West Asia War Escalates – Potential Oil Inflation Still at Play

After Israel’s October 26 attack on Iranian missile production facilities and air defense systems, Iran’s Supreme Leader stated the damage was too significant to ignore and that not responding would be akin to admitting defeat. Iran is reportedly gearing up for another attack on Israel, with its Supreme Leader warning the U.S. and Israel of a “crushing response.”

According to Israeli intelligence, Iran’s attack may occur within the next few days, likely before the elections on November 5. The rationale behind these attacks is largely symbolic, aimed at reinforcing the regime’s strength and image among its proxies and allies. In other words, Iran cannot simply brush off the attack without appearing weak in the eyes of its supporters. However, the manner of retaliation remains uncertain, as another direct attack could provoke a counterstrike from Israel against Iran. There are also discussions of an attack via Iranian proxies in Iraq.

A crucial question remains: is Iran still economically equipped to risk another strike against Israel? Economically, both sides are taking hits; however, Iran faces a disadvantage due to years of international trade sanctions. Its economy relies heavily on allies like Russia and China, but further economic strain, especially if Israel targets its oil infrastructure, could prove costly for Iran’s regime, potentially undermining public trust.

Sources indicate that Iran plans to triple its military budget by March 2025. Similarly, Israel intends to cut funding for healthcare, education, and social services to boost defense spending, alongside increased taxes to support war efforts.

What about the U.S. efforts for a ceasefire?
Prime Minister Netanyahu appears uninterested in this initiative, having intensified attacks on Lebanon despite U.S. advocacy for a ceasefire. Recent strikes on the Baalbek-Hermel region reportedly killed 52 and wounded 72, with Lebanon claiming that Israel did not issue an evacuation warning. In response, Hezbollah launched rockets into central Israel, wounding 19 in the Sharon area, and targeted the Glilot military base near Tel Aviv. Following these events, Lebanon’s Prime Minister accused Israel of rejecting the ceasefire deal, resulting in the recent escalation of the conflict.