Index trend
Previous quarterly editions
Expropriation risk: 75 74 75 75 ► Political violence risk:68 68 67 67 ►Terrorism risk:45 45 45 45 ►Exchange transfer and trade sanction risk: 82 82 73 73 ►Sovereign default risk:83 83 82 74 ▼
Overall Risk Temperature: 72 (Medium high -2) TREND ▼
Special topic: Gray zone aggression
Degree to which the country relies on outbound gray zone action to achieve its strategic objectives1 = Not at all5 = Gray zone action is a core tactic
5
Impact of inbound gray zone attacks on the country1 = Negligible impact5 = Significant impact on economic growth and/or political stability
1
The Islamic Republic government of Iran is well versed in pursuing gray zone aggression strategies that are aimed at two key objectives: to undermine the power and influence of the U.S. and its allies globally and to expand Iran’s own influence worldwide. To fulfill these objectives, Iran has engaged in various “sub-threshold” activities that advance Iran’s agenda yet do not prompt a major response by adversaries.
A clear manifestation of such strategies is the formation and expansion of Iran-backed groups across the Middle East and North Africa region. Iran has invested ideologically, politically and financially in creating a network of regional groups. Each group maintains unique relations with Iran and its own local constituencies. Some of these groups, such as the Islamic Movement in Nigeria, are contested by the incumbent government of their countries. Meanwhile some, including Hezbollah of Lebanon, are deeply integrated into their local political power structure. One key characteristic that is shared among these groups is their transactional relationship with Tehran. The Iranian sponsors have adopted a clear strategy in their relations with the regional groups, that is, to utilize their local network and influence to advance Iran’s own objectives.
In terms of the practical measures of gray zone aggression, Iran has been inspired by, and mimicked, other world powers’ gray zone activities. China is one example. Chinese government activities in South China Sea, aimed at power projection among other littoral states, have been copied by Iran in the Persian Gulf. The Islamic Revolutionary Guard Corps Navy patrols and use of intimidation and fear in the Persian Gulf are akin to those of the China Coast Guard and Chinese maritime militia in the South China Sea. Iran’s fascination with China’s maritime power projection strategies has also manifested in several rounds of joint maritime drills that have been conducted along with Russia, most frequently since 2018.
Iran gray zone aggression is ideologically motivated too. These activities have destabilized the regional security structure and are aimed at a complete dismantling of the existing regional order. Dismantling that order leads to chaos. Chaos in international affairs legitimizes Russia’s and China’s claim for a multipolar world as it highlights the flaws of the existing liberal order, undermines the power of the United States and its allies, and demonstrates Washington’s inability to maintain global liberal order.
For Iran, chaos also has a spiritual connotation: It is the prerequisite for the messianic end of the world theological concept in Shia faith. This is a key motivation for Iran’s gray zone aggression and particularly its support for regional groups.
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Most Western companies affected by the sanctions on Iran have left the country, thereby making the overall risk of expropriation of assets far less relevant than it might have been. The effect of this has been to make Tehran increasingly reliant on China for investment and oil exports. Given this reliance, Tehran is extremely unlikely to take actions that would alienate Chinese investors and importers; however, Iran occasionally seizes ships in nearby waters.
Iran remains at high risk for significant protests and political violence due to the combination of deep public anger toward the government and the regime’s determination to increase its control. Iran’s border regions also consistently face low-level political violence. The war in Gaza increases the risks of instability in the region, including Iran.
In 2022, Iran experienced the largest and most widespread protests since the 1979 revolution. Authorities responded with violence, killing hundreds. Since then, brutal repression has quelled large-scale, organized opposition, and the movement lacks a clear leader. Security forces continue to arrest government critics. Many protestors from earlier are still detained, and human rights groups have reported systematic torture and other abuse of prisoners. However, smaller forms of defiance are common across the country. Many women — especially young women — now refuse to wear a headscarf, despite monitoring by morality police and closed-circuit television cameras. Anger at the regime and desire for change is still simmering.
