In recent weeks, Iran-backed Shi’ite armed groups in Iraq have significantly increased their rocket and missile attacks on Israel. This escalation has raised concerns in Washington and among some of Iran’s allies about the potential for Israeli retaliation and a broader regional conflict if these attacks cause significant damage or casualties.
Although these attacks, launched from hundreds of miles away, do not pose the same immediate threat as those from Hamas and Hezbollah, they have become more frequent and sophisticated. At least two of these attacks have hit their targets, with many others intercepted by U.S. and Israeli defenses, according to U.S. officials and Israeli military statements. The use of advanced weaponry, including cruise missiles, has made it more challenging for air defenses to intercept these threats.
“The intensity and sophistication of the weapons used have escalated sharply,” said Mike Knights, a fellow at the Washington Institute for Near East Policy. “This complicates Israel’s defense strategy and increases financial costs.”
Reuters interviewed over a dozen sources, including members of Iraqi armed groups, other factions within Iran’s regional allies known as the Axis of Resistance, and U.S. and regional officials. Most of these sources spoke on the condition of anonymity to provide candid assessments of the situation.
There is growing concern in Washington and among some factions within Iran and Hezbollah about the potential consequences of these attacks. “They could inadvertently draw the Axis into a broader conflict it currently seeks to avoid,” said a senior figure in the Axis of Resistance.
Regional Dynamics and Risks
Hussein al-Mousawi, a spokesperson for Nujaba, one of the main Iraqi Shi’ite factions involved in the attacks on Israel, stated that these strikes are intended to increase the cost of the war in Gaza for Israel. “Our operations are not limited by time or place,” Mousawi said. “As a resistance, we do not fear the consequences as long as we are just and represent the popular and official will.”
The Iraqi government, which maintains delicate alliances with both Washington and Tehran, does not officially endorse these attacks but has been unable or unwilling to prevent them. Critics argue that this situation highlights the limitations of Prime Minister Mohammed Shia al-Sudani’s power within a coalition government that includes Iran-backed armed groups, potentially undermining efforts to promote Iraq as stable and business-friendly.
Iraq’s historical context adds another layer to the current tensions. During the 1991 Gulf War, Iraq, under Saddam Hussein, fired Scud missiles at Israel, causing significant concern about regional escalation. Today, Iraq is seen by Israel as a conduit for Iranian weapons to other militant groups, including Hezbollah.
Escalating Threat
The Iraqi factions involved in the recent attacks trace their origins to the insurgency against U.S. forces following the 2003 invasion that toppled Saddam Hussein. These groups have expanded their influence, supporting Iran’s allies in regional conflicts, such as the Syrian civil war, and launching attacks on Saudi Arabia and the United Arab Emirates.
The increased frequency and sophistication of attacks from Iraqi territory have heightened concerns about a potential broader conflict. In January, an attack by Iraqi factions that killed three U.S. troops in Jordan led to a series of U.S. airstrikes in Iraq and Syria, demonstrating the risk of significant escalation.
A senior Iranian official indicated that the shift in focus to Israel is part of a strategy to maintain pressure on Israel amidst the ongoing Gaza conflict. A U.S. defense official warned that these attacks jeopardize regional stability and increase the risk of military action from the U.S. and Israel.
Despite the increasing threat, Israeli authorities have confirmed only two direct impacts from Iraqi projectiles, both in Eilat. Many other projectiles have been intercepted by U.S. forces operating in the region.
“The threat level from these attacks is significant, though somewhat lower than from Hezbollah or the Houthis,” said Amos Yadlin, a retired Israeli air force general and former head of military intelligence. The U.S. defense official reiterated that the increased frequency of interceptions underscores the rising threat these groups pose.
Market Implications and Investment Opportunities
Short-Term Market Reactions: The heightened threat of regional conflict may lead to increased volatility in the markets, particularly in sectors sensitive to geopolitical tensions such as energy and defense. Investors might consider short-term strategies to hedge against potential disruptions, including investments in defense stocks and energy commodities.
Long-Term Market Impact: Sustained geopolitical instability in the Middle East could impact global oil prices and energy supply chains, influencing long-term investment strategies. Investors should monitor developments closely and consider diversifying portfolios to mitigate risks associated with prolonged regional conflicts.
Strategic Diversification: Given the current geopolitical risks, investors should diversify their portfolios by including a mix of defensive assets, such as gold and government bonds, alongside equities in sectors less exposed to Middle Eastern conflicts. This approach can help balance potential gains from market volatility with the need for stable returns.
Leave feedback about this