PODCAST: Does Yahya Sinwar’s killing change Iran-Israel equation?

"The Resistance Front, just as it did not halt its advance with the martyrdom of its prominent leaders in the past, will not experience the slightest pause with the martyrdom of Sinwar either,” Ali Khamenei said in a statement released on Saturday morning.

The term "Resistance Front" was coined by the Islamic Republic of Iran to describe militant groups and organizations across the region that receive financial and military backing from Tehran. This network includes Hezbollah in Lebanon, Hamas in Gaza, the Houthis in Yemen, and Shiite groups in Iraq, forming the core of Iran's proxy forces in the region.

Khamenei described Sinwar's death as "painful" for anti-Israel militant groups but stressed that it will not stop their efforts. “This front did not halt its progress with the martyrdom of prominent figures like Sheikh Ahmed Yassin, Fathi Shaqaqi, Rantisi, and Ismail Haniyeh, and it will not experience the slightest pause with the martyrdom of Sinwar either, by God's will. Hamas is alive and will remain so,” the 85-year-old ruler of Iran said.

However, Iran itself is facing the specter of an Israeli attack since October 1 when it lobbed more than 180 ballistic missiles at Israel, in the second such barrage in six months. Prime Minister Benjamin Netanyahu and other Israeli leaders have vowed to retaliate, but so far it seems Jerusalem is negotiating with Washington about which targets to strike. The White House opposes an attack on Iran’s nuclear centers or its oil industry.

On Friday, the Iranian Foreign Ministry issued its first response to the assassination of Hamas leader Yahya Sinwar, saying that it will not weaken the fight against Israel and that others will rise to take the place of the slain militant leader.

"Undoubtedly, the physical elimination of fighters on the path of dignity and human honor will not undermine the school and path of resistance," the Foreign Ministry's statement read.

However, Khamenei's Islamic establishment has seen both Hamas and Hezbollah significantly weakened since the outbreak of fighting following Hamas’s October 7, 2023 attack on Israel, which killed over a thousand civilians. Israel has focused on eliminating key leaders of Khamenei’s militias. Ismail Haniyeh was killed in Tehran in July, and Hezbollah leader Hassan Nasrallah was taken out in a major Israeli airstrike in Beirut in September. Sinwar’s death could potentially throw Hamas into disarray.

Tehran, finding itself in a weakened position, has recently signaled that if Israel's retaliation remains limited, it will hold back from responding and allow the cycle of tit-for-tat strikes to cease.

Energy minister Eli Cohen, a former foreign minister, said on Friday Israel was "committed to preventing the Iranians from acquiring nuclear weapons, and therefore, all options are on the table, including attacking nuclear facilities".

He made the remarks in an interview with Israeli news website Walla News three days after a CNN report said Israeli officials, including Prime Minister Benjamin Netanyahu, had assured the US that any retaliatory strike on Iran would be confined to military targets.

A Tuesday report by The New York Times citing sources confirmed that nuclear enrichment sites are not among Israel's targets

"Even if Israel avoids Iran’s nuclear enrichment and oil sites, it could still hit a wide array of military targets," the American daily wrote. "They include missile and drone launchers, missile and drone storage sites, missile and drone factories, as well as military bases and major government buildings."

Citing two Israeli officials, the report said: "Israel could also strike nuclear research laboratories, even if it avoids Iran’s subterranean nuclear enrichment sites."

In his Friday interview, Cohen said, "There is no military facility or infrastructure or person in Iran who is immune from an Israeli attack in response to Iranian aggression."

"We proved that we know how to go anywhere, with a large variety of armaments. By the way, we have not yet shown even 10% of our unprecedented armament and intelligence capabilities," he added.

Tensions between Israel and Iran have mounted since October 1, when Iran launched 181 ballistic missiles towards Israel in response to the Jewish state's killing of the leader of Hezbollah Hassan Nasrallah in Beirut and Hamas political leader Ismail Haniyeh in Tehran.

Israel’s air defenses intercepted most of the missiles, but several struck military and civilian targets, causing minor damage. This convinced the Pentagon to deploy a THAAD missile defense battery to Israel this week for protection against Iran's possible retaliatory attack.

