Beyond the Brink: Iran’s Evolving Crisis and Regional Implications

By: Mukhlis Mukhlis

As we near the end of 2025, Iran is deeply entrenched in a complex crisis marked by serious economic and social upheaval. Much of this turmoil stems from the cumulative effects of international sanctions and a steep decline in oil revenues, which have long been the cornerstone of the Iranian economy. The value of the Iranian rial has plummeted to alarming lows against the U.S. dollar, sparking widespread protests in urban areas and increasing pressure on the ruling regime and its financial institutions.

This crisis is characterized by economic stagnation, soaring inflation, and rising unemployment rates, which have weakened the regime's social base and limited the decision-making power of Tehran's leaders. Compounding this situation are the repercussions of the "Twelve-Day War," during which Iran faced considerable military, security, and economic losses. Key infrastructure, including air defense and missile systems, suffered severe damage, and critical elements of its nuclear program were disrupted. The assassination of influential military leaders and scientists dealt a significant blow to Iran's technical capabilities and command structure.

In the face of this multifaceted crisis, Iran has had to respond decisively to restore deterrence and maintain its standing in the region. Despite the high costs, its military actions have disrupted Israeli strategic plans, ultimately compelling Tel Aviv to accept a phased ceasefire amid mutual attrition and growing domestic concerns.

The American Green Light

A pivotal moment occurred during Israeli Prime Minister Benjamin Netanyahu's recent visit to the United States, where a notable shift in the American stance was observed. Reports suggest that President Donald Trump’s administration concurred with Israel on carrying out targeted strikes aimed directly at Iran's missile program. This development implies that any confirmation of Iran resuming its nuclear program could trigger a more extensive and impactful joint U.S.-Israeli military operation, far surpassing previous confrontations.

Interlocking Collapse Inside Iran

The fallout from the war has placed immense strain on Iran's domestic front. The regime's urgent need to rebuild war-damaged infrastructure and boost missile production capabilities in order to ensure effective deterrence has pushed the Iranian economy into a precarious state. This situation can be described as an "interlocking collapse," consisting of several critical elements:

• Currency Collapse: Financial depletion and relentless sanctions have led to a steep devaluation of the rial.

• Economic Collapse: A stagnation in investment and trade, along with a drastic decline in purchasing power, has rendered the economy nearly inert.

• Internal Security Collapse: Rising public discontent and a widening gap between the state and society have created conditions ripe for instability.

These interconnected crises lead to a volatile environment where any new military engagement risks spiraling into a disaster with far-reaching consequences across the region.

Disintegration of Iran's Regional Depth

The effects of the war and international pressures have not only destabilized Iran internally but also weakened the network of regional proxies that have represented Tehran's strategic depth for decades:

Syria: Iranian influence has significantly diminished, especially following the collapse of the Assad regime, which has disrupted crucial supply lines to Hezbollah in Lebanon. However, some factions within active groups in Syria continue to engage in smuggling and arms trafficking to Hezbollah, utilizing military equipment left behind by the Assad regime during its rapid collapse.

Iraq: Iranian-backed factions still pose a threat to domestic democracy and national sovereignty. Yet, their tactical influence has waned under pressure from the Iraqi populace and significant pressure from the United States, especially under President Trump’s maximum pressure policy. Despite this, these armed factions and their affiliated political and economic fronts have recently gained a foothold in Iraq’s parliament, securing approximately 119 seats in the November 2025 elections.

The preliminary results of the elections indicate that armed militias and their allied political groups have solidified their power, effectively turning their military successes into significant parliamentary influence. This shift fosters an environment for what some might call “legitimacy laundering.” Operating within the existing political framework, these militias can now shape government formation and policy decisions, ensuring their interests are prioritized while tightening their grip on Iraq's political and security landscape.

Lebanon: Hezbollah faces unprecedented challenges, with mounting pressure to disarm and a decline in its operational effectiveness due to economic strain and diminishing public support. However, Hezbollah’s strategic and operational pillars remain active and in the process of restructuring their internal operational body. Muhammad Kawtharani, a Lebanese national, who also possesses Iraqi and Syrian citizenships, as well as Iranian passport, and a key figure within Hezbollah, wields considerable influence over the Hezbollah-Iraq-Iran axis, largely due to his close ties with the Iranian Revolutionary Guard Corps (IRGC). He serves as the primary coordinator and person-in-charge of guiding the Shiite armed factions in Iraq, maintaining tight control over the logistical networks that connect these entities. The axis is anchored in the principle of the Guardianship of the Islamic Jurist (Wilayat al-Faqih), fostering a sectarian dimension that unites Shiite groups aligned with the "resistance axis." Kawtharani also plays a crucial role in Iraq's political landscape, strategically recruiting Sunni leaders for high-ranking positions to manipulate both sides of the political spectrum. This dual approach not only consolidates his influence but also facilitates vital logistical support, enhancing security and intelligence coordination for the Hezbollah-Iraq-Iran nexus, and creates an additional layer of operational security to the organization’s activities. 

Yemen: The Houthis, also known as Ansar Allah, are currently experiencing a phase of attrition and diminished operational capabilities. However, they continue to pose a significant threat to regional stability and Israel’s national security due to several key factors:

1. Military Capabilities:

• Ballistic Missiles: The Houthis have developed and deployed various ballistic missiles, many of which are capable of reaching targets in the Arab gulf area, specifically Saudi Arabia, and potentially Israel. Their increasing missile technology poses a direct threat to highly sensitive regional facilities, major petroleum infrastructure, power grid, and Israeli airspace.

