Dr. Doron Itzchakov

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ACIS Iran Pulse No. 116 | August 17, 2026

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Abstract: Iran has turned military setbacks into strategic and diplomatic leverage, reshaping Middle Eastern power dynamics and gaining more influence than many anticipated. By combining asymmetric capabilities, economic coercion, and institutional adaptation, Tehran has reshaped the regional balance of power despite setbacks. This article examines the implications for Israel's security, U.S. regional strategy, and Lebanon's future, arguing that the Middle East is entering a more fragmented and competitive geopolitical order.

 

History suggests that military campaigns produce both immediate and long-term effects, often unfolding across different domains and on different timelines. The same logic applies to the current conflict with Iran, even if it remains too early to draw definitive conclusions amid the Middle East's volatile strategic landscape. In a similar vein,  in the context of twenty-first-century warfare, the tendency to dichotomize military campaigns as unequivocal “victories” or “defeats” may be analytically misleading. Rather, greater emphasis should be placed on assessing shifts in regional dynamics and the systemic balance of power caused by the conflict.

Military outcomes often produce uneven and at times nonlinear effects across the broader geopolitical landscape. Any serious assessment must therefore look beyond the battlefield and consider the war’s impact on regional power balances, economic structures, deterrence dynamics, and diplomatic alignments.

The Bürgenstock (Switzerland) negotiations have shown that Iran has turned military setbacks into strategic and diplomatic leverage, thereby strengthening its influence through asymmetric capabilities, maritime coercion, and institutional adaptation. At the same time, U.S. efforts to prioritize de-escalation and economic sustainability have increasingly accommodated Iranian interests, but not Israel's.

The unexpected announcement of the Lucerne talks established a multilateral de-confliction mechanism for Lebanon, involving the United States, Iran, Pakistan, Qatar, and the Lebanese government, to oversee the implementation of a ceasefire. It caught Israel by surprise and sparked considerable unease in Jerusalem. Particularly striking was the exclusion of Israel from any decision-making, which underscored Iran's leverage over the evolving Middle Eastern reality.

From Israel's perspective, the negotiations in the pastoral setting near Lake Lucerne shed light on a new, dangerous reality that raises questions about conflict resolution and the emerging geopolitical order. The development underscores a troubling perception: Iran appears increasingly capable of shaping the regional diplomatic agenda, while Israel is not only absent from key deliberations but also effectively sidelined from decisions that directly affect its security interests.

The Lebanon dispute underscores the broader divergence among U.S., Iranian, and Israeli priorities. Tehran has sought to use negotiations to secure an Israeli withdrawal while limiting Israel’s operational freedom in response to Hezbollah’s repeated violations. For Israel, however, such an outcome would mark a fundamental shift in the regional and geopolitical architecture. Jerusalem is unlikely to accept an arrangement that restricts the IDF’s ability to respond to attacks on its civilian population while leaving Hezbollah’s military aggression unaddressed. According to the Israeli strategic worldview, any framework that weakens deterrence without addressing the underlying threat would be viewed not as a stabilizing compromise but as an invitation to future confrontation.

Israel maintains that Lebanon’s future should be determined through direct negotiations between Jerusalem and Beirut, free from external interference. Both governments share an interest in strengthening Lebanese sovereignty, dismantling Hezbollah’s military infrastructure, and restoring the state’s monopoly on the use of force. From Israel’s perspective, any Iranian effort to use broader regional negotiations to shape the terms of a Lebanon settlement—or to influence Washington’s approach—is unacceptable.

At the time of writing, the United States, Israel, and Lebanon had concluded a trilateral framework agreement to curb the influence of Hezbollah, the Iranian-backed militia that has long challenged Lebanese state authority and threatened Israel's resilience. The agreement establishes a phased mechanism for the group's disarmament and the dismantlement of its military infrastructure.

The agreement stipulates the restoration of the Lebanese government's sovereignty and its monopoly on the use of force. In return, Israel would complete its military withdrawal from Lebanese territory only after Hezbollah's operational capabilities and cross-border threat have been effectively neutralized.

