On September 27, the Israeli military announced that it killed Sayyed Hassan Nasrallah, the long-term leader of Hezbollah, in an airstrike on the militant group’s headquarters near the Lebanese capital Beirut. The Israeli military continued to bombard parts of Lebanon over the weekend as representatives of Hezbollah promised to continue fighting despite the death of its leader, who had led the group since 1992. So far, an estimated 1,000 people are believed to have been killed and thousands more have been wounded, while roughly a million residents were forced to evacuate affected areas in southern Lebanon. On October 1, the Israel Defense Forces (IDF) launched a ground offensive into southern Lebanon, allegedly to destroy what the Israeli Government perceives as militant infrastructure along the border such as tunnels, rocket launchers, and weapons caches to protect its border communities from future attacks. Since the Hamas incursion into Israel last October, around 60,000 residents had to leave towns and cities along Israel’s northern border due to intermittent rocket fire from Lebanon.
Israel also struck several targets in Yemen, including power plants and seaport facilities, in recent days after members of the Houthis, another Iran-backed militant group, fired missiles at Israel. Israel has continued its offensive in the Gaza Strip as well, where dozens of people were killed in Israeli airstrikes in the last couple of days. In Syria’s capital Damascus, three people were killed and several others injured by Israeli airstrikes in the early morning hours of October 1. Following Israel’s latest strikes, Iran launched around 180 missiles at Israel on October 1 in retaliation but caused relatively little damage.
With the conflict between Israel and Hezbollah not only at risk of escalating further in the coming days as Israel mulls the potential retaliation for Iran’s missile strikes, but also at risk of spreading to other parts of the Middle East, business and transportation activities in affected regions, particularly in parts of southern Lebanon, will likely grind to a halt until the airstrikes and fighting stop and residents are able to return. However, as neither side seems willing to de-escalate the situation, the knock-on effects on business activities in the region could easily stretch into the coming weeks or months.
Israel steps up military offensive against Hezbollah targets in southern Lebanon
On September 30, the Israeli military struck parts of central Beirut for the first time in almost twenty years, in an attack that was reportedly aimed at several senior figures of the Popular Front for the Liberation of Palestine (PFLP), a militant group mainly associated with aircraft hijackings in the 1970s. Prior to these strikes, the Israeli military had mainly targeted parts of southern Lebanon as well as the southern suburbs of the country’s capital, which are often considered Hezbollah strongholds. Following the launch of the IDF’s ground offensive into Lebanon, a spokesperson for the Israeli military called on residents living in at least 29 towns and villages in the south to evacuate immediately. The affected areas are all located across the Nabatieh and South Governorates, which share borders with northern Israel.
At the time of writing, the exact extent of the business and transportation disruptions in both regions remains unclear as Israel’s military campaign against Hezbollah continues. However, businesses operating in these parts of Lebanon will likely have to deal with significant impacts for the foreseeable future. The displacement of hundreds of thousands of residents will lead to significant worker shortages until the situation normalizes enough for residents to return home, while airstrikes and clashes between Hezbollah and the IDF on the ground could severely damage buildings and transport infrastructure, which could take months to repair even after the military campaign is called off.
As of October 1, at least two major roads in southern Lebanon were reportedly impassable due to recent airstrikes. The IDF has also warned Lebanese citizens not to drive from the north to the region south of the Litani River due to the security situation. The river is located around 20 miles (32 kilometers) north of the Israel-Lebanon border that separates the border region from the rest of the country. The movement of goods and people is also likely disrupted along Lebanon’s eastern border, where approximately 100,000 people had crossed into Syria to flee from Israeli airstrikes by the end of September.
Widening conflict impacts logistics operations in the region
The movement in and out of several countries in the Middle East has also been impacted amid the escalating crisis and will remain limited until at least the end of the month. Air France, the country’s flag carrier and one of Europe’s biggest airlines, confirmed that routes to Beirut in Lebanon and Tel Aviv in Israel will be suspended until at least October 8 due to the deteriorating security situation. Similarly, Lufthansa AG, Germany’s flag carrier, has extended the suspension of flights to Beirut, Tel Aviv and Iran’s capita Teheran until October 31. Several Middle Eastern airlines have also halted flight services to Beirut in the coming days, including Emirates, the region’s biggest carrier. Even before these cancellations were announced, the European Union Aviation Safety Agency had urged airlines to avoid the Lebanese and Israeli airspaces. Due to the intensification of airstrikes, all airlines were advised not to operate at any flight levels within Lebanon and Israel until the end of October.
