Commercial Summary: Israel and Hezbollah are still deterred from total escalation. Hezbollah has too much to lose and fears US intervention. However, Israel may well view escalation that forces the US into the conflict as its best option. That may put all Israeli shipping, ports and power stations on the Resistance Axis’ target list. The Resistance Axis can pursue these targets effectively, given that Iraqi factions and Hezbollah have the same capabilities as Yemen’s Ansar Allah (Houthi).
Attacks from Hezbollah against Israel have qualitatively evolved, with total daily salvoes in some days involving over 100 rockets. For comparison, total daily salvoes in the 2006 War involved 200 rockets. Furthermore, in response to Israeli escalation targeting Lebanese civilians and its military targets, Hezbollah used heavy rockets to attack Israeli settlements for the first time. The two sides are fighting a battle of managed escalation that risks slipping out of their control.
Hezbollah’s potential surprises
Furthermore, Hezbollah attacks have included all frontline positions along the Israel Lebanon border. These are intended to monitor south Lebanon and to safeguard Israel’s position in the Golan by maintaining Israel’s control over the disputed Sheb’a Farms (which flanks the Golan and forms the approach to the peaks of Mt Hermon. The latter are critical for Israeli defence in general and defence of the Golan in particular).
Hezbollah has also attacked all second line positions that support the front-line positions. It has also struck major in-depth bases and artillery emplacements in the Golan, near the border and near Safed, which are the crucial command, logistics and fire support bases that allow Israel to defend its northern territories. This is militarily expected, but is also consistent with Hezbollah preparations for a ground operation into Northern Israel. Hezbollah is signalling to Israel that it can attack much more effectively.
Furthermore, Hezbollah has repeatedly highlighted that it considers seven villages in northern Israel Lebanese, hinting that it may wish to reclaim them. These are highlighted in green in the map below. Their importance is that, with the Sheb’a Farms, they constitute high ground that would dominate the Galilee (the finger-shaped part of northern Israel that extends into Lebanon), as well as making roads into the Golan militarily vulnerable and overseeing most of the Golan. Hezbollah propaganda has emphasised that they are ready for a ground operation into Israel to recapture occupied territories. Notably, these villages would allow Hezbollah to overlook the 90 Highway into the Galilee, as well as, less effectively, the 91 Highway into the Golan. The other highway going into the Golan is the 87, and would remain secure.
Deterrence
Israel’s ability to deter Hezbollah comes from its proven willingness to impose a blockade on Lebanon and to destroy Lebanon and Syria’s infrastructure and armed forces. The latter, especially, would weaken Syria against Turkish-backed jihadis, though not fatally so. The main deterrent against Hezbollah is the threat of US intervention to save Israel if the war got large enough. And it is certain that Israel would need saving.
We assume that, given Hezbollah’s role as the crown jewel in Iran’s efforts to export the Islamic Revolution, Iraqi factions will back it fully in any war against Israel, including from their positions in Syria and Iraq. We assume that Hezbollah and Iraqi factions in Syria and Iraq have the same capabilities as Yemen’s Ansar Allah (Houthi) Movement. Iraq, Syria and Lebanon are crucial for Iran. Yemen is an added benefit, but is not as crucial to Iranian national security as the first three. Moreover, Iranian supply lines to Lebanon and Syria are more secure than those to Yemen.
Since Ansar Allah can target shipping repeatedly, and have demonstrated sophisticated anti-ship capabilities, we believe that Hezbollah and factions in Syria can similarly target shipping going into Haifa and perhaps Ashkelon and Ashdod. Meaning that Hezbollah can counter any Israeli blockade, and perhaps impose its own blockade on Israeli ports.
Furthermore, as Ansar Allah can strike as far as Eilat, we assume that Iraqi factions can strike Israel in depth, given the much shorter distances. They can likely target critical Israeli infrastructure repeatedly, including ports, energy and aviation. Were that to happen, Israel’s ability to sustain its warfighting capabilities would be severely reduced.
Israel and the US
It is in this context that we understand US pressure on Israel, expressed most recently in the US refusing to veto a UN Security Council Resolution to reach a ceasefire and, separately, to release the hostages. The US sees the ongoing escalation from Lebanon. It does not want this conflict to expand so much that it is forced to step in and save Israel. The consequences of such an intervention would be detrimental to the US’ long term interests globally, given that a Middle Eastern conflict would bankrupt the US and reduce its ability to confront Russia and China. This holds even if the US succeeds in preserving the modern state of Israel on its current territory. As such, in almost every Israeli - US meeting, the US pressures Israel to keep fighting with Hezbollah from escalating.
The Tail Wagging the Dog
If Israel realises the above, and it most likely does, then it actually has every interest in the war escalating up to the point where the US is forced to fight Iran directly, regardless of American interests. Israel would hope that the US destroys enough Iranian energy, military and civilian infrastructure to eliminate the Iranian threat. However, as the US’ inability to force Ansar Allah to stop firing missiles at ships, it is far from certain that the US would succeed in eliminating the threat, even though it can clearly weaken Iran considerably. Unlike Yemen, Iran has an advanced economy that is highly vulnerable to US air power. (On a PPP basis, Iran’s economy is four times Israel’s).
The US is stuck
The US is unable to leave the Middle East, as doing so would guarantee Israel’s eventual defeat. The US is unable to stay in the Middle East without risking a major war. The longer the Israel - Gaza War continues, the greater the risk of such a war. Consider the real possibility that a US naval vessel would be sunk by the Houthi, causing hundreds and perhaps thousands of casualties. Would the US be able to avoid escalating against Iran in this scenario? Or the risk that Hezbollah - Israel escalation would slip out of control. What would the US do, if Israel blockaded Lebanon only for Israeli shipping to be blockaded, as is happening in Yemen?
Commercial Impact:
Deterrence between Israel and Lebanon is holding, due in part to Iran and the US seeking to avoid broader escalation, and to both sides’ awareness of the damage that can be inflicted.
However, the fighting has steadily expanded, with the two sides expanding their targeting. It is unclear if fighting will remain bounded.
There is evidence that Iraqi militias, which are fully supportive of Hezbollah, are expanding their attacks to include strategic targets. These groups have claimed to attack Ben Gurion Airport and Haifa port. We assess their claims as credible, though we note they were likely with smaller ordinance and intended to highlight capabilities and to bring about deterrence and a ceasefire, rather than total war.
As such, it should be assumed that a Lebanon - Israel escalation would cause considerable damage to Israel infrastructure, in part due to Israel’s inability to conduct enough airstrikes to secure itself against attacks from Gaza, Lebanon, Syria and Iraq simultaneously.
Israel’s typical way of fighting war - blockades against civilians, attacks intended to depopulate entire regions of the enemy’s territory, attacks against infrastructure - would be less effective if the conflict escalated, in part due to the high likelihood that Hezbollah would reciprocate.
That would force the US into the conflict to save Israel - the alternative would be an Israeli defeat, considering that Israel has a dozen airbases, four ports, and 9 power stations.