The agreement also established a U.S.-facilitated trilateral Military Coordination Group for Lebanon to oversee the framework’s implementation. According to the statement, Washington will also work to strengthen the Lebanese Armed Forces’ capabilities and support Lebanese military efforts to constrain Hezbollah’s operational freedom.

The agreement will ultimately be judged by its implementation—above all, by whether the Lebanese Government can disarm Hezbollah and restore the Lebanese state's sovereignty nationwide. From Tehran's perspective, the agreement is a significant setback to its efforts to reshape the regional agenda and exposes the understandings it reached with the United States during the talks in Switzerland. Hezbollah's statements, including its threats to reopen the conflict, are consistent with Iran's broader agenda to fuel a renewed civil war in Lebanon.

 

 

Epic Fury and the Strait of Hormuz as an Instrument of Economic Coercion

The fragile cease-fire announced by the Trump administration and the reopening of the Strait of Hormuz advance longstanding U.S. priorities: preserving regional stability, safeguarding global energy flows, and avoiding a broader Middle Eastern war. Yet the contours of the emerging diplomatic arrangement are likely to fall well short of Israel’s expectations. From Jerusalem’s perspective, the agreement risks translating substantial military gains into only limited strategic returns.

Despite months of confrontation, the core pillars of Iranian power—its nuclear infrastructure, ballistic missile capabilities, and network of regional proxies—remain largely intact. As a result, the emerging settlement appears more likely to freeze the conflict than to resolve it, managing the symptoms of regional instability while leaving its underlying drivers largely untouched.

In the case of Iran, U.S. officials have long argued that economic sanctions imposed high costs on the regime and altered its strategic calculus, thereby contributing to Tehran’s decision to re-engage in negotiations. In practice, however, Iran has developed a sophisticated network of sanctions-evasion mechanisms, relying on front companies, intermediary firms, and a fleet of ghost oil ships to sustain trade and preserve critical revenue streams. According to U.S. Treasury officials, these networks have enabled Tehran to mitigate the impact of economic pressure and maintain access to global markets despite extensive financial restrictions.

Notably, the Islamic Republic has succeeded in reshaping the strategic landscape to its advantage. Rather than emerging weakened, Tehran appears to have gained a new source of deterrent power by elevating the Strait of Hormuz into a central pillar of its coercive strategy. In doing so, it has strengthened its capacity to deter adversaries, influence regional dynamics, and raise the economic and geopolitical costs of future confrontation.

A growing number of observers have questioned why the risks associated with the Strait of Hormuz were insufficiently incorporated into campaign planning. For decades, Iranian military strategists have portrayed maritime warfare as a cornerstone of the country’s deterrence doctrine, frequently citing the lessons of the Iran-Iraq War and emphasizing their ability to disrupt traffic through the Strait of Hormuz in times of crisis. Yet Western policymakers appear to have largely discounted these warnings, treating them more as rhetorical signaling than as a credible component of Iran’s coercive strategy.

The possibility of an Iranian effort to disrupt shipping through the Strait of Hormuz has long been a fixture of Tehran’s strategic calculus. Since the 1980s, Iran has built its defense doctrine around asymmetric capabilities designed to exploit the vulnerabilities of conventionally superior adversaries. Rather than competing symmetrically at sea, Tehran has invested in a portfolio of coercive tools—including drones, fast-attack craft, anti-ship systems, and the threat of naval mines—that could jeopardize maritime traffic through the strait. In doing so, Iran has acquired the ability to impose high economic and geopolitical costs without crossing the threshold into full-scale conventional warfare.

The Revolutionary Negotiations Mechanism

            Iran has once again demonstrated its ability to convert military setbacks into diplomatic leverage. This approach reflects the Islamic Republic’s distinctive conception of statecraft, rooted in its revolutionary Shiite ideology. For Tehran’s leadership, negotiations are not a departure from conflict but its continuation by other means. Diplomacy is viewed as a continuation of war, a strategic competition in which political, economic, and psychological instruments can be employed to shape outcomes and preserve the balance of deterrence.

