Overview
As the US-Israel-Iran conflict in the Middle East enters its third week, further regional spillover and escalation appear more likely than a decisive conclusion in the near term. With an unprecedented number of regional countries and armed groups already pulled into the fray, the risks of escalation by Axis of Resistance activation or regional militaries choosing to target the US and Israel are significant. Even degraded, Iran’s proxy network is a considerable factor: in Lebanon, Israel’s new front against Hizballah risks embroiling the country in a protracted conflict and occupation, while the resumption of Houthi attacks in the Red Sea would multiply disruptions to regional supply chains. Meanwhile, attacks on the US’ Gulf Arab partners’ energy infrastructure may prompt a broader Gulf military response against Iran. In the coming weeks, regional spillover and broader escalation may further threaten supply chains, regional stability, and the postwar balance of power.
Iran’s Proxies: A Lebanese Front and Potential Houthi Involvement
On Monday, Israel launched a ground invasion into southern Lebanon, escalating its fight against Iran-backed Hizballah weeks after the group joined the fray to launch strikes on Israeli, US and Gulf targets. Hizballah, despite being significantly degraded by the last several years of conflict with Israel and domestic disempowerment within Lebanon, initiated drone and missile attacks on Tel Aviv, Haifa and northern Israel military installations, killing several Israeli soldiers. Israel has retaliated with extensive strikes on southern Lebanon and Beirut, reportedly killing over 200 and causing more than 30,000 to flee the area. Israeli military officials have said that the conflict will be similar to the campaign in Gaza, where some cities were entirely flattened, and that Israel could hold Lebanese territory for an indefinite period.
The opening of a new front raises risks for Israel. While there exists significant diplomatic and economic pressures to negotiate, or force, an end to the US’ conflict with Iran, a boots-on-the-ground Israeli war with Hizballah will likely prove lengthy. Hizballah has already proved relatively resilient despite the decimation of its leadership and capabilities. Israel may seek to hold a buffer zone to protect its northern border areas, replicating its strategy in holding Druze territories in southern Syria. A protracted occupation would be disastrous for Lebanon, which has teetered on the edge of economic collapse for years and had made modest strides towards disarming and politically disempowering Hizballah in 2025. A return to long-term occupation of Lebanon also risks dividing the Israeli public, stirring up negative memories of Israel’s ultimately unsuccessful occupation of Southern Lebanon from 1982 to 2000.
The potential for Houthi involvement is also a significant question mark. In the days following the onset of the war, the group signaled political solidarity with Iran, but has not yet moved to become militarily involved, despite being Iran’s most resilient remaining proxy. Ahead of the conflict, satellite imagery showed the Houthis repositioning military assets to the Red Sea coast, and last week, Iran seemed to suggest that the Houthis could target maritime shipping in the Red Sea, further undermining energy market resilience. The reason the Houthis have not yet joined is unclear: on the one hand, Iran and the Houthis may be holding the groups’ capabilities in reserve, waiting for a peak Red Sea diversion moment when strikes will have their greatest effect, or simply reserving escalation options once Iran’s own resources begin to run low. On the other hand, the Houthis may be actively choosing to stay out of it. The Houthis’ level of independence from Iran has always been unclear. While the group shares genuine ideological conviction with Tehran, they make decisions around regional action within their own strategic framework.
The Houthis’ “solidarity strikes” on Red Sea shipping throughout the Gaza war and the 12-day war in June between Israel, the US and Iran served domestic and regional strategic objectives for the Houthis, rather than simply furthering Iranian interests – the Red Sea maritime blockade raised the Houthis regional profile, consolidated domestic support for the Houthi government, undercut the popularity of the Western-backed internationally recognized government (IRG) among its pro-Palestinian citizens, and hastened the destruction of Israel, which the Houthis see as a moral duty. While many of these calculations hold this time around, Iran’s involvement with Gulf powers complicates the Houthis’ decision significantly. Since 2022, the Yemeni civil war has stagnated due to a Saudi-Houthi détente that has cooled fighting. Saudi Arabia and, to a lesser extent, the UAE would see Houthi activation as directly opposed to their own interests as well. Even if the Houthis did not strike Gulf targets, their involvement risks reigniting the Yemeni conflict. While this calculus is not static, additional pressure from Iran or an evaluation that strategic gains would exceed retaliation costs could sway the Houthis from reticence to participation.