'Chance for de-escalation'

While it is not yet clear when the Israeli strike on Iran will take place, US President Joe Biden told reporters on Friday he has an understanding of how and when Israel was going to retaliate. He declined to elaborate, but also said there was a chance for a ceasefire.

"There's an opportunity in my view and my colleagues agree that we can probably deal with Israel and Iran in a way that ends the conflict for a while. That ends the conflict, in other words, that stops the back and forth," Biden said.

Biden added that he believed there was a possibility of achieving calm in Lebanon but that such efforts would be harder in Gaza.

Earlier on Thursday, Biden referred to the Israeli killing of Hamas leader Yahya Sinwar, calling it an opportunity to free hostages held by the militant group and end the year-long Gaza war.

Yahya Sinwar, the mastermind behind the October 7 attack, was believed by US and Israeli officials to be the main obstacle to reaching a hostage deal.

While Biden has long pushed for a ceasefire deal to secure the release of Israeli hostages, an imminent Israeli strike on Iran could further enflame the region, denying Biden the truce he would like to add to his legacy as his presidency draws to a close.

The naming and sovereignty of the body of water and its islands are a deep-felt issue inside Iran and among its diaspora and stands as one of the few political themes uniting the Iranian people.

The EU-GCC joint statement on Wednesday described three Iranian-controlled Persian Gulf islands disputed between the Islamic Republic and the United Arab Emirates as "occupied" and urged Iran to relinquish control.

Greater Tunb, Lesser Tunb, and Abu Musa islands have been held by Tehran since 1971 after the withdrawal of British forces from the Persian Gulf.

"Iran's territorial integrity is not a subject for foreigners to dare discuss," government spokesperson Fatemeh Mohajerani said in a post on X.

"(The islands) are inseparable parts of Great Iran. The European Union and the Persian Gulf Cooperation Council are in no position to comment on the great land of Iran," she added.

Iran’s foreign minister Abbas Araghchi, who just completed a diplomatic tour of the Arab world to shore up support ahead of a likely Israeli attack, condemned the move as a colonial practice but spared Arab states.

"The three islands have always belonged to Iran and will forever remain as such. The era of European malign 'divide & rule' interference in our region is long over," he wrote on X.

The spokesperson for Iran’s Ministry of Foreign Affairs went further, characterizing the statement as a violation of the international system's core principles.

"This is a clear indication of the member states' lack of commitment to the principles and objectives of the United Nations Charter, especially the principle of respect for national sovereignty and the territorial integrity of states,” Esmail Baghaei said.

Iran maintains that the islands have been an intrinsic part of its sovereign territory, asserting that it has never ceded ownership. The UAE counters that throughout the 19th century, the islands were under the jurisdiction of the Qasimi sheikhs and that their claim was transferred to the UAE upon its establishment in 1971.

The islands came under British administration in 1921, but on November 30, 1971—one day after British forces withdrew and just two days before the UAE's official formation—Iran's then-monarch, Mohammad Reza Shah, ordered the Iranian navy to take control of all three islands.

Iranian military forces have remained on the islands ever since, with Abu Musa being the only one inhabited by a civilian population which numbers fewer than two thousand.

The Prince's speech

The Shah's son, exiled Prince Reza Pahlavi - one of the most prominent Iranian opposition figure - also weighed in harshly.

"If the European Council were serious about addressing the threat of the Islamic Republic, it would designate the IRGC a terrorist organization and back UN sanctions on the regime," he said, referring to the Islamic Revolutionary Guard Corps.

"Instead, it insults the Iranian people by supporting perversions of history and colonialist violations of Iranian territorial integrity. Iran's sovereignty over the islands of Greater Tunb, Lesser Tunb, and Abu Musa is not up for debate."

Iranian social media accounts too were ablaze with anger, with many users ranging from government supporters to dissidents arguing for Iran's sovereignty over the islands.

Political activist Fariborz Karami Zand, who has over half a million followers on X, directed his ire at Josep Borrell, the EU’s High Representative for Foreign Affairs.

"The UAE’s claims over these islands have no historical or legal foundation. Any discussions about Iran’s territorial integrity must be based on historical facts, not on groundless fantasies."

The EU-GCC joint statement represents a growing international trend of supporting the UAE's claims to the islands. In recent years, key international players, including the United States, Russia, and China, have leaned towards supporting the UAE in this dispute.