Unlike many Western policymakers, who often regard negotiations as a mechanism for conflict resolution, Iran’s revolutionary elite tends to see them as a war toolkit. This worldview enables the advancement of strategic objectives, the exploitation of an adversary’s perceived vulnerabilities, and the securing of gains that may prove difficult to achieve through military means alone.

Tehran identified several strategic vulnerabilities in Washington’s approach, including the administration’s sensitivity to the global economic consequences of prolonged conflict and its limited backing from key European allies. It therefore elevated the Strait of Hormuz into its principal source of strategic leverage, using the threat of economic disruption to strengthen its negotiating position. At the same time, Iranian leaders concluded that the administration was determined to end the conflict quickly and recognized a widening gap between its confrontational rhetoric and its willingness to pursue a negotiated settlement.

At the same time, sustained pressure on the Gulf Arab states through calibrated military actions underscored the region’s vulnerability to disruption and fueled growing anxiety among U.S. partners. These signals resonated in Washington, where domestic political considerations and concerns about the costs of a wider regional confrontation initially made some policymakers reluctant to deepen U.S. involvement.     

In May 2026, Iran established the Persian Gulf Strait Authority (PGSA), an institutional mechanism designed to formalize its role in regulating transit through the Strait of Hormuz. In parallel, Tehran unilaterally expanded its claimed maritime jurisdiction into waters traditionally regarded as belonging to Oman and the United Arab Emirates. Together, these steps reflect a broader strategy of creating "fait accompli" at sea to strengthen Iran's bargaining position and reshape the legal and strategic order governing one of the world's most consequential maritime chokepoints.

Iran has proposed that the Persian Gulf Strait Authority (PGSA) be administered jointly with Oman, the other littoral state bordering the Strait of Hormuz. Although Washington recently sanctioned the PGSA for its ties to the Islamic Revolutionary Guard Corps (IRGC), the longer-term implications of any future memorandum of understanding remain uncertain. If the authority is allowed to persist as the principal mechanism governing transit through the strait, the result could be the gradual institutionalization of an arrangement in which an IRGC-linked body exercises significant influence over one of the world's most strategically important maritime corridors.

Furthermore, even if Oman were to participate in the arrangement and the United States were to acquiesce to a fee-based framework, the practical effect could be the fragmentation of maritime traffic through one of the world's most critical chokepoints. Access would likely become concentrated among vessels already operating outside the Western financial system, including Iran's so-called “ghost fleet” and other sanction-resistant shipping networks. Rather than enhancing Tehran's leverage, such an arrangement could further isolate legitimate commercial traffic and deepen the bifurcation of global trade routes.

Another consequence of the postwar negotiations is the accelerating consolidation of the Middle East into two competing geopolitical blocs. On one side is an emerging Abraham Accords coalition, anchored by Israel, the United Arab Emirates, Bahrain, and Morocco. For Abu Dhabi, Israel has evolved from a diplomatic partner into a credible provider of security and intelligence cooperation, particularly after Iranian missiles and drones struck Emirati territory.

The partnership between Israel and the UAE rests primarily on a shared perception of Iran as the region’s principal adversary, but it is also reinforced by converging interests in balancing Turkey’s and Qatar's growing regional influence and, at times, in managing differences with Saudi Arabia. Furthermore, the growing influence of Turkey and Qatar in the Syrian domain and their ability to shape the agenda are increasingly evident and have significant implications for Israel's national security calculus.

Ian Bremmer and Firas Maksad note that Egypt—despite years of substantial Emirati financial backing—was slow to respond, dispatching fighter aircraft only after weeks of criticism from Emirati officials. The episode underscored for UAE policymakers the limits of traditional Arab security arrangements and strengthened the case for deeper alignment with Israel and the United States. Since then, Abu Dhabi has expanded defense and intelligence coordination with both partners, broadened the economic integration enabled by the Abraham Accords, and emerged as a pivotal pillar of the region’s increasingly institutionalized pro-Western coalition.

Counterbalancing this coalition is a looser alignment among influential Muslim-majority states, led by regional powers such as Saudi Arabia, Turkey, Pakistan, and Qatar. Although these countries continue to rely on the United States as the ultimate guarantor of regional security, they have drawn closer around a shared commitment to the Palestinian cause and a common interest in shaping the post-Assad order in Syria.

