A general view of Tehran after several explosions were heard, in Tehran, Iran, October 26, 2024.
| Photo Credit: Reuters

“Iran made a big mistake tonight and will pay for it,” Israeli Prime Minister Benjamin Netanyahu said on October 1, hours after Iran launched a massive missile attack on Israel, which hit at least two military bases. The strike, the second direct Iranian attack on Israel this year, had triggered strong responses from Israel’s political leadership. Former Prime Minister Naftali Bennett said the Iranian attack was an opportunity for Israel to “destroy” the Iranian nuclear programme. Others speculated that Israel could target Iran’s critical energy infrastructure or ports to exact a heavy price from the Islamic Republic.

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But Prime Minister Netanyahu seemed to have ignored the calls for a massive retaliatory strike on Iran’s critical infrastructure and instead chose to carry out pointed strikes, targeting Iranian military facilities on Saturday. According to Israeli media, the Israeli Defence Forces (IDF) carried out three waves of attack inside Iran, hitting at least 20 targets across Tehran, Karaj, Isfahan and Shiraz.

In the first wave, Israeli warplanes targeted Iranian air defence, and in the second and third waves, Iran’s ballistic missile and drone manufacturing and storage centres were targeted, according to IDF officials. The first of explosions were heard at 2: 15 a.m. local time in Tehran, and by 6 a.m., the IDF announced that the attack had been completed and all the aircraft were returning home. Iran acknowledged the “Israeli aggression”, but but played down the impact of the attacks. State media reported that ‘Iran’s air defence ‘successfully intercepted and countered Israeli aggression’.

In carrying out a coordinated attack across military facilities in Iran, some 1,600 km away from Israel, the IDF has demonstrated its long-range operational capabilities. This was also the first time Israel owned up to an attack inside Iran. When Israel retaliated against Iran’s first direct attack, it targeted a radar system in Isfahan and did not even claim that. This time, Israel’s public statement that it was carrying out an hours-long operation inside Iran suggests that the Iran-Israel conflict is entering a new phase. But at the same time, by limiting its attack to military facilities, Israel allowed Iran to claim that the attack was thwarted and that normal life was not affected.

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It is now evident that the U.S. had put pressure on Israel against targeting Iran’s critical infrastructure. Any attack on Iran’s nuclear facilities or energy infrastructure would have prompted a strong response from Iran (IRGC-linked Telegram channels had claimed that the Iranians had warned the Americans that they would target oil facilities across the gulf if their oil sites came under attack).

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U.S. President Joe Biden had publicly expressed his opposition towards Israel hitting Iran’s nuclear sites and raised doubts about the effectiveness of an attack on the oil facilities. American media reported earlier this month that Mr. Netanyahu told Mr. Biden in a conversation that he would target Iran’s military sites. The U.S. agreed to send the THAAD anti-missile system along with 100 soldiers to operate it in a bid to bolster Israel’s defence. When the U.S. confirmed the deployment of THAAD last week, it was evident that an Israeli attack was in the offing.

The ball is now in Iran’s court. Iran had earlier warned that it would retaliate against any Israeli attack on its soil. But the initial response from Iran’s military and state media was aimed at playing down the attack. For Mr. Netanyahu, the main purpose of the attack appeared to be sending a clear message to the rulers in Tehran that the state of Israel can reach anywhere in Iran. But at the same time, his decision to go for a limited attack, even after Iran launched some 180 ballistic missiles at Israel, shows signs of caution.

The absence of any major Israeli attack on its critical infrastructure allows Iran to claim that it successfully thwarted the Israeli attack and back off from a regional war. But if it decides to retaliate, it could trigger a counter-retaliation from Israel, and West Asia will see a shooting match between two of its key players.

A wave of risk aversion swept over markets on Friday and sent investors chasing after traditional safety assets such as the Swiss franc and the yen following reports that Israel attacked Iran in an escalation of conflict in the Middle East. 

Markets initially reacted sharply to the news, which sparked a huge selloff in risk assets, caused oil and gold prices to surge, and ignited a rally in U.S. Treasuries and safe-haven currencies.Some of those moves were later retraced as few details emerged about the attack and an Iranian official told Reuters no missile attack took place. 

Still, the Swiss franc, a traditional safe-haven currency, remained 0.35% higher on the day at 0.9089 per dollar, having rallied 1% earlier in the session. Moves in the Swissie were more pronounced against the euro, with the common currency last 0.4% lower at 0.96685 francs, after sliding as much as 1.5% earlier. 

The yen rose roughly 0.2% to 154.38 per dollar, after having rallied more than 0.6% in a knee-jerk reaction to reports of the attack.”It’s pretty obvious the market is nervous,” said Moh Siong Sim, a currency strategist at Bank of Singapore.”I think markets are at this stage in a flight-to-safety mode … Right now, we’re still in a situation where we know something has happened. But we need to understand the degree of retaliation,” Sim said.- Reuters