In the fourth piece in this series, I tried to look at Hezbollah through an economic lens, as a set of revenue streams and cost structures rather than a militia with an ideology. The exercise raised a question I’ve been circling ever since: what does the economic architecture look like one level up, at the organization that funds Hezbollah, commands Iran’s war effort, and, as it turns out, built much of the country’s physical infrastructure?

The Islamic Revolutionary Guard Corps is routinely described in American policy circles as a paramilitary organization, an ideological militia, a terrorist group (the US designated it as a Foreign Terrorist Organization in April 2019, the first time the United States branded an entire foreign government military entity with that label). All of these descriptions contain something true, and all of them miss what may be the most important thing about the organization, which is that it is one of the largest economic conglomerates in the Middle East.

The numbers are genuinely difficult to pin down, because the IRGC’s finances are not subject to parliamentary oversight, national audit, or any meaningful public accounting. Estimates of its share of Iran’s total economic output range from roughly a third to, when combined with the parastatal foundations it controls, over 50 percent of GDP, according to the Clingendael Institute. That spread tells you more about the opacity of the organization than about its actual size. What can be traced with some confidence is the institutional architecture, and that architecture looks less like a military command structure than like a diversified holding company.

The core economic engine is an entity called Khatam al-Anbiya (Seal of the Prophets), the IRGC’s construction and engineering arm. After the Iran-Iraq War, the government tasked the Guards with rebuilding the country’s shattered infrastructure; in 1990, the reconstruction headquarters was formally constituted as Khatam al-Anbiya, what the Clingendael Institute (linked earlier) describes as the moment the IRGC was “formally invited to participate in rebuilding war-torn regions.” That founding mission is worth pausing on, because it explains a structural feature of the Iranian state that most Western analysis overlooks: the organization responsible for defending the Islamic Republic and the organization responsible for building it are the same organization. Construction was embedded in the institutional DNA from the start.

The name matters here. If you’ve been following the current war, you’ve encountered “Khatam al-Anbiya” in a completely different context: it is the name of Iran’s supreme wartime operational command, the Central Khatam al-Anbiya Headquarters, which coordinates operations between the regular army and the IRGC. A Khatam al-Anbiya spokesperson directed strikes on US bases in Saudi Arabia and Bahrain. The same headquarters threatened to close the Strait of Hormuz “until our destroyed power plants are rebuilt.” This dual identity, the country’s largest contractor and its wartime command, is the gap between appearance and reality compressed into a single institution.

By the time international sanctions tightened in 2011 and 2012, and Western oil companies withdrew from Iran’s energy sector, Khatam al-Anbiya was positioned to absorb the void. It took over multiple phases of the South Pars gas field, the largest natural gas reserve in the world, securing contracts that the US Treasury estimated at $22 billion for oil and petrochemical projects alone, roughly four times the IRGC’s official defense budget. The organization operates through hundreds of registered subsidiaries and subcontractors inside and outside Iran. The list of what it has built reads like the infrastructure index of a mid-sized country: refineries, dams, water diversion systems, gas pipelines, rail lines, tunnels, the Tehran Metro, offshore oil platforms. According to Fortune, citing the Clingendael Institute and Janes, Khatam al-Anbiya also controls Tehran’s Imam Khomeini International Airport, the country’s largest. When Operation Epic Fury began on February 28, and Iranian authorities had to make immediate operational decisions about civilian air traffic, those decisions were being made in an institutional architecture built and managed by the organization being bombed, which was also the organization commanding the war.

I work in rooms where the structure of large conglomerates is second nature, where people spend their careers mapping the relationship between holding companies and operating subsidiaries and the strategic logic that holds them together. The IRGC’s economic architecture is recognizable in that grammar. It has a construction arm (Khatam al-Anbiya), a naval industrial subsidiary (SADRA, acquired through a controlling stake in 2009), a telecommunications position (the $7.8 billion acquisition of the Telecommunication Company of Iran in 2009, the largest transaction in Tehran Stock Exchange history, through a consortium affiliated with the Guards), and an oil and gas portfolio that would make it, if it were a listed company, one of the largest energy firms in the Middle East.

The telecom acquisition deserves its own moment, because it illustrates something important about how economic and political power compound inside the IRGC’s structure. In June 2009, Iran erupted in the largest protests since the revolution, the Green Movement, after a contested presidential election. The IRGC was the instrument of suppression. That same year, a consortium called Mobin Trust (Etemad-e-Mobin), directly affiliated with the Guards, purchased a controlling stake in Iran’s dominant telecommunications company. The regime needed to monitor communications, to identify organizers, to control the flow of information. The acquisition was the mechanism. This is the kind of move that, in the corporate world, people call vertical integration: the entity responsible for domestic security acquired the infrastructure of domestic communication, and it did so through a market transaction that consolidated economic and political control simultaneously.

I want to be careful with the conglomerate framework, because it can make the IRGC’s economic empire sound more rationalized and strategic than it necessarily is. Some of this expansion was opportunistic, a function of sanctions clearing the field of international competition and a sympathetic government (Ahmadinejad’s, from 2005 to 2013) handing out no-bid contracts to IRGC-linked firms. The Clingendael Institute (linked earlier) describes how a 2006 decree from the Supreme Leader authorized the transfer of up to 80 percent of shares in major state sectors to “public, non-governmental entities,” providing the legal cover for Ahmadinejad’s government to move major state assets to firms owned by the IRGC and bonyads through opaque, single-bid auctions. Some of this was corrupt in ways familiar to anyone who studies state capitalism in the developing world: front companies, assets confiscated from religious minorities and political dissidents through compliant courts. The IRGC’s economic dominance has provoked criticism from every Iranian president in recent memory, none of whom managed to constrain it. When Hassan Rouhani complained in 2017 that the economy had been handed “from an unarmed government to an armed government” (Clingendael, linked earlier), he was describing the structural reality of a state whose productive capacity is embedded in its security apparatus.

And then there is the layer above the IRGC itself: the economic holdings of the Supreme Leader’s office. An organization called Setad (formally, the Execution of Imam Khomeini’s Order) controls assets that a six-month Reuters investigation estimated in 2013 at $95 billion, a figure that some US officials have since suggested could be closer to $200 billion. That 2013 estimate exceeded the total value of Iran’s oil exports that year. Setad holds stakes in finance, telecommunications, oil, pharmaceuticals, agriculture, manufacturing, and media. Its real estate portfolio alone was worth roughly $52 billion, assembled through the systematic seizure of properties from Iranians abroad, religious minorities, and political opponents, often through courts that claimed the properties were abandoned (France 24, linked earlier). Setad is not subject to parliamentary oversight. Its accounts are secret. It reports to the Office of the Supreme Leader.

When Ali Khamenei was killed in the February 28 strikes, the question of who controls Setad became immediate. In the first piece in this series, I wrote about Mojtaba Khamenei’s succession through the shadow org chart, the informal network of trust and proximity that constituted the real mechanism of power transfer. Setad adds an economic dimension to that succession that I didn’t fully appreciate at the time. Whoever controls the Office of the Supreme Leader controls an economic conglomerate whose assets may rival those of the IRGC itself. Mojtaba inherited an office and a theology; he also inherited a holding company.

This matters enormously for how we understand what the current war is actually doing. I am writing this on Day 35 of Operation Epic Fury. On Tuesday, President Trump addressed the nation and declared the Iranian military “destroyed,” the war “nearing completion.” On Friday, Khatam al-Anbiya’s forces shot down an American F-15 over central Iran.

When American and Israeli strikes hit “military targets” in Iran, the language suggests a clean distinction between the military and civilian spheres, between the apparatus of war and the infrastructure of daily life. The IRGC’s economic architecture collapses that distinction. Hitting IRGC targets means hitting the organization that built the South Pars gas field, manages the redevelopment of the country’s largest airport, controls its telecommunications, and employs hundreds of thousands of people in construction, energy, and engineering. The IDF has killed senior intelligence officers from the Khatam al-Anbiya headquarters, treating the construction conglomerate as a military target, because it is one.