  
  

• Drones: Armed drones have been utilized for attacks on regional targets, demonstrating their capacity to conduct long-range strikes, which could also target major regional infrastructure as well as American and Israeli interests.

2. Regional Alliances:

• Iranian Support: The Houthis receive substantial military and logistical support from Iran, which enhances their capabilities and aligns them with Iran’s broader strategy of regional influence. This alliance contributes to the destabilization of the Gulf and amplifies threats to U.S interests in the region, as well as the Israeli national security.

• Proxy Warfare: As a proxy of Iran, the Houthis can operate within a larger network of groups hostile to Israel, including Hezbollah and other Iranian-backed factions, creating a multifaceted threat environment.

  
  

Iraq Outside the Iranian Orbit

Iraq has emerged as a critical pivot point in the regional landscape. The trend toward an Iraqi government independent of Iranian influence, supported by domestic will and international backing, significantly weakens Tehran's ability to leverage Baghdad as a political or economic asset. The Iraqi treasury is practically bankrupt, exacerbated by financial mismanagement and inflated expenditures, rendering any logistical or financial support to Iran and its proxies unfeasible. Iraq is now focused on securing its own economic stability and internal cohesion, effectively closing one of Tehran's crucial routes for evading sanctions and maintaining regional influence.

Return of Deterrence: Iran's Unbeatable Long Arm

Despite the extensive losses suffered during the conflict, Iran has chosen not to withdraw but instead to immediately embark on a program of military reconstruction and the repair of its damaged defense infrastructure. This effort includes resuming production of drones, munitions, ballistic missiles, and hypersonic weapons, alongside accelerated military compensation initiatives aimed at addressing the gaps left by the war's devastation.

Tehran is actively pursuing the development of advanced missile capabilities, aiming to establish a deterrent posture that, while not reaching conventional nuclear levels, possesses significant coercive power. This includes high-impact munitions, some classified as chemical or radiological, designed to maximize operational effectiveness without initiating direct nuclear confrontation.

Iran's strategy focuses on offsetting adversarial air and technological superiority through sheer quantity, dispersion, and diversity of delivery systems, thereby raising the costs of any preemptive strikes and making the risks of a first strike increasingly daunting both militarily and regionally.

The most significant threat to the Middle East, particularly to Israel, stems from the expanding capabilities of Iran's ballistic missile arsenal. This arsenal compensates for Iran's declining air power against the technological superiority of Israel, the United States, and their allies. The looming threat posed by this arsenal could exhaust and disrupt regional air defense systems, especially those deployed by Israel. Through the Islamic Revolutionary Guard Corps (IRGC) and covert collaboration with capable regional and international partners, Iran has gained advanced technological expertise that undermines the efficacy of U.S. and Israeli air defense systems through intensive missile salvos. Since the Twelve-Day War, Iran's engineering and military efforts have intensified, albeit at the cost of further eroding its societal structure and risking economic collapse.

Potential Israeli Scenarios

Given these dynamics, Israel is likely to adopt an escalatory approach that raises operational thresholds while engaging the United States and international partners. This strategy rests on the belief that allowing Iran to initiate a first strike or respond broadly could lead to disastrous consequences for regional deterrence. As a result, Tel Aviv prefers a proactive, internationally supported military campaign to limit Tehran's control over the pace of any confrontation.

With negotiations over nuclear and missile programs seemingly stalled, three primary Israeli scenarios are anticipated:

1. Strategic Economic-Military Targeting: Conducting extensive, precise strikes intended to incapacitate Iran's missile and drone capabilities while also targeting vital economic infrastructures such as ports, oil export facilities, and refineries. This approach aims to link military degradation with long-term economic strangulation, thereby hindering any potential recovery efforts.

2. Weakening the Command and Control Structure: Executing targeted operations against high-ranking leaders and key facilities of the IRGC to disrupt command and diminish the security apparatus's ability to manage internal crises. This strategy seeks to amplify public pressure and weaken regime cohesion without necessitating a full-scale military conflict.

3. Conditional Exceptional Escalation: Initiating a high-intensity, limited-scope joint U.S.-Israeli strike contingent upon Iran's use of internationally prohibited missiles equipped with chemical agents or high-radiation munitions, which could inflict catastrophic losses on Israel.

Conclusion

Iran now stands at a crossroads, facing an existential dilemma: it must decide whether to continue its relentless pursuit of nuclear and missile deterrence at any cost, which risks hastening the collapse of the Islamic Revolutionary regime, or to accept a redefined regional role that aligns with its constrained economic and political realities. The precarious balance between these two options leaves the Middle East on a razor's edge, where a single misstep could ignite a conflict more violent and complex than any that has come before.

To safeguard both national security and regional stability, it is crucial to neutralize Iran's ballistic capabilities and limit the external economic resources upon which Tehran relies—particularly those facilitated by successive Iraqi governments after the collapse of Saddam Husain's regime in 2003, alongside the armed militias and their commercial fronts linked ideologically and logistically to the Wilayat al-Faqih system. Additionally, intensifying international pressure on Iran's oil and natural resource sectors, which underpin its nuclear and ballistic programs, is vital. The Iranian populace is already struggling with severe economic hardships that could lead to political and security disintegration, posing a substantial threat to regional stability, especially considering the stockpile of prohibited weapons and materials maintained by the Islamic Revolutionary regime.

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Mukhlis Mukhlis is a seasoned expert in foreign affairs and strategic relations, with over two decades of experience in U.S. foreign policy, counterterrorism, national security, and Middle Eastern Affairs with an in-depth focus on Iraq and the Levant.