Iran hoped to profit from Israel-Hamas war, but big gains still elude it

Iran, which calls for Israel’s destruction, sees upside for itself in setbacks for the Jewish state. Israel on Oct. 7 suffered its worst intelligence and military failure in decades when Iran-backed Hamas militants smashed into Israel from the Gaza Strip, killing more than 1,200 people and taking more than 200 hostages, according to Israel. Israel now faces international condemnation for the scale of its military response, which has killed more than 18,000 Palestinians, mostly women and children, according to Gaza authorities.

But Iran also faces costs from the conflict, even though it isn’t directly involved, and has been limited in its ability to capitalize on Israel’s troubles.

Iran’s diplomacy with the West, aimed at easing crushing U.S. sanctions imposed over Tehran’s nuclear program, has halted due to its support for Hamas. Billions of dollars that the U.S. had pledged to Iran in a prisoner-release deal sit effectively frozen.

Iran is urging Arab countries that had established diplomatic ties with Israel to renounce them, but none has.

Tehran’s militarily strong militia ally in Lebanon, Hezbollah, has meanwhile refrained from staging an all-out attack on Israel that many had feared, largely due to warnings that retaliation from Israel and the U.S. could trigger a wider regional war and weaken Iran’s own security.

The Gaza war has also rekindled America’s mission of defending its interests in the Middle East by deploying more troops and military assets. Iran has long called for U.S. forces and influence to be expelled from the region.

Hamas did succeed in shattering Israel’s aura of invincibility, and Israel’s military response has turned regional public opinion against it and the U.S., which are Tehran’s two biggest foes. But Israel is now for the first time intent on destroying Hamas, and doing so would deprive Iran of an important member of its anti-Western alliance.

In place of Hamas, the U.S. has proposed that its rival, the Palestinian Authority, which now runs parts of the West Bank, assume eventual responsibility for Gaza. If that happens and the situation in the Strip is stabilized, Iran may emerge with eroded influence on Israel’s border.

“Iran will have regarded Oct. 7 as an enormous success," said Michael Singh, a former senior director for Middle East affairs at the National Security Council, now at the Washington Institute think tank.

“If the U.S. and Israel play their cards right, however, Iran will lose in the long run," he said. “Iran does not want to see any of what the U.S. has proposed—a revitalized Palestinian Authority, the resumption of Israeli-Palestinian peace talks, or the continued march forward of Arab-Israeli normalization."

To be sure, the aftershocks of Hamas’s attack and Israel’s massive military operation against Gaza are only starting to play out. Much rests on two things that remain highly uncertain: the extent of the militant group’s destruction and the ability of Israel, Washington and their regional partners to stabilize Gaza after the conflict ends.

As Iranian leaders and lawmakers cheered Hamas’s October attack, opportunities seemed to open for Tehran.

Iran has long cast itself as a champion of the Palestinian struggle for self-determination. Tehran has also aligned with Arab populations whose governments have sought closer ties with Israel at the expense of Iranian influence. On the battlefield, Hamas’s attack exposed Israeli vulnerabilities that might deter Israel from moving against Iran, out of concerns about retaliation from Iran’s allies, analysts say.

Israel’s loss is to an extent Iran’s gain, and with the death toll rising in Gaza, Iran benefits from international opinion turning against Israel’s assault, said Afshon Ostovar, associate professor at the Naval Postgraduate School in Monterey, Calif.

“As much as the war might be harming Hamas, it is also harming Israel, and that in and of itself makes the whole conflict worth it for Iran," he said.

In a sign of how Iran has sought to capitalize on recent events, its president, Ebrahim Raisi, last month met with Saudi Arabia’s Crown Prince Mohammed bin Salman on the sidelines of a Saudi-hosted meeting about Gaza. It was the first sit-down between the two since the rival Muslim countries restored diplomatic ties in March after a seven-year rupture. The meeting thrust Iran into the center of international diplomacy aimed at preventing a regional escalation of the conflict.