The IRGC, in turn, has made the economic logic of this war explicit. On March 11, a Khatam al-Anbiya spokesperson declared that “the enemy left our hands open to targeting economic centres and banks belonging to the United States and the Zionist regime in the region,” warning people to stay away from banks within a one-kilometer radius. Days later, the same headquarters threatened that if Iran’s energy infrastructure were attacked, “all energy, information technology, and desalination infrastructure belonging to the US and the regime in the region will be targeted.” The organization that built Iran’s infrastructure is promising to destroy its adversaries’ infrastructure in return, because it understands, better than most Western analysts seem to, that infrastructure is the war.

The reconstruction problem this creates is one that I think about in terms familiar from my professional world, where the question of what it costs to rebuild something is always downstream of the question of who built it and why. You cannot rebuild Iran’s infrastructure without engaging the entity that built it in the first place, and that entity is the IRGC. Any post-war Iranian government will face a version of the problem that post-Saddam Iraq faced with the Baath Party: the administrative capacity of the state is embedded in the organization you are trying to dismantle. Except the IRGC’s economic penetration runs deeper than the Baath Party’s ever did, because the Guards didn’t merely staff the state; they built its physical infrastructure.

In the Hezbollah piece, I argued that the organization’s real vulnerability was financial, that the compounding pressure on its balance sheet was more strategically significant than the degradation of its arsenal. The IRGC is the same insight at a different scale, and with a complication that changes the calculus. Hezbollah’s economic model depended on external funding, primarily from Iran, and when the supply lines were severed, the balance sheet deteriorated in ways that constrained the military. The IRGC’s economic model is endogenous; it generates its own revenue from the domestic economy it dominates. You can sanction it, bomb it, isolate it from international markets, and it will contract. But it cannot be severed from its funding source without severing the Iranian state from its own economy, because the two are, at this point, architecturally indistinguishable.

The Western policy frame tends to treat the IRGC as a thing inside Iran, a force that operates within a state. The more I read, the more I think the relationship runs the other direction: the Iranian state operates within the IRGC’s economic architecture. The gap between how the organization appears (a military force with an ideology) and how it actually functions (a conglomerate that controls the physical and financial infrastructure of an entire country, and commands its wars from the same headquarters that builds its highways) may be the widest gap this series has tried to close.

Karlo Dizon. He works in global capital and geopolitical strategy. These are his personal views.

The Strait of Hormuz is closed. Over 150 ships are anchored outside it. Twenty percent of the world’s oil supply is stuck. The primary alternative route for Gulf energy exports now runs through Saudi Arabia’s East-West pipeline to the Red Sea port of Yanbu, and from there through the Bab el-Mandeb strait, past Yemen, and up toward the Suez Canal. If that route closes too, the world goes from a severe energy disruption to something analysts have compared to three times the severity of the 1970s oil embargo.

The reason the Red Sea is still open, as of this writing, is a ceasefire agreement between the United States and the Houthis that was brokered by Oman last May, that almost nobody outside the shipping industry thinks about, and that is currently under more pressure than at any point since it was signed. The anatomy of that deal, and the question of whether it holds, is the subject I want to think through here, because I think it reveals something important about how power operates in this region that connects to everything I’ve been writing about in this series.

The deal itself is remarkably simple in its stated terms and remarkably complicated in what it actually involves.

On May 6, 2025, Trump announced in the Oval Office that the Houthis had agreed to stop attacking American vessels in the Red Sea and Bab el-Mandeb strait, and that the United States would stop bombing Yemen, ending Operation Rough Rider. Oman’s Foreign Minister confirmed the mediation, stating that “in the future, neither side will target the other, including American vessels, ensuring freedom of navigation and the smooth flow of international commercial shipping.”

The framing from each side tells you everything about the deal’s fragility. Trump said the Houthis had “capitulated” and “don’t want to fight anymore.” The Houthis’ chief negotiator, Mohammed Abdel Salam, said it was the United States that “backed down.” Administration officials acknowledged privately that Trump agreed to the ceasefire in part because the airstrikes were not achieving their objectives and the United States had failed to establish air superiority over the Houthis. According to Reuters’ detailed reconstruction of the deal, a turning point came with the April 17 strike on the Ras Isa fuel terminal that killed 74 people and damaged Houthi revenue capacity. Each side needed an off-ramp. Oman provided one.

What the deal does not cover is almost more important than what it does. It says nothing about Israel. The Houthis stated explicitly that the ceasefire “has nothing to do with the Israeli enemy or with supporting Gaza.” They continued to launch missiles at Israel after the deal was signed, including strikes that reached the perimeter of Ben Gurion International Airport. Israel was not given advance notice of the agreement, and Israeli officials told media they were “shocked.” The deal also does not formally commit the Houthis to stop attacking non-US commercial shipping, which is why, as the Soufan Center noted, major shipping companies including Maersk said they were not ready to resume Red Sea transits even after the ceasefire was announced.

This is, in other words, a deal between two parties that both claim the other surrendered, that excludes the United States’ closest regional ally, that does not protect most of the world’s commercial shipping by its terms, and that held together for ten months primarily because the Houthis decided, for their own reasons, to mostly honor its spirit rather than just its letter. When the Gaza ceasefire collapsed in March 2025 they resumed attacks on non-US vessels briefly, then paused again after the October 2025 ceasefire. Since November 2025, there have been no sustained attacks on merchant vessels. Suez Canal containership traffic had begun to recover, still far below its pre-crisis average but enough to keep the route functional.

This fragile, ambiguous, structurally incomplete arrangement is what currently stands between the global economy and a simultaneous closure of both its major Middle Eastern chokepoints.

When the US-Israeli strikes hit Iran on February 28, the Houthis announced they would resume Red Sea attacks. Senior officials told the Associated Press that the group had decided to restart missile and drone operations against maritime traffic. Houthi leader Abdulmalik al-Houthi delivered a speech condemning the strikes and declaring “full solidarity” with Iran, saying the Houthis were “fully prepared for any necessary developments.”

Two weeks later, the attacks have not materialized.

The Houthis have issued only three formal declarations since the war began, and their tone has been characterized by analysts as “more disciplined and subdued” than in previous crises, reading as political and emotional statements of solidarity rather than operational announcements. Abdulmalik has called for media activity, public demonstrations, and “million-man marches” in support of Iran. He has not announced military operations. The FDD’s Long War Journal observed that the Houthis have “not officially announced military action,” instead “primarily mobilizing demonstrations and media support.”

This gap between rhetoric and action is the thing I find most revealing, because it tells you that the Houthis are making a calculation, and the calculation is not primarily about Iran.

To understand what the Houthis are weighing, you have to understand what they have to lose.

The ceasefire with Trump is the most significant diplomatic achievement the Houthi movement has ever secured. It represents, implicitly, American recognition of the Houthis as a legitimate interlocutor, a party capable of making and keeping agreements, something the internationally recognized Yemeni government and its backers have spent years trying to prevent. The deal stopped a bombing campaign that was costing the US over $750 million in munitions alone, that had destroyed seven American Reaper drones and lost an F/A-18 fighter jet, and that was failing to achieve its stated objectives. It gave the Houthis breathing room to consolidate domestically, rebuild capabilities, and pursue internal governance without daily American airstrikes.

Breaking the deal to join Iran’s war would sacrifice all of that. It would invite a resumption of US strikes at a moment when American military assets are already deployed across the region in unprecedented concentration. It would risk the Houthis’ relationship with Oman, which brokered the ceasefire and whose mediating role gives the Houthis access to diplomatic channels they would otherwise lack. And it would do all of this in service of a patron, Iran, whose ability to reciprocate is severely diminished: Tehran’s own command structure is fractured, its corridor to the region is severed, and its financial capacity to support the Houthis is competing with the demands of regime survival.

The Stimson Center’s analysis of the Houthis’ decision calculus captures this precisely: the group initially “showed restraint, announced political solidarity with Iran while signaling a posture of deliberate, conditional restraint.” Their Red Sea infrastructure remains intact, their weapons development has continued (they have begun manufacturing domestically, reducing their dependence on Iranian supply chains), and their operational readiness can be activated rapidly if conditions change. The restraint is strategic, a decision to preserve optionality rather than spend it.

There is something in this situation that I think connects to the larger argument of this series in a way I didn’t anticipate when I started writing it.