Scenario 1: Escalation to wider regional conflict
In the short-term, recent developments have significantly increased the risk of the conflict expanding into a wider regional war. Israel’s incursion into southern Lebanon on October 1 expanded the area of ground combat and triggered a tit-for-tat escalation with Iran that could lead to direct military confrontation between the two states. Iran launched a barrage of at least 180 missiles at targets across Israel. Israeli Prime Minister Benjamin Netanyahu has vowed to respond to the attack, while Iran has threatened to launch a second larger strike should Israel follow through on this threat.
A similar tit-for-tat escalation seemed possible in April when Iran launched its first direct missile attack on Israel in its history, but this was avoided as the strikes were mainly symbolic. This time Iran’s attacks appeared designed to cause actual damage by providing far less warning and using more sophisticated munitions designed to beat Israeli air defences. This significantly increases the likelihood of an escalatory response from Israel. This change may be due to Iran reevaluating its position now that Hezbollah is facing a potential existential threat from Israel’s operation in Lebanon. Similarly, Israel recently amended a military directive appearing to accept an increased risk of direct confrontation with Iran, indicating it is less likely to avoid potentially escalatory retaliation, while the United States is applying less pressure on Israel to show restraint in its response than in April.
All these factors mean that there is an increased risk of escalation to a wider regional conflict. The consequences would almost certainly be devastating for the region, bringing most civilian business operations to a grinding halt and having a lasting impact beyond the end of any war as local populations and infrastructure would take years to recover.
Scenario 2: Continued heightened tension with potential to escalate
If Israel and Iran can de-escalate this cycle of retaliatory action, the region is likely to remain in a state of heightened tension in the medium term. Reports indicate that Israel’s ground operations in Lebanon are intended to be short-term and limited in scope to reduce the immediate threat from Hezbollah near the border. However, there is a likelihood that the incursion could be prolonged if Israel is unable to achieve this or if it expands its aims to eliminate Hezbollah, which would also involve advancing further into Lebanon. This would be a similar outcome to Israel’s operations against Hamas in Gaza, which were likewise initially stated to be limited in scope and time but are now approaching their first anniversary. Hezbollah are both better equipped and better trained than Hamas, meaning that the operation in Lebanon could last even longer. Additionally, there are no immediate signs that Israel intends to wind down its operations within Gaza despite numerous calls for a ceasefire, indicating that this area of conflict is also likely to continue through at least the medium term.
In this case, the operating environment in the Middle East is likely to be very similar to that of the previous year. Israel will almost certainly continue to be targeted in rocket fire by Iran’s proxies, though the direction and scale of such attacks are likely to shift. The killing of several of its senior officers and the ground operation in southern Lebanon could reduce Hezbollah’s capacity to carry out such attacks. To counterbalance Hezbollah’s reduced capabilities, Iran could channel additional resources to the Houthis in Yemen. This would likely result in increased attacks in southern Israel and on vessels in the Red Sea, which is already suffering from a severely deteriorated security environment. This has led to increased costs for companies routing goods via the Suez Canal, or increased time and costs for companies taking the alternative route via the Cape of Good Hope in South Africa; these issues would become worse should the scale of attacks in the Red Sea increase.
Scenario 3: De-escalation and ceasefire
If escalation is avoided in the longer term, a return to an environment similar to the status quo pre-October 7, 2023 is likely. Given its military superiority over Hamas and Hezbollah, Israel is likely to eventually achieve its aims of sufficiently reducing the threat from both groups and either withdraw from Gaza and Lebanon or at least end active combat operations. Political pressure to do this will increase over time both from international allies and from the domestic population as fatigue with a protracted conflict grows.
Once this active combat period ends, the operating environment in Israel is likely to stabilize. Businesses located near militarized zones will be able to resume operations while citizens and infrastructure requisitioned for the war will be able to return to civilian activity, increasing productivity. Furthermore, the reduced security threats will enable logistics operations to resume or ramp up in Israel and the surrounding region. For example, the Houthi’s in Yemen have directly tied their attacks on vessels in the Red Sea to Israel’s invasion of Gaza. Once Israel withdraws, these attacks are likely to stop or at least significantly reduce. A similar improvement is likely for air freight as several carriers have suspended or reduced their operations in the Middle East while tensions were high in recent months.
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