Iran has demonstrated that it has a network of allies and aligned militias across the region that can harass international forces and be quickly activated, with 92 attacks since Oct. 17 against U.S. troops in Iraq and Syria, with only a limited military U.S. response. Tension has increased between Washington and the Iraqi government over Baghdad’s failure to stop the attacks—a rift that benefits Iran. Neither Washington nor Israel has struck back at Houthi attacks in the Red Sea from Yemen. One Israeli official said all this may have emboldened Tehran.

But with U.S. warships in the Mediterranean and Israel’s threats to expand its Gaza war to elsewhere in the region if necessary, Iran’s allies have avoided provoking a wider war. That indicates Iran’s reluctance to sacrifice one piece of its alliance to save another, unless the survival of the Islamic Republic itself is at stake, analysts say.

“If you have the capabilities but lack the will to use them, that softens your deterrence," said Ali Vaez, director of the Iran Project at the International Crisis Group, a conflict-resolution think tank.

Diplomatically, Iran has faced pushback. At the summit of the Organization of Islamic Cooperation where Raisi and the Saudi crown prince met, Tehran’s proposals for economic reprisals against Israel were rejected by Gulf countries, Egypt and Jordan, according to European and regional diplomats.

Iran’s pressure for Arab countries to cut ties with Israel has also been rebuffed. The United Arab Emirates and Bahrain, which recently normalized ties with Israel as part of the U.S.-brokered Abraham Accords, haven’t severed relations. Neither has Egypt or Jordan.

Talks aimed at a diplomatic rapprochement between Saudi Arabia and Israel, which gathered pace during summer, have halted, according to analysts and officials. But President Biden said this week that Saudi Arabia still wants to establish relations with Israel, if the move advances a two-state solution of Israel alongside an independent Palestinian state.

“Tehran lacks the capacity to lead a diplomatic offensive that goes well beyond what its neighbors deem expedient," said Vaez.

Iran’s support for Hamas has deepened an already growing rift with European countries, and unwound Tehran’s limited and largely secret diplomacy with Washington. The rift has pushed Iran closer to Russia and China, an axis that Tehran embraced as the nuclear deal unraveled over recent years.

A monthslong truce between Iranian-backed militias and U.S. forces in Iraq and Syria, as the U.S. quietly negotiated with Iran through third parties about confidence-building steps, blew up after Oct. 7. The Biden administration scrapped indirect talks with Tehran that were due to take place in mid-October in Oman, according to several Western officials.

While indirect channels between Tehran and Washington remain open, any hopes Tehran had of significant relief from sanctions imposed on its nuclear program appear slim before next year’s U.S. presidential elections. Following the Hamas attack, the U.S. de facto froze the delivery of $6 billion in funds it had parked in Qatar as part of a prisoner swap that was completed in September.

Three days after the Hamas attack, Iran’s Supreme Leader Ayatollah Ali Khamenei praised Hamas for inflicting “irreparable damage" on Israel, although he insists that Iran didn’t play a role in it. U.S. national security adviser Jake Sullivan the same day labeled Tehran “complicit" in the attack.

Ultimately, the current conflict’s outcome for Iran and its anti-Western alliance will depend on the fate of Hamas and stemming post-conflict chaos in Gaza. The rift that has emerged between Israel and the U.S. in recent days over the Strip’s future governance underscores how difficult it will be to find consensus even among allies on Gaza’s future.

“The complete destruction of Hamas would be an embarrassment to Iran and create concerns among Iran’s partners in the region that perhaps [the Iranians] aren’t as reliable as they thought," said Emile Hokayem, an expert on security and nonstate actors in the Middle East with the International Institute for Strategic Studies. A resilient Hamas, in contrast, could dampen Israel’s appetite to take on other Iranian allies, he said.

Raz Zimmt, research associate at the Institute for National Security Studies at Tel Aviv University, says that if the war is followed by a lengthy period of political instability in Gaza, “Iran would be positioned to continue and advance its involvement in the Palestinian arena, including the West Bank, as well as in Lebanon."

“That includes assisting in restoring the capabilities of both Hamas and Hezbollah," he said.

Michael R. Gordon contributed to this article.

Write to Laurence Norman at laurence.norman@wsj.com and Sune Engel Rasmussen at sune.rasmussen@wsj.com