In the first piece, I wrote about the shadow org chart inside Iran. In the second, I described the proxy network as a franchise system in which each node makes independent survival calculations. In piece after piece, the pattern has been the same: the official map says one thing, the operative reality says another, and the distance between the two is where the interesting analysis lives.

The Houthis are the most extreme case of this pattern. The official map says they are an Iranian proxy, a node in the axis of resistance, ideologically bound to fight alongside Tehran. The operative reality is that they are a sovereign-in-all-but-name controlling most of Yemen’s population, running their own state, manufacturing their own weapons, negotiating their own deals with the world’s most powerful country, and currently choosing not to join a war that their patron is losing because their local interests demand restraint. They are, in franchise terms, the franchisee that has outgrown the brand.

The global economy is, at this moment, relying on the Houthis’ self-interest to keep the Red Sea open. That is a sentence I would not have believed six months ago, and it captures something important about how power actually works in this region: the most consequential decisions are being made by the actors with the least formal authority, in places that receive the least analytical attention, for reasons that have very little to do with the narratives that dominate Western coverage.

Whether the Red Sea stays open depends on a set of calculations being made in Sana’a by people whose names most of the world has never heard, weighing a ceasefire that most of the world doesn’t know exists, against ideological obligations that pull in one direction and strategic self-interest that pulls in another. That is the kind of problem that has no clean resolution, no single negotiation that settles it, no reassuring signal that tells the shipping companies and the insurers and the sovereign wealth funds that it’s safe to plan as if the route will hold.

The Houthis are, for now, choosing restraint. The reasons for that choice are local, contingent, and reversible. The consequences, if the choice changes, are global.

Notes on the Middle East is written by Karlo Dizon. He works in global capital and geopolitical strategy. These are his personal views.

And yet the question I keep hearing in the rooms I work in is not about any of that. The question is about oil.

Brent crude is above $100 a barrel for the first time since 2022. The Strait of Hormuz, through which roughly one-fifth of the world’s oil supply normally transits, is effectively closed. Over 150 ships are anchored outside it, waiting. The IRGC has warned that any vessel attempting to pass will be “set ablaze”. Five tankers have been damaged, two crew members killed. Maersk and Hapag-Lloyd have suspended Middle Eastern routes. Protection and indemnity insurance has been pulled. Traffic through the strait has dropped to effectively zero.

The International Energy Agency has authorized a record release of 400 million barrels from global strategic reserves, the largest coordinated intervention in the agency’s history. The US is contributing 172 million barrels from its own Strategic Petroleum Reserve. In a move that would have been unimaginable a month ago, the Treasury has temporarily lifted sanctions on Russian oil already at sea to increase global supply. Goldman Sachs has raised its probability of a US recession this year to 25 percent. Oxford Economics warns that if oil averages $140 for two months, the eurozone, the UK, and Japan would all enter contraction.

This is the piece where my professional world and the newsletter’s analytical project converge most directly, because the gap I keep writing about (between how power appears and how it actually operates) is playing out in real time in a form that the people I work with understand natively: the gap between a military victory and an economic catastrophe.

Here is the thing about the Strait of Hormuz that I think is underappreciated even among people who work in energy and commodities, and that I certainly didn’t fully understand until I started looking at this closely.

The strait is 21 miles wide at its narrowest point. It is surrounded on three sides by Iranian territory. Roughly 20 percent of the world’s daily oil consumption passes through it, along with about 20 percent of global LNG trade, a significant share of the world’s fertilizer shipments, and a constant flow of petrochemical inputs, plastics, aluminum, and other raw materials that feed manufacturing supply chains across Asia and Europe. It is the single most consequential bottleneck in global commerce, and it has been treated for decades as a given: always open, always flowing, always someone else’s problem to secure.

Iran has threatened to close it before, many times, and the consensus view among analysts and military planners was that closure would be self-defeating. Iran needs the strait too; its own oil exports (primarily to China) transit the same waterway. As one strategist told CNBC, “They need oil, otherwise they have no money.” That logic held as long as Iran was making rational calculations about its own economic survival.

What changed is that Iran is now fighting what it perceives as a war for the survival of the regime itself, and the economic self-interest calculation that was supposed to prevent closure has been subordinated to a more urgent strategic logic: impose costs so severe that Washington and its allies are forced to the table. The IRGC’s statement was explicit: “You will not be able to artificially lower the price of oil. Expect oil at $200 per barrel. The price of oil depends on regional security, and you are the main source of insecurity in the region.”

This is, I think, the most important sentence anyone in Tehran has uttered since the war began, because it reveals a strategic theory: Iran cannot win the military war, but it can win the economic war by making the cost of continued fighting intolerable for the global economy. The strait is the lever that makes this possible.

The economic consequences are already cascading in ways that extend well beyond the price of crude.

Oil is the headline, but liquefied natural gas may be the larger long-term disruption. Qatar, the world’s largest LNG exporter, halted output last week after an Iranian drone struck nearby, and Rapidan Energy Group’s analysis is sobering: LNG exports from the region won’t restart until there is complete certainty that transit is safe, and restarting a full LNG production facility takes weeks, not days. The entire Qatar operation has never been taken fully offline before. A senior Rapidan analyst told CNBC that the market has yet to appreciate the duration of Qatar’s shutdown or its effects on global gas supply.

Fertilizer is another pressure point that has received too little attention. Roughly one-third of global fertilizer trade transits the Strait, including large volumes of nitrogen exports. Urea prices have already spiked from $475 to $680 per metric ton. This is happening during the spring planting window for corn and soybeans in the American Midwest, which means the disruption could transmit directly into food prices over the coming months.

Amazon Web Services confirmed this week that data centers in Bahrain and the UAE were physically struck by Iranian drones and remain offline. The Gulf states, which have spent a decade positioning themselves as global hubs for cloud computing, logistics, and financial services, are watching that positioning erode in real time as their physical infrastructure comes under attack.

The alternative routes that are supposed to mitigate a Hormuz closure exist, and they are inadequate. Saudi Arabia is diverting some oil to its Red Sea port of Yanbu via the East-West pipeline, and the UAE is routing through Fujairah on the Arabian Sea. But these pipelines cannot match the volume that normally flows through the strait, leaving a deficit of roughly 12 million barrels per day. The Red Sea route, which might ordinarily absorb some of the overflow, is itself vulnerable to Houthi attacks, creating a second chokepoint problem layered on top of the first.

Supply chain analysts are warning that the secondary effects (container rerouting, port congestion, chassis shortages, demurrage charges) will begin hitting within two to five weeks as diverted cargo arrives in clusters at ports that aren’t built to absorb it. One logistics executive told CNBC, with what I suspect was understatement, that “the market is underestimating the circumstances here.”

What I find most striking about this situation, and the reason I think it connects to the larger argument of this series, is the gap between the war’s stated objectives and its actual economic logic.

The stated objective is dismantling Iran’s nuclear program and, in some formulations, inducing regime change. Those are military and political goals. The instrument being used to pursue them is a campaign of airstrikes and naval operations that has, as a secondary effect, triggered the closure of the world’s most important energy chokepoint, a global strategic petroleum reserve release larger than any in history, a temporary lifting of sanctions on Russian oil (undermining a separate and significant American policy objective), a spike in fertilizer prices during planting season, the physical destruction of cloud computing infrastructure in allied Gulf states, and the displacement of 3.2 million Iranians.

The people in the rooms I work in see this very clearly, because they are the ones pricing the risk. Sovereign wealth funds whose portfolios are built around the assumption of stable energy transit. Institutional investors whose models assume supply chain continuity. Infrastructure developers who have spent billions positioning the Gulf as the logistics hub between East and West. All of them are now watching the foundational assumption of their strategies (that the strait stays open, that the Gulf stays functional, that the energy market operates within predictable parameters) come under direct threat from a military campaign being waged by their own security guarantor.

That is the paradox at the center of this moment: the United States is simultaneously the Gulf’s protector and the author of the crisis that is undermining the Gulf’s economic model. I don’t think that paradox has been articulated clearly enough, and I think it will define the region’s strategic realignment for years after the shooting stops.

