Israel should hit Iran where it hurts Choking its oil revenue could topple the regime

Through its early history — but not for the last four decades and more — the main threats to Israel’s security came from its Arab neighbours. That resulted in several wars against Egypt, Jordan, Syria and Iraq. But except for Jordan, Israel’s Arab enemies were in effect proxies for a far more potent threat: the Soviet Union. To displace American power in the Middle East, Moscow supplied thousands of tanks and hundreds of jets to Cairo, Damascus and Baghdad. Thousands of Soviet technicians and training officers came too, even as Arab officers were trained in Soviet academies.

This was a formidable threat to Israel’s survival in its first decades. But nobody there even considered the possibility of striking directly at the Soviet Union itself. Aside from the certainty of a massive retaliatory response, there were simply no relevant targets that Israel could strike, even if its small airforce managed to penetrate Soviet airspace. These days, however, everything is different. The Shi’a militias that have been targeting Israel for years, which greatly escalated their attacks after October 7, are entirely armed and directed by Iran. That’s true right across the Middle East, from Hezbollah in Lebanon and the Houthis in Yemen to a pair of militias in Iraq. But unlike the Soviet Union, Tehran enjoys no immunity from Israeli action.

The crucial vulnerability is the money from Iran that sustains the militias. Iraq’s Shi’a fighters can extort some cash from the country’s oil revenues. Hezbollah, for its part, receives some funding from Shi’a diamond buyers in Sierra Leone and smugglers in South America. Yet over the years, it and its cousins elsewhere in the region have become increasingly reliant on the funding they receive from their paymasters in Tehran. Cut the cash off, then, and they will quickly wither because even the most committed must receive their pay to feed their families.

That is most obviously the case in Yemen, one of the world’s least productive countries, where the Houthis are funded by monthly payments from Iran. But Hezbollah too has become more reliant on its Iranian ally, not least because its extortion of airport and customs receipts has yielded less and less with Lebanon’s descent into poverty.

This all means that Iran’s export revenues must now pay for a bewildering range of military expenditures abroad, in US dollars rather than home-made rials. Beyond the upkeep of foreign allies starting with Hezbollah, there are the imported components and supplies consumed by the domestic Revolutionary Guards, with its 125,000 troops and a naval force. This includes the imports of Chinese and North Korean missile and rocket components, as well as the foreign-currency costs of the entire nuclear programme which proceeds at a very large scale.

In practice, most of this cash comes from a single source: oil. It’s true that Iranian farmers grow pistachio nuts and other exportable crops, and that there are some manufacturing exports, even if Tabriz’s famous carpets are out of fashion. Yet at the last count, in 2023, oil accounted for 83% of Iran’s exports. For their part, the merchants who export Iran’s agricultural and craft exports tend not to repatriate the foreign currency they earn, using it instead for the imports they bring in. While much celebrated in regime propaganda, meanwhile, state-controlled industrial exports remain slight.

In other words, the flow of dollars that sustains Israel’s enemies, and which has caused so much trouble to Western interests from the Syrian desert to the Red Sea, emanates almost entirely from the oil loaded onto tankers at the export terminal on Khark Island, a speck of land about 25 kilometres off Iran’s southern coast. Benjamin Netanyahu warned in his recent speech to the UN General Assembly that Israel’s “long arm” can reach them too. Indeed, Khark’s location in the Persian Gulf is relatively close. At 1,516 kilometres from Israel’s main airbase, it’s far closer than the Houthis’ main oil import terminal at Hodeidah in Yemen — a place that was destroyed by Israeli jets in July, and attacked again yesterday.

Iran has made great efforts to reduce its dependence on the Khark terminal. That’s not because it is too close to Israel, but rather because it was too close to Iraq, and was indeed attacked and burned during the Iran-Iraq war. The result it Iran’s newly opened Jask oil terminal. Out on the shores of the Indian Ocean, it’s much futher from Israel than Khark. But for the IDF’s air planners, that’s scarcely a problem: the oil reaches Jask by a very long pipeline that can be disrupted at points even closer to Israel than Khark Island.

Given that Israel could easily cut off Iranian funding for Hezbollah and its other enemies by doing so, why has it refrained from targeting the country’s oil exports? In one phrase: “Obama’s Law”. Tacitly but very forcefully promulgated by the former president, it banned any Israeli or US attacks against Iran, even as the Islamic Republic has continued to kill US soldiers in Iraq and Yemen, and has kept attacking Israel through its proxies. On 13 April, Iran even attacked Israel directly. Stemming from Obama’s great fear that he would be manipulated into going to war against Iran, just as his predecessor was talked into war with Iraq, the then president’s all-out pursuit of a historic reconciliation with Iran utterly ignored the simple fact that the Islamic Republic’s fanatical rulers could not possibly be reconciled with the West. With Obama’s people also staffing Biden’s White House, the US has persisted with this policy of one-sided restraint, which it also imposed on Israel. That’s even as the Ayatollah’s regime has continued to forcibly suppress a pro-Western opposition that hates its corrupt and wasteful rule with a passion. Nor did US policy change when Iran continued to target US allies in Saudi Arabia and elsewhere. 

In the event of a Harris victory this November, the Obama crowd would continue to staff the White House. That leaves a narrow window for Israeli action against Iran. To be sure, attacking a vast country of 91 million people would be a reckless act for Israel under any circumstances. But to stop Iran’s oil revenues — whose benefits are denied to its long-suffering population by an oppressive regime that most Iranians bitterly oppose — is quite another matter. Given, moreover, that hyperinflation has brought outright hunger to Iran’s urban population for the first time since the fall of the Shah in 1979, an attack on the country’s oil exports could even trigger the downfall of the regime. There are, of course, very many variables between any Israeli action and such a happy consequence. But if destroying Iran’s oil revenue did finally bring about the end of the Ayatollah regime, it’s not just Netanyahu who would celebrate. 

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Professor Edward Luttwak is a strategist and historian known for his works on grand strategy, geoeconomics, military history, and international relations.

ELuttwak