Realistic Disaster Scenario: What if a regional war breaks out in the Middle East?

IHS Markit works with a significant number of clients with global footprints, especially in insurance, providing realistic disaster scenarios. The goal of these scenarios is to consider events that are unlikely but would be impactful if they happened so that our clients can evaluate their books of business against potential losses. This is the first in a series of exercises considering a number of potential realistic disaster scenarios.

Our current view on regional war risks in the Middle East is that US-Iran negotiations are likely to lead at least to a partial lifting of sanctions; Iranian nuclear breaches to continue until then, but support for regional militia aggression and ballistic missile precision development will continue irrespective of a deal. However, for this exercise, we considered what it would look like if instead, risks rose significantly in the region.

Scenario: Nuclear negotiations stall amid escalating retaliatory attacks, culminating in Iran, the US, and Israel entering into a regional war.

Negotiations between the US and Iran run aground over reinforced constraints on Iran's nuclear programme as well as its ballistic missile programme and regional activity. To secure additional leverage, Iran continues ramping up its nuclear capacity and backing of armed activity carried out by regional militias. Iran-backed militias intensify their attacks on US forces in Iraq. Limited US response encourages further Iranian aggression, while more significant US retaliation - for instance, the assassination of a high-ranking Iranian military figure - also provokes additional Iranian-backed attacks. Meanwhile, to contain Iran and potentially derail Iran-P5+1 negotiations, Israel likewise increases its own attacks.

Neither the US nor Iran seeks war, but this continued escalation culminates in a "final straw" event that inadvertently takes all parties into open war. One potential trigger event for this would be a Western/Israeli assessment, contained in leaked intelligence reports, that Iran is undertaking measures bringing it imminently closer to a nuclear device, in response to repeated sabotage or assassinations targeting its nuclear industry.

The perceived imminence of a nuclear Iran pushes Israel towards a military campaign featuring airstrikes on surface nuclear infrastructure, and a mixture of "smart" "bunker-busters" and covert sabotage targeting Fordow and Natanz's underground nuclear facilities. Israel, however, lacks the necessary type of "bunker-busters" to penetrate the deepest facilities and needs the US's most advanced 13.6-tonne massive ordnance penetrator for that purpose, or an aircraft capable of its delivery. Even if the US initially disapproves of Israel's military strikes, once Iran retaliates around the region, the Biden administration finds itself drawn, under pressure from Congress, into the war alongside Israel.

Another trigger event for US entry into the war would include an attack by a regional militia in Iraq, Syria, Lebanon, or the southern Gulf, traceable with high confidence to Iranian direction, and causing significant US/Israel casualties. This would lead to overwhelming domestic pressure to retaliate.

Initial strikes on Iran focus on the most proliferation-risky nuclear facilities, specifically Fordow, Natanz, the Arak heavy-water plant, and any military site suspected of hosting weaponisation experiments. These airstrikes are preceded by significant and simultaneous covert "ground-softening" sabotage using agents and cyberattacks.

As hostilities expand, the US and Israel mount kinetic and cyber strikes on IRGC bases, attempting especially to incapacitate naval and aerospace/missile assets deployed along the Gulf and stretching northwestward along the Iraqi border. Throughout Iran, the US and Israel also use both kinetic and cyberattacks to strike communications infrastructure, defence and aerospace industries, and naval bases and civilian airstrips assessed to be used for military purposes. They otherwise refrain from targeting cities and, where avoidable, critical civilian infrastructure such as water and power utilities. If sustained, these strikes also target oil/gas/petrochemical exporting maritime ports including Mahshahr, Asaluyeh, and especially the Kharg Island Oil Terminal, which handles 90% of Iran's crude exports.

Bandar Imam Khomeini, Khorramshahr, and Chabahar, ports that process non-energy cargo, sustain relatively less damage, if at all. However, ports in the vicinity of military bases, including Bandar Abbas, Mahshahr, Bandar Bushehr, and Kharg Island suffer significant damage. Attacks on the Bandar Bushehr area pose low-to-moderate risks of collateral damage to the Bushehr Nuclear Power Plant 10 km to the south. Other than disruptions, the attacks cause port infrastructural damage requiring months to repair.

Meanwhile, Iran responds with missiles (ballistic, cruise, and anti-ship), weaponised drones, and both surface and submarine naval combatants targeting US forces around the Gulf and US bases, air-defence radars, and systems throughout the southern Gulf, Iran, and its client militias. Southern Gulf maritime ports at highest risk of being targeted in a regional war include Dammam/King Abdulaziz, Ras Tanura, Jubail (alongside the nearby King Abdulaziz Naval base), Abu Dhabi, Fujairah, Jebel Ali, and Khalifa Bin Salman. Port activity is disrupted for some weeks, and ensuing damage requires weeks to months to repair.

In the Levant, Lebanese Hizbullah launches rocket/missile salvos and weaponised drones into Israel. The range of these attacks encompasses the entire north region of Israel, including Haifa port, and as deep into Israel as Tel Aviv and Ben Gurion International Airport. Missiles occasionally go beyond these ranges. From Gaza, militant groups - notably Palestinian Islamic Jihad - fire rockets into areas surrounding Gaza to a range reaching at least Tel Aviv and covering Ashdod port. Israel's multi-layered missile defence system intercepts most projectiles aimed at populated areas, but under salvo fire, many projectiles manage to overwhelm air defences. Hostilities disrupt civil aviation and shipping for days, stretching into weeks.

Iran blockades and mines the Strait of Hormuz and uses anti-ship missiles to target nearby commercial vessels linked to the US and its allies, which challenge Iran's blockade. While some shipping continues, US-allied forces are unable to fully ensure the safety of merchant shipping.

• In Iraq, the 2,500 US soldiers in the country become even more exposed to attacks by Iran-backed Shia resistance militias.
• In Syria, US aerial attacks target Iranian and/or pro-Iranian forces - especially in eastern Syria's Deir Ezzor province and its Bu Kamal region on the Iraqi border.
• In Israel, militants in the surrounding region, most prominently Lebanese Hizbullah, launch rocket and missile salvos along with attack unmanned aerial vehicles (UAVs) into Israeli territory, spanning northern Israel and the Golan Heights to Be'er Sheva region.
• In Lebanon, the IDF conducts a major air campaign targeting broad swaths of southern Lebanon, southern Beirut's Dahiya area, and Baalbek.
• In the UAE, commercial and especially energy shipping in UAE waters both in the Middle East Gulf and the Gulf of Oman (especially off Fujairah's coast) are likely targets for sabotage, as are Emirati oil, gas, and petrochemical facilities.

Listen to our podcast on our RDS scenario. The full report, including the full text for the individual countries, indicators that this scenario is becoming more likely, and damage factors is now available.

Posted 14 June 2021 by Kevjn Lim, Senior Risk Advisor, Middle East and North Africa, Country Risk, IHS Markit