Iran’s foreign policy adviser Kamal Kharazi told CNN this week that he sees no room for diplomacy. Iran’s parliament speaker has said the country is not seeking a ceasefire. President Pezeshkian has outlined conditions for ending the war (recognition of Iran’s “legitimate rights,” reparations, and guarantees against future attacks) that Washington will almost certainly not accept. The IRGC has said it, not the US, will determine when the war ends.

At the same time, Aramco’s CEO has warned of “catastrophic consequences” for global oil markets. Trump has threatened to hit Iran “twenty times harder” if it continues to disrupt the strait, while simultaneously saying he might “take over” the waterway, a statement that a UK maritime lawyer described as potentially amounting to an incursion on Iranian and Omani sovereignty under international law. The US Energy Secretary has said Washington is “not ready” to provide naval escorts for commercial shipping but that such operations could begin by the end of the month.

None of this resolves the underlying problem, which is that the war’s military logic and its economic logic are pulling in opposite directions. The military logic says: keep striking until Iran’s capacity to threaten is eliminated. The economic logic says: every day the strait stays closed, the cost to the global economy compounds in ways that may eventually exceed whatever the strikes achieve. Those two logics will, at some point, collide. When they do, the question of who blinks will be determined less by military capability than by economic tolerance, and economic tolerance is not equally distributed. Europe and East Asia are far more exposed to a prolonged Hormuz closure than the United States, which means the pressure to de-escalate will come from allies before it comes from Washington.

I’ve been writing this series about the gap between how power appears and how it actually operates. In the first four pieces, that gap lived inside Iran: in its leadership structure, its proxy network, its supply chains, its balance sheet. In this piece, the gap has migrated. It now lives in the space between the war’s official narrative (a campaign to dismantle a nuclear threat) and the war’s lived reality for the global economy (a disruption of the physical infrastructure that makes modern commerce possible).

The people making decisions about this region, whether they sit in Washington or Riyadh or Abu Dhabi or London or Beijing, are all looking at the same bottleneck and making different calculations about how long they can afford to watch it stay closed. That calculation, more than any battlefield outcome, is what will determine how this war ends and what the region looks like after it does.

Notes on the Middle East is written by Karlo Dizon. He works in global capital and geopolitical strategy. These are his personal views.

Hezbollah is a political party, a social movement, an ideological project, a military force that was, until recently, the most heavily armed non-state actor in the world. It is also, and I think primarily, an economic institution, one that has spent four decades building a parallel state inside Lebanon on the strength of a single dominant revenue stream. That revenue stream is now under more pressure than at any point in the organization’s history, and the consequences are not hypothetical. They are already visible.

To understand the scale of the problem, you have to understand what Hezbollah actually spends money on.

The military infrastructure is the headline expense, and far from the largest one. Hezbollah runs hospitals, schools, a telecommunications network, construction companies, agricultural cooperatives, a media empire including Al-Manar television. It operates a grocery chain called “Al-Nour Markets” with locations across southern Lebanon, the Bekaa, and Beirut’s southern suburbs. It runs a quasi-banking institution, al-Qard al-Hassan, which offers interest-free loans and savings accounts and became a lifeline for ordinary Lebanese after the country’s 2019 financial collapse. It pays salaries to fighters, stipends to families of “martyrs,” pensions to veterans. It buys pharmacies, smuggles Iranian and Syrian medications to undercut competitors, purchases land in strategic areas.

Hezbollah is, at its core, an economic conglomerate that happens to have a militia, and the social services infrastructure is what buys the loyalty of Lebanon’s Shia community, a community that has been systematically neglected by the Lebanese state for decades and that depends on Hezbollah for things the government has never reliably provided: healthcare, education, credit, employment, a sense of institutional protection. The rockets pointed at Israel give Hezbollah strategic value to Tehran. The schools and hospitals give it a domestic constituency willing to tolerate the rockets.

The financial model that sustained all of this was, for most of Hezbollah’s history, remarkably simple. In a 2016 speech, Hassan Nasrallah said it out loud: “The budget of Hezbollah, its salaries, its expenses, its food, its drink, its weapons, and its missiles come from the Islamic Republic of Iran.” He added: “As long as Iran has money, we have money.” By 2018, the U.S. Treasury estimated that Iran was providing roughly $700 million annually, constituting about 70 percent of Hezbollah’s total revenue.

That 70 percent figure is the number that should organize your thinking about everything that follows.

The remaining 30 percent comes from sources that are, to put it carefully, diversified in ways that a compliance department would find alarming.

Hezbollah has built one of the most sophisticated global financial networks of any non-state actor. Roughly 40 percent of its non-Iranian revenue reportedly comes from drug trafficking, primarily cocaine, run through partnerships with South American cartels in Colombia and Mexico, laundered through operations in West Africa, and funneled back to Lebanon through a web of exchange houses, shell companies, and cash couriers. The Tri-Border Area between Argentina, Brazil, and Paraguay has been a major hub for decades, exploiting jurisdictional arbitrage to move money across continents. Diamond sales in Ivory Coast and Guinea, cigarette smuggling, currency counterfeiting, real estate investments across the Gulf and Europe: the portfolio is global, it is criminal, and it has been remarkably resilient.

The criminal revenue streams are resilient, even impressive in their global reach, but they are supplementary by nature. They fill gaps, fund specific operations, enrich individual commanders, and they have never been large enough to replace Iranian state funding at scale. When the first Trump administration’s Maximum Pressure campaign squeezed Iran’s oil revenues starting in 2018, the effects on Hezbollah were immediate and documented. The Washington Institute reported at the time that Hezbollah had closed around a thousand offices and apartments throughout Lebanon, merged institutions, frozen all hiring, cut its social services budget, and left employees in its religious institutions unpaid for three months. One high-ranking commander told an interviewer in early 2019 that the group had lost more than 40 percent of its Shia supporters, adding with remarkable candor: “We know that this figure will rise; however, we are not worried. Those we’ve lost have nowhere to go.”

That was the effect of a sanctions-induced revenue reduction. What Hezbollah faces now is categorically worse.

Between September 2024 and March 2026, Hezbollah has absorbed a series of blows that, taken together, amount to a structural crisis of the business model.

The Israeli military campaign in late 2024 killed Nasrallah and most of the senior leadership, destroyed significant military infrastructure, and, critically, struck multiple branches of al-Qard al-Hassan including a vault hidden underneath a residential building in Beirut. The targeting of the financial infrastructure was deliberate, an acknowledgment that Hezbollah’s durability rests on its economic base as much as its arsenal.

The fall of Assad in December 2024 severed the corridor through which Iranian cash had physically moved into Lebanon for decades, a point I explored in the previous piece in this series. The U.S. Treasury noted in November 2025 that Assad’s collapse “profoundly degraded” Hezbollah’s ability to conduct financial transfers, and that the organization’s finance team chief had been killed in October 2024, leaving his responsibilities split among multiple successors struggling to maintain operations.

Iran adapted. According to the same Treasury designation, the IRGC-Quds Force transferred over $1 billion to Hezbollah since January 2025, mostly through money exchange companies exploiting Lebanon’s cash-based economy. But this adaptation was already under pressure: the Lebanese government began searching flights from Iraq and Syria, the central bank banned Lebanese financial institutions from working with al-Qard al-Hassan, and the U.S. sent a Treasury delegation to Beirut in late 2025 explicitly pressuring Lebanese authorities to crack down on Hezbollah’s funding channels ahead of the May 2026 elections.

Then came the February 2026 strikes on Iran itself. Whatever financial capacity Tehran had been directing toward Hezbollah is now competing with the existential demands of regime survival, domestic reconstruction, and the costs of an ongoing war.

I keep thinking about this through the lens of something I encounter in my professional world: what happens to a highly leveraged institution when its primary source of capital is suddenly constrained.

The answer, in finance, is well understood. The institution doesn’t collapse immediately. It enters a period of managed contraction, cutting expenses, selling assets, drawing down reserves, deferring maintenance. For a while, it can maintain the appearance of normalcy. But each cut erodes the thing that made the institution valuable in the first place, and the erosion compounds. Customers leave. Talent leaves. The brand degrades. Eventually, the question shifts from “can it survive?” to “what does it become as it shrinks?”