While their priorities do not always fully align, these states increasingly coordinate diplomatic and economic initiatives and seek to expand their influence over the region’s evolving political landscape. Collectively, these states exert considerable diplomatic influence in Washington and over regional actors and have sought to shape the terms of engagement in ways that align with Iranian interests. Their impact on the negotiation process, favoring Iran and the consideration it receives in Washington, is unequivocally negative for the State of Israel.

The Material Costs of Modern Warfare    

The war also revealed the extent to which strategic choices are increasingly constrained by economic realities. Above all, it highlighted the immense material requirements of modern warfare and the United States' limited capacity to sustain a prolonged conflict. Washington was able to bring overwhelming force to bear against Iran during Operation Epic Fury, but only by drawing down inventories and diverting resources from other strategic priorities. The episode served as a reminder that military superiority remains dependent not only on operational effectiveness but also on the industrial and logistical foundations that underpin it.

Dana Stroul argues that Washington consumed an extraordinary volume of munitions during its campaign against targets inside Iran. Citing defense analyst Mackenzie Eaglen, who noted that U.S. forces fired more than 1,000 Tomahawk cruise missiles in just a few weeks, far exceeding the roughly 90 to 100 missiles produced annually, Stroul underscores the demands of missile defense, which were similarly acute. According to the Center for Strategic and International Studies, between February 28 and April 8 alone, the United States expended at least 190 THAAD interceptors and 1,060 Patriot interceptors to blunt Iranian missile attacks.

Those expenditures accounted for approximately 53 percent and 46 percent of U.S. prewar inventories, respectively, underscoring the strain modern conflicts can place on even the world’s most capable military. At current replenishment rates, Washington would face significant challenges sustaining missile defense operations across multiple regions in the event of concurrent crises.

From Washington's perspective, economic considerations appear to have weighed heavily in the administration's strategic calculus. Taken together, concerns about the escalating costs of a prolonged conflict, mounting pressure on U.S. military inventories, and broader economic vulnerabilities strengthened the case for rapid de-escalation. In practice, this approach entailed accommodating a number of Iranian demands, generating concern in Jerusalem that Israel's interests were being subordinated to Washington's desire to contain the conflict and limit its costs.

At the same time, the conflict exposed a deeper structural challenge for the United States. Maintaining military superiority in the twenty-first century will require more than battlefield effectiveness. Stroul argues that it will depend on Washington's ability to modernize acquisition systems, expand defense-industrial production, and deepen technological cooperation with allies and partners. As the war demonstrated, strategic advantage ultimately rests not only on operational prowess but also on the capacity to sustain it over time.

Post-revolutionary Leadership Transition

The war also accelerated an intergenerational transition already underway within the Islamic Republic. Suzanne Maloney has described this evolution as the emergence of a “Third Islamic Republic,” reflecting a profound shift in Iran’s political and ideological trajectory. The conflict has strengthened a rising generation of leaders whose outlook is shaped less by the revolutionary experience of 1979 than by the imperatives of regime survival in an increasingly contested regional order. Their objective is not to replace the Islamic Republic but to ensure its endurance by adapting its institutions and strategic priorities to a changing Middle East.

The first Islamic Republic, under Ayatollah Ruhollah Khomeini, was a revolutionary experiment that sought to institutionalize clerical rule at home while advancing an ambitious ideological agenda abroad. The second republic, forged during Ali Khamenei’s tenure, transformed that revolutionary state into a more durable political order by consolidating authority in the supreme leader’s office and elevating the security apparatus as a pillar of regime stability. The postwar reconstruction period further accelerated the rise of the Islamic Revolutionary Guard Corps, expanding its influence from the military sphere into the state’s political and economic foundations.

By facilitating Mojtaba Khamenei’s ascent, the regime appears to be laying the groundwork for what could be considered a third phase of the Islamic Republic—one in which political authority is increasingly concentrated in the hands of the Islamic Revolutionary Guard Corps and the broader security establishment. Under such a model, the security apparatus would not merely safeguard the regime but would serve as the principal arbiter of decision-making across domestic politics, economic affairs, social governance, and foreign policy, further institutionalizing the militarization of the state.

