Welcome to a special edition of Balance of Power on the Israel-Iran conflict. Each weekday we bring you the latest in global politics. If you haven’t yet, sign up here.

The Middle East is on the cusp of what may turn out to be one of its most consequential moments in decades.

The toppling of Iran’s Western-backed shah in the 1979 revolution paved the way for the establishment of the Islamic Republic — a geopolitical earthquake that reverberated across the region and beyond for years.

The Middle East is again bracing for a shifting of the plates following Israel’s decision to finally act on its decades-long threat to bomb Iran’s nuclear facilities and its brazen decapitation of top commanders.

Iran called it a declaration of war, and responded with a missile barrage fired at Israel’s commercial capital Tel Aviv and other sites.

But what has focused the attention of leaders in global and regional capitals is Prime Minister Benjamin Netanyahu’s decision to wage what has all the hallmarks of an open-ended campaign designed ultimately to provoke a collapse of Iran’s clerical regime from within.

It’s this scenario and all its potential repercussions that’s preoccupying leaders of Iran’s Gulf Arab neighbors, who tried for months to get Tehran to agree to a deal with the US.

Saudi commentators say the region is now in the midst of conflict like no other going back to the US invasion of Iraq in 2003 or even the Iran-Iraq war of the 1980s — incidentally, the last time Tehran witnessed attacks of this scale.

Damage to a building hit by a ballistic missile launched from Iran in Bat Yam, Israel. Photographer: Kobi Wolf/Bloomberg

Much depends on how far the two central players are willing to go.

Netanyahu is betting that he can not only destroy Iran’s nuclear program but finish off an existential enemy, and that Washington, his main backer, will come on board if necessary.

If it comes to all-out war, Iran’s Supreme Leader Ayatollah Ali Khamenei will hope that Iranians rally around the regime.

It’s an option he was already mulling during talks with President Donald Trump’s administration, according to Reza Bundy, chief executive of national-security focused asset manager Atlas, who said that an attack was preferable to what the regime would consider “a bad nuclear deal.”

Either way, a series of strategic gambles by each side are now playing out, with the consequences potentially momentous. — Sam Dagher

Ayatollah Ali Khamenei in 2024. Photographer: Majid Saeedi/Getty Images

Global Must Reads

Israel and Iran swapped intense bombardments for a third day, with the death toll mounting and growing international concern the conflict will spread. Since Friday, 14 people have been killed in Israel by Iranian strikes and almost 400 injured, Israel’s emergency services said, while the government in Tehran said that at least 80 people in Iran have been killed.

Trump said that it’s possible the US could become involved in the Israel-Iran conflict, while noting that it is not “at this moment.” The president, who discussed the crisis in a roughly hour-long phone call yesterday with Vladimir Putin, said that he would be “open” to having the Russian leader mediate the conflict, adding in a social media post that many calls were taking place and “we will have PEACE, soon.” 

Plumes of heavy smoke rise from an oil refinery in southern Tehran today after it was hit in an overnight Israeli strike. Photographer: Atta Kenare/AFP/Getty Images

Egypt’s pound weakened and its stock market plunged the most in five years today as the attacks stoked fears of regional spillover. Import-dependent Egypt, which is trying to turn around its economy after securing a $57 billion global bailout, is particularly vulnerable to the economic shockwaves stemming from the Middle East’s latest round of conflict.

Multiple Israeli airstrikes dealt critical damage to an Iranian nuclear facility at Isfahan, some 400 kilometers (250 miles) south of Tehran, according to the United Nations atomic watchdog, likely setting back the Islamic Republic’s uranium fuel cycle by months. Successfully knocking out Isfahan would be significant because it’s the only location for converting uranium into the feedstock used by centrifuges, which in turn separate the uranium isotopes needed for nuclear power or bombs.

Satellite view of the Isfahan enrichment facility following Israeli airstrikes yesterday. Source: Maxar Technologies

Trump vetoed an Israeli plan to kill Iran’s Supreme Leader after Israeli officials said they had an opportunity, according to a senior US official.

Read our QuickTake explainer on the context behind why Israel attacked Iran now, and what to watch for next. 

The UK is moving fighter jets and refuelling planes to the Middle East to protect its military bases, Prime Minister Keir Starmer said, as he urged Israel and Iran to de-escalate their conflict. 

Financial markets are set to reopen tomorrow with investors squarely focused on escalating geopolitical tensions as Israel and Iran continue to bombard each other with no sign of a pause.

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Chart of the Day

The unfolding Middle East crisis extended to Iran’s energy infrastructure as Israel launched an attack on the giant South Pars gas field in the Persian Gulf, threatening further turmoil for markets and in oil futures when trading resumes after the weekend. The targeting of energy assets represents a new front in the conflict, heightening the risk to oil infrastructure in OPEC’s third-biggest producer and to shipments from elsewhere in the region. A further escalation that halts traffic in the Strait of Hormuz could send the cost of crude to as much as $130 per barrel, impacting central banks from the Federal Reserve to the ECB, according to Bloomberg Economics analysis.

And Finally

Nothing has been the same in Israel since the Hamas attack that triggered the war in Gaza 20 months ago. But the last few days are on a different scale after the country’s unprecedented strike against Iran, which retaliated with ballistic missile barrages that destroyed entire city blocks — despite Israel’s vaunted air defense. Anecdotally, the sense is that Israelis — at least Israeli Jews, who comprise 80% of the population — have rallied around the flag yet again for what could be a long, painful battle.

Men at the entrance to their damaged shop, following an overnight Iranian missile strike in Bat Yam, Israel. Photographer: John Wessels/AFP/Getty Images

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