Hezbollah is in that phase now. The social services network, the thing that sustains domestic legitimacy, is the most expensive line item and the most politically dangerous to cut. Fighters can be told to sacrifice for the cause. Families who depend on Hezbollah hospitals for their children’s medical care, who rely on al-Qard al-Hassan for interest-free loans they can’t get from a collapsed Lebanese banking system, who send their kids to Hezbollah-funded schools because the public alternatives are nonfunctional: those families experience a budget cut as an institutional betrayal. The Washington Institute described the 2019 austerity measures as “shaking the group’s image as a ‘father figure’ within the Shia community.” The current financial pressure is an order of magnitude greater.

The military dimension compounds the problem. Hezbollah’s February 2026 decision to launch strikes against Israel in retaliation for Khamenei’s killing triggered an Israeli response that included airstrikes on Beirut’s southern suburbs and the Bekaa Valley. Every strike destroys infrastructure that costs money to replace, money that is no longer flowing reliably from Tehran through a corridor that no longer exists. Hezbollah is now in the position of expending a depreciating arsenal to fight a war it cannot afford, in a country whose government has declared its military activities illegal and is actively working to disarm it.

The question I keep circling, the one that connects this piece to the larger argument of this series, is what Hezbollah becomes if the money doesn’t come back.

One possibility is that it contracts into something more purely military and less institutionally embedded, a fighting force that sheds the social infrastructure to preserve operational capacity. That would make it more dangerous in some ways (less constrained by the political costs of civilian casualties among its own base) and less durable in others (smaller, less popular, more vulnerable to being isolated by the Lebanese state).

Another possibility is that it doubles down on the criminal revenue streams, drifting toward something that looks increasingly like a narco-organization with political cover. Foreign Policy’s reporting on Hezbollah’s crime-terror nexus suggests this transition is already underway in certain parts of the network. But drug money, however lucrative at the individual level, has never been reliable enough or large enough to fund a parallel state.

A third possibility, and the one I find most analytically interesting, is that Hezbollah enters a period of political reinvention, surrendering military capability in exchange for political survival inside the Lebanese system. The May 2026 parliamentary elections will be a real test. The Lebanese government’s disarmament push, however difficult to enforce, changes the political calculus: Hezbollah’s allies can no longer present the weapons as a necessary complement to political participation. If the group’s finances are degraded enough that it can no longer fund the social services network that buys Shia loyalty, and if credible alternatives emerge (something the U.S. has been pushing for by directing aid through channels that bypass Hezbollah), the group’s political base could erode in ways that its military losses alone would not have produced.

There is a pattern across this series that I keep returning to. In the first piece, I wrote about the shadow org chart, the gap between how an institution appears and how it actually operates. In the second, the franchise model, the gap between how Iran’s proxy network is mapped and how it actually functions. In the third, the corridor, the gap between treating Syria as a political alliance and understanding it as a supply chain.

Here the gap is between Hezbollah as a military problem and Hezbollah as an economic institution. If you’re making decisions about Lebanon (as an investor, as a policymaker, as someone trying to understand what happens next in a country that has been falling apart for seven years), the financial question is the one that determines whether Hezbollah can sustain the institutional presence that gives it political power, and political power is what has made Hezbollah so durable for forty years. The money has always been the thing that held it together, and right now the money is in trouble.

Notes on the Middle East is written by Karlo Dizon. He works in global capital and geopolitical strategy. These are his personal views.

What broke when Syria fell was a road.

Or more precisely, a corridor: roughly 1,850 kilometers of overland route running from Tehran through Baghdad through Damascus to Beirut, through which Iran had been moving weapons, fighters, money, and intelligence to Hezbollah and its other regional partners for the better part of two decades. The Guardian’s Martin Chulov, one of the few Western correspondents to trace Soleimani’s direct involvement in planning the route, described it in 2016 as “an historic achievement more than three decades in the making,” an arc of influence coordinated by senior officials in Tehran, Baghdad, and Damascus. Secretary of State Pompeo warned about it publicly. The Israelis spent more than a decade bombing convoys along it. But the corridor’s significance was consistently discussed as a component of Iranian strategy rather than as the thing that made Iranian strategy possible. I think that distinction matters enormously for understanding why the region looks the way it does right now.

In the first piece in this series, I wrote about the gap between how power appears and how it actually operates. In the second, I argued that Iran’s proxy network was always more franchise than hierarchy, a set of locally rooted actors with their own agendas, held together by a coordinating hand. The corridor is the physical expression of both ideas. On paper, it was a supply route. In practice, it was the connective tissue that made the franchise cohere, that gave the coordinating hand something to coordinate with. And its destruction, which happened in stages rather than all at once, explains the timing and the logic of almost everything that has followed.

The corridor had three segments, and each of them broke differently.

The first leg, from Iran to Iraq, was always the most secure. It ran through Shia-majority territory, with cooperative Iraqi governments and Iranian-aligned militias controlling key border crossings. The IRGC’s Quds Force managed the logistics through specialized units, with flights carrying materiel from Iranian airports to Baghdad and Karbala and overland convoys moving through the border crossing at al-Qa’im into eastern Syria. According to the International Institute for Strategic Studies, Iran’s strategic importance through its networks and militias lay precisely in maintaining this corridor from Tehran to Beirut. The religious cover was elegant: the same routes that carried Shia pilgrims to holy sites in Iraq and Syria also carried weapons, hidden in civilian traffic, shielded by the sheer volume of legitimate travel. This leg is technically still functional, but its utility depends entirely on the second segment, which no longer exists.

The second leg, from Iraq’s western border through eastern Syria to Damascus, was always the most contested. It ran through Deir ez-Zor and the Euphrates valley, territory that ISIS controlled for years and that was never fully pacified even after the territorial caliphate’s defeat. The al-Bukamal border crossing and the nearby “Imam Ali” military base were the geographical cornerstones, the point where Iranian logistics entered Syrian territory and began the journey westward. Iran invested heavily in fortifying this segment, building military infrastructure, establishing proxy militias, and creating what amounted to an Iranian-controlled zone within a nominally sovereign Syrian state. When the Assad regime collapsed, this entire infrastructure was exposed: the militias scattered, the bases were abandoned or overrun, and the new HTS-led government had neither the incentive nor the inclination to maintain an Iranian transit route through its territory.

The third leg, from Damascus to Beirut, was the shortest and in some ways the most sophisticated. Hezbollah’s Unit 4400, tasked specifically with managing weapons transfers from Syria into Lebanon, operated smuggling networks that included tunnels running under the Syria-Lebanon border, warehouses along the Bekaa Valley, and a web of local collaborators on both sides. The Washington Post reported in detail on how Syria’s new rulers have been systematically dismantling these networks since taking power, stamping out what remained of the land bridge that Iran used to arm Hezbollah. Israel targeted this segment aggressively in the months before Assad’s fall, striking Unit 4400 infrastructure and border crossings. The Lebanese government’s subsequent push to disarm Hezbollah has further degraded whatever remained.

The corridor didn’t die in a single event. It degraded sequentially: Israel interdicted the Damascus-Beirut leg through airstrikes, the Assad regime’s collapse severed the Iraqi border-to-Damascus leg, and the first leg became a highway to nowhere. Each break happened for its own reasons, on its own timeline, but the cumulative effect was total. Hezbollah’s Secretary-General Naim Qassem acknowledged publicly in December 2024 that the supply line through Syria “no longer exists.” Chatham House’s assessment was blunt: Assad’s departure showcased “the limitations of Iran’s ‘unity of the arenas’ strategy,” leaving Tehran “in a defensive posture with its deterrence compromised.”

Israel understood the corridor’s significance before most Western analysts did, and its military campaign in Syria over the past decade is best understood as a long-running interdiction operation against a supply chain.

The campaign between wars, as the Israeli military called it, involved hundreds of airstrikes on weapons convoys, IRGC facilities, and Hezbollah-bound shipments moving through Syrian territory. The strikes were not primarily about Syria as a geopolitical actor. They were about Syria as a transit point, the place where Iranian logistics were most visible and most vulnerable. Israel was running a blockade without calling it one.

When Assad fell, Israel’s response was immediate and staggering in scale. Within the first two days, the Israeli Air Force conducted roughly 480 strikes across the country, systematically destroying Syria’s remaining military infrastructure: airfields, anti-aircraft batteries, missile systems, fighter jets, naval vessels. In the year since, Israel has attacked Syria more than 600 times, averaging nearly two strikes a day, while seizing additional territory in southern Syria beyond the UN-monitored buffer zone. Israeli Defense Minister Katz said forces would remain “for an unlimited time.”

