WEEK OF STRIKES MARKS REGIONAL ‘GAME-CHANGER’

Israel and Iran now look more willing to fight each other directly rather than through proxies, which could be ominous for the global economy

One of the most incendiary weeks in the decades-long shadow war between Iran and Israel ended with relief on Friday after Tehran declared it had defeated what it said was a small attack on its territory by Israeli drones.

But while the strike, which Israel did not officially claim, avoided touching off fresh escalation for now, there was no escaping that the tit-for-tat exchange ushered in a new era where the two adversaries look more willing to fight each other directly rather than through proxies. And that, government officials and experts fear, could lead to open war.

“The past week has been a game-changer,” said Suzanne Maloney, a former US State Department official who is now vice-president at the Brookings Institution. Iran’s massive missile attack on Israel six days ago “has changed the nature of this conflict and I don’t see it changing back even though the Israelis were very, very calibrated in their response”, she said. “The baseline for escalation is much higher.”

Oil prices eased on Friday and markets appeared relatively unfazed after it became clear that the strike on Iran was far more limited than initially feared.

Publicly, Israel’s allies were rejoicing that Friday’s strikes were so small, even if Prime Minister Benjamin Netanyahu had rejected their appeals not to retaliate at all after it was able to all but neutralise Iran’s unprecedented missile attacks last weekend.

Yet that calm belied a deeper unease among US and foreign officials. A senior European official warned that the situation remained very tense, with no assurance that a fresh flare-up could be contained if conflict flared again between Iran and Israel in the next few days.

Business concerns spiked to their highest levels this week since the October 7 attacks, according to a survey by Oxford Economics.

“If there is a serious escalation – which means a much more wider regional escalation than what we’ve seen so far – then yes, we could have a severe oil shock,” Gita Gopinath, the International Monetary Fund’s first deputy managing director, said.

One of the big questions now is whether Netanyahu’s government will feel compelled to keep striking Iran and its assets elsewhere. The latest flare-up followed an April 1 missile strike that killed Iranian military commanders at a diplomatic compound in Damascus. Tehran blamed that on Israel, which has not confirmed it was responsible.

Iran made clear it was ready to do something it had never dared before: to launch hundreds of missiles and drones at Israel from its own territory. Though many of the weapons failed, it still took help from the US and Britain for Israel to neutralise the assault. That sent the ominous message that Israel would not be able to repel an invasion alone.

The US had worked furiously to persuade Netanyahu to “take the win” and resist responding. And given the limited nature of the Thursday night attack, he may have been listening, at least for the time being. Yet Netanyahu has a habit of ignoring the US.

That has been most clear in the war in Gaza, which Israel launched in the wake of an October 7 attack that killed some 1,170 people. Israeli forces’ retaliation has killed more than 34,000, according to Hamas, and subjected Israel to sharp international criticism. Iran’s missile attack had diverted some of those concerns but an impending assault on Rafah, the next Gaza city on Israel’s target list, could rekindle them. Talks on a ceasefire, meanwhile, have stalled.

The calls for restraint were not limited to Israel’s allies. Russia welcomed the limited back-and-forth as evidence neither side wanted escalation. But even if the choreographed attacks did relatively little damage, they sent ominous signals.

“It’s a new Middle East, it’s a Middle East in which Israel every day must wonder if some action might provoke an Iranian missile attack or drone attack on Israel’s territory directly,” Norman Roule, a former senior US intelligence official, said.

And Bloomberg economist Ziad Daoud wrote in a note: “The risk of a broader war has risen. This could happen by design – through a gradual escalation in the cycle of violence – or as a result of miscalculations. Whatever the cause, the effect on the global economy would be immense.”

If there is a serious escalation … then yes, we could have a severe oil shock GITA GOPINATH, IMF