate economically, especially in a wartime scenario. This has been evidenced not only by the actions of Iran and Hezbollah, but also by those of Russia’s private military contractors, who smuggle vast sums of gold out of Africa each year to help bolster Russia’s growing reserves.

Hezbollah cash funds its tightening grip on Lebanon

Branches of Al-Qard Al-Hasan Association, Hezbollah’s shadow bank, are a common sight in Lebanon these days. These branches dispense cash in US dollars at a time when money is hard to come by. Source

The vast sums of cash that Hezbollah has been raising for decades overseas combined with Lebanon’s nearly five-year-long economic crisis have allowed the group to tighten its grip on the country. Hezbollah’s influence can be seen practically everywhere in Lebanon today from banking and lending, real estate, grocery stores, pharmaceuticals, solar energy, narcotics, and even prostitution.

Although Hezbollah has long held sway over Lebanon and Lebanese politics, the country’s ongoing financial crisis has allowed its influence to flourish. This is because Hezbollah, in large part due to its global illicit activity, is one of the only entities in the country capable of injecting money into Lebanon’s cash-starved economy. For example, at a time when over 80 per cent of Lebanon’s population is surviving on foreign remittances from abroad, Hezbollah’s shadow bank, the Al-Qard Al-Hasan Association (AQAH) dispenses US dollars from numerous ATMs across the country in exchange for physical gold deposits.

2021 estimates put AQAH’s gold reserves at around US $500 million and this number is likely much higher at present. Gold is relatively stable in value and may be exchanged for goods and services anonymously, making it highly attractive to heavily sanctioned entities such as Hezbollah. In this way, by acquiring gold using the vast sums of cash at its disposal – derived at least in part from its extensive overseas criminal activity – Hezbollah is working to shield itself from sanctions and potentially operate a war time economy in the event of an Israeli invasion. Moreover, by controlling a sizeable portion of Lebanon’s cash economy, Hezbollah is also ensuring that the cash it puts out on the streets doesn’t stray too far from its coffers.

Conclusion

Hezbollah reportedly has more firepower than 95 per cent of the world’s militaries. Source

Hezbollah possesses more conventional firepower than any designated terror group on the planet and more than most states. This has not been achieved exclusively through Iranian patronage, but also by engaging in a staggering amount of illicit activity around the world. Furthermore, it is highly possible, if not likely, that the activities uncovered to date represent only a small fraction of the group’s worldwide illicit dealings that bring in millions (or perhaps billions) of dollars of cash into the group’s coffers each year.

For these reasons, a conflict with Hezbollah is likely to not only be an enormous strategic challenge but includes the high likelihood of being incredibly protracted. Unlike Hamas in Gaza, Hezbollah has the financial and logistical means to supply and arm itself extensively in a wartime scenario as it has substantial cash and gold reserves as well as access to Lebanese ports and land routes through neighboring Syria. For this reason, ongoing U.S. and European attempts to negotiate commitments between Israel and Hezbollah in an effort to avoid further escalation should be watched very closely. Should these fail to manifest in a meaningful solution in the coming weeks, a full-scale escalation could have disastrous and global consequences moving forward.