The scale of this campaign tells you what Israel was most worried about: that the corridor might be rebuilt. A new Syrian government, however hostile to Iran in principle, might prove unable to prevent Iranian smuggling networks from reestablishing themselves in the chaos of a post-war state. The Washington Institute warned precisely this, noting that “Iranian arms smuggling has historically thrived in collapsed or weak state environments” and that the influx of reconstruction traffic into Syria could provide cover for renewed weapons transfers. Israel appears to have concluded that the only way to ensure the corridor stays broken is to ensure that nothing resembling a functional military exists in southern Syria at all.

This brings me to the argument I want to make, which connects the corridor’s destruction to the timing of the February 2026 strikes on Iran.

The conventional explanation for why the US and Israel struck when they did centers on politics (Trump’s second term, Netanyahu’s position) and military opportunity (Iran’s air defenses degraded from the June 2025 Twelve-Day War). Those factors are real. But I think the corridor’s severance belongs in the same analysis, because it fundamentally changed the cost calculus.

For years, the reason attacking Iran directly was considered prohibitively dangerous was Hezbollah’s deterrent: the tens of thousands of rockets and precision-guided missiles aimed at Israeli cities from southern Lebanon, capable of overwhelming Israel’s air defenses and inflicting devastating civilian casualties. That arsenal was Hezbollah’s, but the ability to sustain it, to replace what was expended, to upgrade its precision, to maintain it operationally over time, depended on the corridor. Without the corridor, Hezbollah’s arsenal is a depreciating asset: still dangerous, still capable of enormous destruction in the short term, but unable to be replenished.

The September 2024 killing of Nasrallah and the dismantling of Hezbollah’s senior military leadership weakened the human side of the deterrent. The corridor’s collapse weakened the material side. Together, they reduced the expected cost of striking Iran to a level that Washington and Jerusalem apparently judged acceptable.

I don’t want to overstate this. The decision to launch Operation Epic Fury involved factors I have no visibility into, intelligence assessments, political calculations, personal dynamics between Trump and Netanyahu that I can only speculate about. But the structural argument seems clear: the corridor’s destruction was a precondition for the strikes, whether or not it was consciously discussed as one. You don’t hit the factory when the distribution network is still intact. You hit it after the distribution network is already broken.

What happens to the corridor now is one of the questions that will determine whether the current reconfiguration of the Middle East holds or unravels.

Iran has options, and the Washington Institute has catalogued them with some precision: maritime routes from Iranian ports through the Red Sea and Suez Canal to the Lebanese coast, air transport through third countries, overland routes through Iraq and Jordan, or even attempts to reestablish relationships with the new Syrian government through economic inducements. None of these alternatives offers what the corridor offered. Maritime and air routes are visible, targetable, and low-volume compared to overland truck convoys. Jordan is actively hostile to Iranian smuggling. The new Syrian government has no incentive to invite Iranian infrastructure back onto its territory. And Iran itself, under bombardment and in the middle of a leadership crisis, is in no position to rebuild anything.

As Chatham House noted, Iran is now “in a defensive posture with its deterrence compromised,” and while it will look for opportunities to build back, it must do so while simultaneously navigating a leadership crisis and potential accommodation with Washington. Reports suggest Iran may even be eyeing Sudan and Libya as alternative transit points, a measure of how far the options have degraded from a secure overland highway to improvised detours through collapsing states on a different continent.

This is the supply chain problem at the heart of the franchise’s fragmentation. The proxies can want to fight. They cannot be resupplied to fight at the scale that once made them dangerous. Hezbollah’s arsenal is finite. The Houthis have adapted by manufacturing weapons domestically, which buys them autonomy but underscores how severed the network has become. The Iraqi militias are embedded in their own political context and have shown more interest in domestic power consolidation than in serving as Iran’s forward operating force.

I keep returning to the idea that in this part of the world, geography is destiny in ways that are easy to forget when you’re looking at maps of political alliances and ideological affinities. The corridor was a geographic fact before it was a strategic concept. It existed because Iran, Iraq, Syria, and Lebanon share contiguous borders, because the terrain permits overland transit, because the populations along the route were sympathetic or at least acquiescent. When analysts talk about Iran’s “arc of influence” or its “Shia crescent,” they are, whether they know it or not, describing a road.

The road is broken. And until someone figures out how to fix it, or how to replace it with something that works comparably, the architecture that Iran spent four decades building will continue to degrade, one franchise at a time, in ways that are locally unpredictable and collectively irreversible.

Notes on the Middle East is written by Karlo Dizon. He works in global capital and geopolitical strategy. These are his personal views.

The error is this: if you believe the octopus, you believe that killing the brain collapses the tentacles. And if you believe that, you are currently expecting either coordinated retaliation (the tentacles striking in concert, following orders from Tehran) or coordinated collapse (the tentacles going limp without instruction). Neither of those appears to be what is happening. What seems to be happening instead is that each node in the network is making its own calculation, based on its own local circumstances, with its own survival as the primary variable. Which makes this a very different kind of problem than the one most analysts, and most governments, have been planning for.

I want to trace how we got here, because I think the history of how these relationships were actually built explains why they’re fragmenting the way they are.

The standard origin story of Iran’s proxy network begins with the Islamic Revolution in 1979, which is true enough as a starting point but obscures the thing that actually matters about how the network was constructed. The revolution gave Iran an ideology to export: Khomeini’s vision of velayat-e faqih (guardianship of the Islamic jurist) extended naturally, at least in theory, to Shia communities across the region who had their own grievances and their own reasons to listen. But ideology alone has never sustained a militia. What sustained Iran’s network was something more specific and more personal, and for most of the last three decades it had a name: Qasem Soleimani.

Soleimani’s essential idea was to locate existing movements with political and military capacity in foreign states, build their strength with Iranian money, weapons, and training, and transform them into instruments of Iranian influence. In the useful phrasing of one Lebanese analyst cited by the Middle East Forum, Soleimani’s method was to insert a kind of Iranian-controlled “deep state” into the body of an existing state.

Soleimani ran the IRGC’s Quds Force from 1998 until his assassination by the United States in January 2020, and the way he built Iran’s regional architecture tells you almost everything you need to know about why it is behaving the way it is now. He did not build a command-and-control structure. He built relationships. As a former militia coordinator who later defected described it, Soleimani “acted like a spiritual father in networks akin to a mafia head,” maintaining personal relationships with leaders at every level, managing separate budgets and objectives, ensuring that each proxy group believed it had the closest relationship with him. He flew to Beirut and sat with Hezbollah commanders. He was on the ground in Iraq during the war against ISIS, personally directing operations alongside Iraqi militia leaders who owed their positions, their funding, and in some cases their lives to him. He cultivated the Houthis in Yemen, brokered relationships between groups that had little in common besides their utility to Iranian strategy, maintained the whole architecture through personal trust, personal loyalty, and an extraordinary willingness to be physically present in the places where it mattered.

The network Soleimani built worked the way franchise systems work: shared branding (the “Axis of Resistance”), resource flows from the center (money, weapons, training, intelligence), ideological alignment on a few core principles (opposition to Israel, opposition to American hegemony, Shia solidarity), and significant local autonomy on everything else. Hezbollah ran its own domestic political operation in Lebanon, fought its own wars on its own timetable, maintained its own social services infrastructure, collected its own taxes. The Houthis were fighting a civil war in Yemen that had its own logic long before Iran got involved, and their military operations in the Red Sea served Tehran’s interests and their own simultaneously. The Iraqi militias were embedded in Iraqi sectarian politics and pursued Iraqi objectives, sometimes in alignment with Iran and sometimes in tension with it.

What held the franchise together was the coordinating hand. Soleimani was, in the language of the business world, the franchisor: the person who kept the brand coherent, resolved disputes between franchisees, allocated resources, and ensured that local autonomy didn’t drift into local incoherence. When the United States killed him in 2020, the network absorbed the blow, but it absorbed it unevenly. His successor at the Quds Force, Esmail Qaani, was by most accounts a competent administrator who lacked Soleimani’s personal relationships, his operational daring, and his willingness to show up. Qaani was reportedly so concerned about his own safety that he became far less active, avoided the face-to-face meetings that had been Soleimani’s primary instrument, and lost the ability to balance competing proxy groups the way his predecessor had. The franchise continued to operate. The coordination got looser.