China expressed its support for the UAE's claims during a meeting in June, while Russia backed the UAE's position during a summit with GCC ministers in December last year. The moves have left Iran feeling increasingly isolated on the international stage regarding the issue.

Iran's standing in the West has been increasingly marred by its alignment with groups such as Hezbollah and Hamas, as well as its deepening military cooperation with Russia since its full-scale Ukraine invasion.

Sinwar, the de facto chief of Hamas and the mastermind of the October 7, 2023 attack which rocked Israel, was killed by Israeli forces in Gaza this week.

Ismail Haniyeh was his predecessor as the Iran-backed group's political chief and was killed in an explosion targeting his guesthouse in Tehran in July in a likely Israeli attack.

The two men traveled to Tehran in 2012 as part of Hamas delegation to meet Supreme Leader Ali Khamenei in which their party was seen striding through an official compound alongside late senior Iranian general Qassem Soleimani.

Soleimani headed the Islamic Revolutionary Guard Corp's elite Quds Force until he was killed in an American drone strike in Baghdad in 2020.

Following Haniyeh's assassination, Khamenei's office released footage of the 2012 audience in which Haniyeh singles out Sinwar for an introduction to the Supreme Leader, citing his two and half decades behind bars in Israel.

In a 2017 speech broadcast by Lebanese pro-Iranian TV channel Al Mayadeen, Sinwar confirmed that Soleimani had offered Hamas all means at Iran's disposal to aid their cause while offering no conditions on the group's methods.

Soleimani, Sinwar said, told him during his 2012 visit to Tehran that all capabilities would be deployed to advance the Palestinian struggle to win Jerusalem as their capital.

On Thursday, October 17, the rial briefly traded at 640,000 per US dollar, down from 590,000 in August, before Israel began its punishing attacks on Iran’s proxy, the Lebanese Hezbollah, and eventually killing its leader, Hassan Nasrallah. This led to an Iranian retaliation with ballistic missiles on October 1. Since then, Iran has been expecting a retaliatory strike by Israel.

With inflation hovering around 40% over the past five years, the government has little room to maneuver on economic issues, compounded by a massive budget deficit. US sanctions imposed in 2018 have significantly cut Iran's oil export revenues, which typically account for about half of the government’s budget.

This year, the government faces a budget deficit exceeding $14 billion according to the minister of economy, out of a total budget of roughly $40 billion. One way to deal with the deficit is to raise income, however, despite maximizing oil exports to its sole buyer, China, revenues are falling 26% short of estimates. Another source of income would be taxes, but the government has already increased taxes last year and it cannot raise more revenue in this way while the economy remains stagnant.

Another likely solution is to borrow more funds from the central bank, but that would mean printing more money, which will fuel higher inflation. The extensive borrowing in recent years has resulted in a staggering liquidity level of 83,540 trillion rials (approximately $139 billion), which has doubled since 2021. This surge in liquidity has contributed to an annual inflation rate exceeding 40% in recent years.

Reducing expenditures could help lower the budget deficit, but it's a difficult task in a state-controlled economy where the private sector has largely vanished from major industries. Loss-making government factories and companies rely heavily on state financing and subsidies to stay afloat. Without this support, they would be forced to close, further exacerbating unemployment in an already high-inflation environment.

Corruption among government insiders is also a heavy burden, woven into the fabric of the political and economic system. Former officials and pundits who are allowed to speak raise the alarm, but the ruling system is unable to make fundamental changes without democratic accountability.

The government's biggest financial burden comes from direct and indirect subsidies, which are politically risky to eliminate. Gasoline is sold for under 10 US cents per gallon, with similarly low rates for electricity and natural gas. These subsidies cost the state about $60 billion annually. However, when the government last raised gasoline prices in 2019, it triggered widespread unrest and protests. The authorities responded with military-level force, resulting in the deaths of around 1,500 protesters.

Experts have proposed more rationality in budget planning and the gradual elimination of subsidies, but the system is running on its own inertia, unable to make the necessary reforms.

Ultimately, Iran’s foreign policy and its controversial nuclear program, which have triggered crippling international sanctions, have further destabilized the already struggling state-controlled economy. The most immediate threat is the rapidly falling currency, leading to swift inflationary pressures and potential political instability.