As Narges Bajoghli and Vali Nasr have observed, expectations that large-scale military strikes and economic devastation would trigger the Islamic Republic’s collapse proved misplaced. Instead, Iran emerged from the conflict with its core military capabilities intact, its industrial base largely functional, and its political order intact. If the war had a transformative effect, it was not regime change but rather regime evolution.

According to their analysis, the conflict accelerated the rise of a new generation of leaders—predominantly from the Islamic Revolutionary Guard Corps—whose technocratic expertise, nationalist worldview, and security orientation increasingly shape the Iranian state's future trajectory. This contrasts with the revolutionary generation that founded the Islamic Republic, whose worldview was shaped by ideological zeal and a persistent sense of external vulnerability. From Israel's perspective, the emerging leadership will place greater emphasis on national resilience, strategic competition, and retaliation for the supreme leader's killing.

The conflict accelerated a series of institutional adjustments that decentralized decision-making and modernized the regime’s propaganda and communications apparatus. On the military front, Iran further refined its asymmetric doctrine by dispersing missile assets, increasing operational flexibility, and employing drone swarms and other low-cost capabilities to complicate U.S. targeting and to impose disproportionate costs on technologically superior adversaries.

Concluding Remarks

The negotiations at Bürgenstock and the subsequent U.S.-brokered agreement among Israel, Lebanon, and the United States appear to have unfolded along parallel—but strategically divergent—tracks. The Lucerne talks, which effectively excluded Israel from the diplomatic process, strengthened Tehran's leverage by enabling it to shape discussions on issues central to Israel's security in the absence of Israeli participation.

By contrast, the Washington framework between Israel and Lebanon represents a diplomatic achievement for Jerusalem, demonstrating that Israeli-Lebanese security arrangements can be negotiated directly under U.S. auspices rather than through broader regional bargaining that amplifies Iranian influence.

As of this writing, the future of the Middle East remains highly fluid, with regional actors seeking to establish new deterrence arrangements and redefine the post-Epic Fury order. The emerging diplomatic architecture reflects Tehran's determination to shape the agenda for a new regional political order. This has raised concerns in Jerusalem that negotiations over the region’s next phase could limit Israel’s freedom of action and erode its core security interests.

Economic warfare became a defining feature of the conflict, transforming it from a primarily military confrontation into a struggle over economic endurance, diplomatic influence, and regional order. As the battlefield increasingly led to the negotiating table, the balance of power shifted toward actors capable of translating military developments into lasting political and strategic gains. In that context, the Strait of Hormuz emerged as the conflict's pivotal strategic asset, providing Tehran with a powerful source of economic and diplomatic leverage over both regional actors and external powers.

The conflict has created an opening for a new generation of Iranian leaders to consolidate power and shape the Islamic Republic's next political order. The outcome may be the emergence of a third generation of the Iranian state—one that is more explicitly nationalist, more firmly dominated by the Islamic Revolutionary Guard Corps, imbued with a desire for revenge, and more confident in asserting its influence across the region. Such a transformation would have consequences extending far beyond Iran's borders, reshaping the Middle East's strategic landscape and the regional balance of power for years, if not decades, to come.

            In this emerging G-Zero environment, Israel should pursue a strategy of alignment with states that share its security interests, threat perceptions, and broader vision for regional order. Building durable coalitions with like-minded partners would help preserve Israel's qualitative military edge, reinforce its regional position, and sustain a favorable balance of power in an increasingly fragmented Middle East. Such partnerships would also strengthen collective deterrence against a new generation of Iranian leaders likely to pursue a more assertive regional strategy.

 

 

Dr. Doron Itzchakov is an expert on Iran, specializing in Iran's foreign policy, Middle East history, Iran-Israel relations, and comparative politics. He is the author of Iran-Israel 1948-1963: Bilateral Relations at a Crossroads in a Changing Geopolitical Environment, published by the Dayan Center at Tel Aviv University.

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ACIS Iran Pulse No. 112 ● November 7, 2022

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