Hezbollah is the oldest and most sophisticated franchise in the network, and its history with Iran is the one I find most instructive for understanding what is happening now.

The group was born in 1982 during Israel’s invasion of Lebanon, midwifed by Iranian Revolutionary Guards who arrived in the Bekaa Valley and began training, funding, and organizing a Shia militia from a population that had genuine and longstanding grievances against both Israel and the Lebanese political establishment. Iran provided the resources and the ideology. Lebanon’s Shia community provided the fighters, the anger, and the social base. From the beginning, the relationship was symbiotic: Hezbollah served Iran’s strategic interests by establishing a deterrent on Israel’s northern border, and Iran served Hezbollah’s interests by giving it the means to become the most powerful non-state military force in the region.

Over forty years, Hezbollah became something that complicates the word “proxy” almost to the point of uselessness. As one analysis of Iran’s proxy network noted, Hezbollah has “outgrown its proxy status and reached near peer status with the Quds Force,” even becoming a middleman helping Iran train other militias. It built hospitals, schools, a telecommunications network, a media empire, a political party with seats in parliament and ministers in government. It fought a war with Israel in 2006 that ended in something the Arab world read as a victory, the first time an Arab force had fought Israel to a standstill in living memory. It became, in effect, a state within a state, with its own foreign policy, its own military doctrine, and its own domestic constituency whose loyalty was to Hezbollah first and to Iran only insofar as Iran enabled Hezbollah to deliver.

This is the crucial point. Hezbollah’s relationship with Iran was always transactional at its core, even when it was also ideological. Tehran provided money (estimates have ranged from $700 million to over $1 billion annually), weapons, and strategic coordination. Hezbollah provided Iran with a credible deterrent against Israel: the implicit promise that any attack on Iran would trigger a devastating missile barrage on Israeli cities from Lebanon. That deterrent was the insurance policy. It was the reason attacking Iran was supposed to be too costly to contemplate. And it had already failed once: during the Twelve-Day War in June 2025, all of Iran’s proxies, without exception, elected to stay out of the fight.

Two things happened to that insurance policy before Khamenei was killed. First, Israel systematically dismantled Hezbollah’s senior military leadership in 2024, killing Hassan Nasrallah (Hezbollah’s Secretary-General and Tehran’s most trusted regional partner), most of the group’s senior military commanders, and much of its operational infrastructure. Second, the fall of Assad’s regime in Syria in late 2024 severed the land corridor through which Iran had supplied Hezbollah for decades. By the time the US-Israeli strikes hit Tehran in February 2026, Hezbollah was already a diminished force: its leadership reconstituted under Naim Qassem, its arsenal still formidable but its supply lines cut, its domestic political position weakened in a Lebanon that was moving toward parliamentary elections and openly debating Hezbollah’s disarmament.

When Khamenei was killed, Hezbollah launched rockets and drones at Israel, explicitly linking the attack to Khamenei’s assassination. But the analysts I’ve read on this are nearly unanimous that the decision was driven less by loyalty to Tehran than by Hezbollah’s belief that it was next on Israel’s target list. It was a preemptive move, an attempt to demonstrate continued relevance and capability at a moment when the group feared being destroyed. The Lebanese government responded by declaring all Hezbollah military activity illegal and ordering its disarmament. Hezbollah responded by launching more strikes the following day, essentially daring the Lebanese state to enforce the ban.

This is a franchise in crisis, fighting for its own survival, in a local political context that has its own logic entirely independent of what is happening in Tehran. The question Hezbollah faces is not “what does Iran want us to do?” The question is “can we survive the next six months in Lebanon?”

The Stimson Center’s analysis of the network’s future puts it well: the proxy network was “already in disarray before Khamenei’s death,” and its future is now “directly tied to Iran’s internal transition.” The question is whether a hardline IRGC consolidation can hold it together or whether each node drifts further into its own orbit.

The Houthis present the opposite problem. Where Hezbollah is an old, deeply institutionalized franchise whose relationship with Iran is layered and complex, the Houthis are a newer and more autonomous partner whose alignment with Tehran has always been more opportunistic.

The Houthis began as a Zaydi Shia revivalist movement in northern Yemen in the 1990s, fought a series of wars against the Yemeni government between 2004 and 2010, and seized the capital Sana’a in 2014 during Yemen’s civil war. Iran’s involvement grew over time: weapons, training, financial support, intelligence sharing. The IRGC helped the Houthis develop their ballistic missile and drone capabilities, which by 2023 had become sophisticated enough to strike targets in Saudi Arabia, the UAE, and eventually Israel and international shipping in the Red Sea.

But the Houthis were never an Iranian creation in the way that Hezbollah was, and their military campaigns have always served a dual purpose: advancing Iran’s regional interests and consolidating Houthi control over Yemeni territory. Their Red Sea shipping campaign, which disrupted roughly 10-15% of global seaborne trade at its peak, was framed as solidarity with Gaza. It was also a bid for regional standing, a demonstration that the Houthis could impose costs on the global economy in ways that gave them a seat at tables they had previously been excluded from. As one analysis put it, the relationship between the Houthis and Iran is “convergence, not command: overlapping interests expressed through a campaign serving both actors, but not entirely owned by either.”

When the US-Israeli strikes hit Iran, the Houthis announced they would resume Red Sea attacks. But as of this writing, the announcement has not been followed by action. The Stimson Center published a detailed analysis of the Houthis’ decision calculus noting that the group initially “showed restraint, announced political solidarity with Iran while signaling a posture of deliberate, conditional restraint.” The Houthis signed a deal with Trump last May to stop attacking American ships, and resuming attacks means risking that agreement. They have also, according to Foreign Policy, begun manufacturing their own weapons domestically, which reduces their dependence on Iranian supply chains and gives them more room to make independent decisions. The Houthis are, in franchise terms, developing their own product line and weighing whether the brand is still worth the cost of membership.

Iraq is the most complicated case, and the one where the franchise metaphor strains the most.

Iran’s relationships with Iraqi Shia militias were forged in the chaos of the post-2003 occupation, when the fall of Saddam Hussein created a power vacuum that Tehran filled with extraordinary speed and skill. The IRGC’s Quds Force, under Soleimani, cultivated a constellation of armed groups (Kataib Hezbollah, Asa’ib Ahl al-Haq, the Badr Organization, and others) that served simultaneously as Iranian proxies, Iraqi political parties, and participants in the US-backed campaign against ISIS. The relationships were personal, built by Soleimani through years of direct engagement, and they were embedded in Iraqi politics in ways that make the word “proxy” misleading. These groups have ministers in the Iraqi government. They control significant economic resources. They have their own domestic constituencies.

When Khamenei was killed, two Iraqi groups expressed readiness to defend Iran and Kataib Hezbollah claimed drone attacks on US bases in Baghdad and Erbil. But the most striking detail I’ve encountered in the reporting is that during the January 2026 protests in Iran, there were credible reports of Iraqi militia members being deployed inside Iran to help suppress demonstrations. The “proxy” was being used as domestic riot police. That tells you something about what the relationship has become and what Tehran’s priorities actually are: the network is as much an instrument of internal regime security as it is a tool of regional power projection.

I’ve been thinking about this through a lens that comes from my professional life. In the world I work in, people talk about “platform risk,” the danger of building your business on someone else’s infrastructure, someone else’s rules, someone else’s continued existence. If the platform changes its terms, or collapses, or simply loses interest, the businesses built on top of it are exposed. They don’t vanish. They scramble. As Small Wars Journal argued this week, the proxy network “was never the target of Operation Epic Fury at all,” and what no air campaign alone can destroy is “Iran’s forty-year strategic investment in a distributed proxy architecture.”

Iran’s proxy network is experiencing platform risk. The platform (Tehran’s coordinating hand, its funding streams, its strategic direction) has been severely damaged. The franchises built on top of it are not collapsing. They are scrambling, each one making independent calculations about survival that reflect their local circumstances far more than they reflect any coordinated strategy from a capital that is itself in crisis.