The Gulf Perspective
The scope of the Iran war has already spread beyond the parameters of both past conflicts and Western expectations, putting the US’ Arab allies – especially in the Gulf – squarely in the crosshairs. Iran has targeted military, civilian, and infrastructure sites in Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the UAE, Iraq and Jordan (as well as Türkiye, Azerbaijan and Cyprus, outside the region). These strikes have not been symbolic or low-cost, as many analysts expected Iranian attacks on its neighbors to be. Strikes on Saudi and Emirati oil infrastructure have limited their output, further intensifying a global energy supply crisis; strikes on civilian infrastructure (like hotels in Dubai) have spread fear and could threaten booming regional tourism; and attacks on desalination plants in Bahrain threaten the water-scarce countries’ ability to sustain their populations. Perhaps most importantly, the closure of the Strait of Hormuz has crippled Arab Gulf states’ ability to export oil and natural gas, choking international supply and potentially threatening the long-term financial outlook of economies that are relying on stable energy sales to fund their pivot away from energy export dependence toward more diversified, energy transition-proof income sources.
Taken together, Iran’s strikes against its Gulf neighbors are a dramatic escalation of the scope of the conflict, posing potentially existential risks to Gulf capitals that could prompt broader regional involvement in the conflict, with higher costs for Iran and the global supply chain. Tehran gambled that involving its Gulf Arab neighbors – who in recent years have pursued détente – would up the pressure on Washington to end the war in a timely manner. Instead, the US’ Arab allies have already changed their strategic footing behind closed doors: while before the conflict they pressed the US to avoid escalation that would cause regional chaos, they are now reportedly calling on them not to leave the job half-done. The Iranian strikes have also given the US more latitude to utilize their bases in the region; in the June 2025 12-day war, the US launched its bunker-breaker attacks on Iranian nuclear infrastructure from US bases, expressly to avoid drawing nervous Gulf allies into the fray.
Arab countries could move to become more involved themselves, as the White House is reportedly calling for behind closed doors. The US is seeking active military involvement in policing the Strait, but the region’s first steps would likely be more measured: at a minimum, they could allow the US full operational access to their airspaces and bases to carry out offensive operations against Iran, compared to the more limited coordination currently underway (the UAE and Saudi Arabia have already ruled out letting the US attack Iran from its territory). Greater coordination and forward basing could be a potent element of joint efforts to keep the Strait of Hormuz open, potentially including air and missile defenses to assist with the early detection of and defense against Iranian anti-ship missiles, UAVs or fast patrol boats. In a more extreme scenario, Gulf states could join in strikes against Iran - Bahrain, Qatar, Saudi Arabia and the UAE possess short-range ballistic missile systems capable of striking targets along Iran’s southwestern Gulf coast, while all Gulf states except Bahrain have combat-capable UAVs. Potential targets could range from Iran’s missile and drone infrastructure to IRGC targets to oil and gas infrastructure.
Regional Spillover Promises Further Destabilization
The long-term strategic implications of the Gulf outlook on the war will affect their leaders’ calculus in joining in as well as their postwar security decisions. Arab partners have long questioned whether the value of the American security umbrella is diminishing, and in recent years have sought diversified security and economic partnerships to prevent dependence. Nonetheless, they still consider the US their primary security partner and guarantor. Now, Arab capitals are unsure of the reliability of US security support, dissuading them from fully militarily aligning with Washington. Shifting to an offensive posture in this conflict, however, could provoke more aggression from Tehran, with an uncertain likelihood of success or prolonged US support. In the long-term, the conflict may accelerate Gulf rethinking of security partnerships with the US, the high costs of which are being amply illustrated as Iran levels barrages of attacks at US targets within their borders, and the US and Israel seek maximalist war aims that could prolong economic disruption or result in a failed Iranian state, a worst-case scenario for the region.
Broader disruption, in the form of renewed Houthi attacks, conflict spillover throughout and beyond Lebanon and Iran, or even a further militarized Strait of Hormuz, would further threaten the region’s critical trade routes and intensify global disruptions. Maritime shipping in the Red Sea had just begun to rebound when the new conflict erupted, and the resumption of operations there has now been indefinitely postponed. That disruption will postpone the logistics sector’s expectations of a more normalized market in mid-2026. Africa route deviations are expected to continue as the norm, paired with sky-high fuel surcharges. Oil production, already at a critical low, could be further choked: renewed Houthi attacks on the Red Sea, for example, would functionally cut off seaborne crude exports from Saudi Arabia, which has begun to divert about half of its daily production via pipeline to the Red Sea. Meanwhile, disruptions to fertilizer precursor chemicals - the Gulf supplies half of global seaborne sulfur, a third of seaborne urea and a fifth of all ammonia – are already impacting predictions for spring plantings, with consequences for food supply and affordability throughout the globe.
