Israel-Iran Strikes Escalate, Deepening Fears of Wider Conflict
(Bloomberg) -- Israel and Iran bombarded each other for a third day, with international concern growing that the conflict will spread across one of the world’s key oil-producing regions.
On Sunday, Israel struck Tehran, and Iran fired several waves of drones and missiles. Since Friday, 14 people have been killed in Israel by Iranian attacks and almost 400 injured, Israel’s emergency services said. At least 80 people have been killed in Iran, according to the government, though it hasn’t updated that number since Saturday.
“We are in an existential campaign,” Israeli Prime Minister Benjamin Netanyahu said on Sunday, visiting the site of a missile strike on the coastal city of Bat Yam. “Iran will pay a very heavy price for deliberately murdering our citizens, women and children.”
Earlier, Defense Minister Israel Katz said his country’s targets now include the “regime in Tehran.”
Middle Eastern stock markets, including those in Saudi Arabia, Egypt and Qatar, mostly dropped on Sunday, while the Egyptian pound weakened around 1.8% to beyond 50 per dollar in local trades. Israeli equities rose, led by defense company Elbit Systems Ltd.
US President Donald Trump said Iran and Israel “should make a deal, and will make a deal.”
“We will have PEACE, soon, between Israel and Iran!” he said on Truth Social. “Many calls and meetings now taking place.”
There were explosions across Iran on Saturday, including one at a natural gas plant linked to the giant South Pars field. While Iran exports little gas and Israel appears not to have targeted its oil fields or crude-shipment facilities, the move risks pushing up global energy prices — which soared on Friday — even more.
The United Nations’ atomic watchdog, meanwhile, reported that multiple strikes on Iran’s uranium-conversion facility at Isfahan, south of Tehran, resulted in serious damage.
Iran’s deputy foreign minister, Kazem Gharibabadi, told state television that “we will no longer cooperate with the agency as we did before,” referring to the UN body, called the International Atomic Energy Agency.
According to Iran’s Fars news service, a key parliamentary committee said Tehran should no longer adhere to the nuclear Non-Proliferation Treaty, the bedrock arms-control agreement that compels signatories to accept inspections.
For now, it’s unclear if the government will take such steps.
Worst Conflict
Arch enemies Israel and Iran have long fought a shadow war. The Jewish state’s been accused of cyber attacks and assassinating Iranian scientists, while Tehran’s funded anti-Israel militias in the Middle East. Those tensions soared after Hamas, a Palestinian group backed by Iran, attacked Israel on Oct. 7, 2023. That led to Israel and Iran firing missiles and drones on each other twice last year.
Still, this is their most serious conflict yet. It began on Friday morning, when Israel struck Iran’s nuclear and military sites using jets and drones, and killed several top commanders and atomic scientists. Israel said it was aiming to end Iran’s ability to build a nuclear bomb, which it sees as an existential threat.
The attacks on Iran’s defenses seem to have given Israel air superiority over the Islamic Republic, including its capital.
The Israeli military on Sunday urged Iranians to “immediately evacuate” areas near weapons-production facilities and “not return until further notice.”
Iran’s leaders now face a dilemma. They can’t afford to appear weak. But their options are narrowing and the proxy groups they back — such as Hezbollah in Lebanon — have limited ability to support the Islamic Republic, with Israel having severely hit them over the past year.
Netanyahu said his military would “strike at every site and every target of the Ayatollah regime,” while Iran’s Supreme Leader Ayatollah Ali Khamenei has said Israel will “pay a very heavy price.”
The conflict sent shockwaves through global markets on Friday, with oil surging 7% and investors buying haven assets such as gold. The MSCI World Index of developed-country stocks dropped the most since April.
Iran canceled its next round of nuclear talks with the US scheduled for Oman on Sunday. The same day, Trump reiterated that the US wasn’t involved in Israel’s attacks and said he could still get a nuclear deal with Iran.
He’s set to meet other leaders of the Group of Seven major economies in Canada and the conflict will be at the forefront of their talks. Israel is calling on Washington and European nations to help it attack Iran, arguing that is what’s needed to stop Tehran developing a nuclear weapon.
While the US has helped defend Israel by intercepting missiles and drones, Trump has not yet indicated if the US will join in the strikes on Iran.
For all that Israel’s already damaged Iranian atomic sites and says it will continue to strike them, many Western analysts say it needs US help to destroy some key facilities located deep underground.
Middle Eastern leaders and Russian President Vladimir Putin are voicing increasing concern that the conflict could spiral out of control. They have urged both sides to calm the situation quickly.
Germany’s Foreign Minister Johann Wadephul, speaking to local broadcaster ARD, urged regional states to talk with Iran, while Berlin continues engaging with Israel.
Germany, France and the UK are, he said from Qatar, ready to negotiate with Iran over its nuclear program.
Wider fighting — particularly any targeting of American military or diplomatic facilities in the region — may help Iran’s rulers rally political support domestically but would dramatically intensify the dangers they face.
It’s unclear if Tehran is entertaining last-resort options such as attacking tankers in the Strait of Hormuz, through which Middle Eastern states ship about a fifth of the world’s oil.
That type of action may draw the US, the world’s most powerful military, into the conflict, something Tehran has probably calculated it can’t afford, according to Bloomberg Economics analysts. That’s partly because the Iranian economy is already weak, with inflation at almost 40%, and public frustration with the government is high.
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