This is, I think, the most important thing to understand about what happens next: the network is weaker as a coordinated force and harder to resolve as a diplomatic problem, because there is no single counterparty. You can negotiate with a hierarchy. If the Supreme Leader says stop, the system can, in theory, transmit that order. What you cannot negotiate with is a set of dispersed actors pursuing local survival, each with its own red lines, its own constituencies, its own reasons to escalate or hold back. The Chertoff Group, in a threat assessment published this week, put it directly: “Organizations should treat the proxy network as a distributed threat that does not require central Iranian command to activate.”

I want to be careful with the franchise metaphor, because it can flatten real differences. Hezbollah’s forty-year institutional depth is nothing like the Houthis’ decade of insurgent opportunism, and the Iraqi militias occupy a different political position entirely. But what the framework captures, and what I think matters most for anyone making decisions about this region right now, is that the assumption of central control was always partly a fiction, and the fiction is now fully exposed. Each franchise has its own P&L, its own market, its own competitors. Tehran was the brand. The brand is in receivership.

Whether that makes the region more dangerous or less depends entirely on which franchisee you’re looking at, and what their local incentives demand. That is the kind of problem that does not resolve quickly, does not resolve through a single negotiation, and does not resolve at all if you’re still looking at the octopus map.

Notes on the Middle East is written by Karlo Dizon. He works in global capital and geopolitical strategy. These are his personal views.

When Ali Khamenei was killed in the joint US-Israeli strikes, the assumption among most Western observers was that the succession would be chaotic, contested, a drawn-out power struggle among senior clerics and IRGC factions. That isn’t what happened. The Assembly of Experts, reportedly under heavy pressure from the IRGC, moved within days to name Khamenei’s son Mojtaba as the next Supreme Leader, and they did it while the country was still under active bombardment. The question I keep circling is whether that speed tells us the outcome was planned all along, or whether something else is going on, something that implicates how we read power in this part of the world more broadly.

This newsletter is an attempt to think through questions like that one, in public, at the pace they arrive. I’ve spent years working on the intellectual agenda for rooms where Gulf sovereign wealth funds and the biggest names in global finance sit together and try to make sense of the world, and the Middle East has always been central to that work. What I haven’t done, until now, is force myself to write about the region, which is a different discipline entirely, one that makes you commit, makes you find out where your understanding is solid, where it’s thinner than you thought. I’d rather do that honestly than perform expertise that goes beyond what I actually know.

So: Mojtaba. Here is what I find genuinely puzzling about him.

The Islamic Republic was born from a revolution that dismantled dynastic rule, and that was the entire point of the enterprise. The Pahlavis, a monarchy backed by Washington, were replaced by a clerical republic that derived its legitimacy from God and the people rather than bloodlines. Father-to-son succession is, within that founding logic, practically heretical, and Khamenei himself reportedly opposed it.

And the son in question does not look, on paper, like someone the system should have elevated. Mojtaba is 55 years old and has never held government office. His theological credentials are, by the standards of Iranian clerical hierarchy, thin. He spent three decades operating without a title, without a public role, and by most accounts without much of a public presence at all. What he had was proximity to his father and the informal networks he built from that proximity: relationships with IRGC commanders, with Assembly members, with the constellation of figures who orbited the Office of the Supreme Leader.

The speed of the succession invites a clean reading: this was a contingency plan, long prepared, executing on schedule. I’m drawn to that interpretation and also a little suspicious of it. Trump himself told us the strikes had “knocked out most of the candidates”, which means the senior clerics and established figures who would normally populate a succession conversation were already dead. About 40 senior officials were killed in the opening strikes alone. Mojtaba may have been the plan all along, or he may have been the last viable option in a field the strikes had already collapsed. The truth probably involves both, in proportions we can’t yet see clearly, and I want to resist the temptation to make the story tidier than it actually is.

What does seem clear is that Mojtaba’s informal networks were what allowed the succession to happen at all under those conditions. Whatever else was going on, the formal system did not produce this outcome; the informal one did.

When Trump announced the strike results, he was, probably without intending to, revealing something important about how American intelligence had been thinking about Iranian succession.

The United States had a mental map that centered on visible figures: senior clerics, established administrators, men with formal roles and public profiles. And it’s worth pausing here, because I don’t think the problem was that they didn’t see Mojtaba. The CIA had been tracking the movements of senior Iranian leaders, including Khamenei, for months. Anyone surveilling Khamenei’s inner circle with any seriousness over a period of years would have seen Mojtaba the way anyone watching the Trump White House would have seen Jared Kushner: obviously central, regardless of title. The intelligence community almost certainly knew he was a principal.

The deeper failure, if there was one, may have been in how they assessed what the system would do with him. The theological and ideological barriers to dynastic succession were real and well-documented, and I suspect the prevailing assessment was that those barriers would hold, that the Islamic Republic’s founding mythology was too strong to permit a father-to-son transfer of power even if the son happened to be the most connected figure in the regime. That turned out to be wrong, and it’s the more interesting kind of intelligence failure: they understood his influence and misjudged how the institution would behave under the stress of a decapitation strike. Which is, if you think about it, a much more common way that sophisticated people get things wrong.

I see versions of this in my own professional world all the time, people who understand every node on the org chart, can map the formal power structure of any institution with real precision, and still get blindsided when the institution does something the chart didn’t predict. The formal architecture is legible. The informal one, the thing that actually determines outcomes under stress, is much harder to see.

There is a concept in organization theory, one I’ve spent years thinking about in the context of how major institutions actually function versus how they present themselves, sometimes called the shadow org chart.

Every institution has one: the map of who actually makes decisions, who actually gets listened to, who holds informal veto power over things that nominally belong to someone else. The shadow org chart and the official org chart almost never match, and in most organizations the gap between the two is a source of dysfunction. What makes Iran unusual is that the gap appears to have been the succession mechanism itself.

Mojtaba’s power grew entirely through proximity, through the slow accumulation of trust inside a system that prizes loyalty above almost everything else. The Islamic Republic spent thirty-five years building a structure in which the shadow org chart was the operative chain of command, even if no one would have described it that way, and when the crisis came it was the shadow chart that held, the formal one barely registering.

I want to be careful with this framework, because it can explain too much. Every surprise looks inevitable in retrospect once you have the right lens. The shadow org chart is a useful way to think about how Mojtaba was positioned; it is less useful as a prediction of what happens next, when the informal networks that elevated him will be under enormous strain from every direction at once. Still, if the reading is even partially right, it raises an uncomfortable question: how many other things about how Iran actually works have we been misreading because we kept looking at the official chart?

Mojtaba now occupies a position that is close to ungovernable.

He inherits a country under active military attack, a succession that the most constitutionalist elements of the clerical establishment will view as illegitimate, and his father’s vow of qisas (retribution, life for life) against a Trump administration that now carries the weight of both Soleimani’s killing and Khamenei’s. He inherits an IRGC whose command structure is reportedly in partial disarray and a public that was already in the streets before the bombs fell. And he must make, almost immediately, the hardest strategic decision an Iranian leader has faced in decades: escalate, or find a path toward de-escalation that doesn’t read, domestically, as surrender.

The most compelling analysis I’ve read argues that Mojtaba may be better positioned to make a deal than anyone, and the reason is lineage. There is no evidence he is a moderate. But he is the son of the martyr, and if he decides that the regime’s survival requires compromise, he can frame that compromise as a continuation of his father’s project rather than an abandonment of it. Whether he makes that choice, or whether Washington and Jerusalem target him before he gets the chance, may determine what this region looks like for the next generation.

I started with Mojtaba because his rise captures the question I want this newsletter to keep circling: the gap between how power appears and how it actually operates. That gap is wide in this part of the world, and I encounter versions of it constantly in the rooms I work in, where very smart people make decisions based on maps that may not match the territory. Closing that gap, even partially, even imperfectly, seems like the most useful thing I can try to do here.

I won’t always get it right, but I’ll tell you when I’m guessing, update when I’m wrong.

More soon.

Notes on the Middle East is written by Karlo Dizon. He works in global capital and geopolitical strategy. These are his personal views.