Though previously rare, terrorist attacks in Iran have become a greater risk, largely due to Sunni extremists targeting Shia sites. On January 3 this year, bombs, reportedly carried by suicide bombers, targeted a procession near the tomb of Major General Qassim Suleimani, in the city of Kerman. The attack killed 84 people and injured many more; it was the deadliest since the 1979 revolution. The Islamic State (IS) claimed credit for the attack. In August 2023, a gunman attacked the Shah Cheragh shrine, a major Shia holy site in Shiraz, killing one and injuring others; the Iranian government blamed IS. In October 2022, another IS-claimed attack on the same shrine killed 13 people. The 2021 Taliban takeover in Afghanistan increased the potential that IS and other violent extremist groups would find a haven for operations, increasing the risks for neighboring Iran; however, IS threats began before the Taliban’s takeover, with a 2017 attack in Tehran that was the first significant terrorist incident in the capital for years.
Iran also experiences regular low-level violence involving separatists and other groups in areas with large ethnic minorities — primarily, Kurdish, Balochi and Arab groups. Ethnic minorities played an unusually significant role in the nationwide protest movement of 2022 – 2023, which has increased violent incidents in some border provinces. In January this year, in an unusual exchange, Iran launched a missile strike against militant groups based in Pakistan, and Pakistan responded with its own strike on militants based in Iran. Both countries tend to take a pragmatic approach to their border relations, but the incident raised concerns about potential escalation.
Overall, a major escalation of sanctions is not expected for two reasons. First is the prospect of a diplomatic opening with Tehran under Iran’s current presidential administration. Although the Iranian president works in tandem with the office of the Supreme Leader, Western policymakers seem to remain hopeful that Iran’s president may be able to bring change in Iran’s strategy, hence their minimal desire to impose pressure on Tehran. Second, in recent years sanction circumvention efforts have proven to be more effective than the sanctions.
Iran has been ramping up its nuclear enrichment program. In February 2024, the U.S. watchdog reported that Iran was in possession of uranium enriched to 83.7%, very close to weapon standard, at Fordow enrichment plant. The International Atomic Energy Agency (IAEA) raised concerns over substantial changes to the cascades by implementing new cascade configurations for advanced centrifuges at Fordow without informing it. The stock of enriched uranium had also grown in the first quarter of 2024, according to the IAEA, from over 65 kilograms to over 87 kilograms.
U.S. and U.K. officials have raised concerns over potential nuclear collaboration between Iran and Russia. Iran has reportedly delivered short-range ballistic missiles to Russia to aid Moscow’s war effort in Ukraine. This has increased speculation over potential technology sharing between the two countries in the nuclear field.
There are several possible routes for imposing further sanctions on Iran. The first is through activating the snapback clause of United Nations Security Council (UNSC) Resolution 2231, adopted in 2015 as part of the Joint Comprehensive Plan of Action (JCPOA) signed between Iran, the five permanent members of the UNSC and Germany, and which forced restrictions on Iranian weapons. Under that resolution, Iran was prohibited from exporting and importing missiles, drones and related technologies without UNSC permission. The resolution expired in October 2023, keeping arms deals involving Iran and other states (including Russia) protected from international scrutiny.
Resolution 2231 was also designed to allow any participating state to trigger a snapback mechanism that would reimpose all the previous UNSC resolutions on Iran in case of a significant noncompliance by Tehran. The snapback clause itself will expire in October 2025. The Western participating states to the JCPOA have so far refrained from triggering snapbacks, as Tehran will perceive that as an escalatory move. Any further decision by the UNSC is also unlikely because of Russia’s veto right. Therefore, unless the Western signatories of the JCPOA are ready and willing to take harsh measures against Iran, the chance of a snapback mechanism will be very low.
In the current climate, the Western capitals seem to be more interested in finding some incentives, particularly with the new Iranian president, to bring Tehran closer and away from Russia and China. This seems unrealistic, in part because Tehran’s world vision is much more aligned with these countries than with the West.
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Economic conditions in Iran have been deteriorating due to a combination of corruption, mismanagement and sanctions. Despite the U.S.-imposed oil sanctions, in 2024 Iran has exported more oil than it has for the past six years. This has given the Iranian economy a boost of $35 billion. Tehran sold an average of 1.56 million barrels per day in the first three months of the year — the highest level since the third quarter of 2018. Almost all Iranian crude oil was sold to China. Nevertheless, operations through proxies and front companies to bypass banking sanctions have been costly, and price discounts for China have been high. Moreover, Iran’s regional strategies and its support of proxies have been costly and impose a negative effect of growth; the International Monetary Fund prediction for 2024 is around 3.3%, down from 4.7% last year.
