Nouriel Roubini: We can expect Israel-Iran hostilities to escalate

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Subscribe to enjoy similar stories. The conventional wisdom after Israel’s recent strikes on Iranian military facilities in retaliation for Iran’s ballistic missile attack on Israel is that the risk of further escalation has been contained. Initial statements from the Islamic Republic’s supreme leader suggested that Iran may not respond further.

Markets seemed to agree, with oil prices falling 5% immediately after the Israeli strikes (even if they rose again somewhat a little later). But this conventional wisdom is likely wrong. Israel’s assessment of the threat posed by Iran has shifted in the last few months.

It is not just Prime Minister Binyamin Netanyahu and his right-wing allies’ views that have hardened; key leaders of the centre and centre-left opposition also argue that Israel should go further with strikes. Whether or not one agrees with that assessment, there is now a consensus there that the Iranian regime represents a clear and present danger. With Iranian proxies Hamas, Hezbollah the Houthis and Shia militias in Iraq and Syria continuing to attack Israel, Israeli leaders have concluded that they must address the problem at its source.

That could mean targeting Iranian nuclear facilities and eliminating the regime’s top military and political leaders, as done vis-à-vis Hamas and Hezbollah, actions which eroded the deterrent leverage that Iran had over Israel. Owing to this change in the balance of power, Iran has only one effective option left to deter Israel now that even its offensive missiles and other weapons have failed to cause much damage: a dash to develop nukes. But since Israel regards a nuclear-armed Iran as an existential threat, it would have no other option than to attack Iranian nuclear