On October 7, 2023, Hamas launched a devastating attack on Israel, marking one of the most significant assaults in recent history. Over 1,200 people, mainly Israeli civilians, were killed, and 251 hostages were taken back to Gaza. A year later, the war continues, and the potential for a wider conflict in the Middle East looms larger.

In response, Israel mounted a fierce military campaign against Hamas, leading to widespread destruction in Gaza. This offensive has resulted in 42,000 deaths, including 8,200 children, left 96,000 injured, and displaced 1.9 million people. The healthcare system in Gaza is on the brink of collapse, with only 17 of 36 hospitals partially operational. International bodies like the Red Cross have called for restraint, particularly in densely populated areas.

The conflict has devastated Gaza’s economy, pushing back its development by 20 years, according to the UN. The war’s direct impact on infrastructure amounts to $18.5 billion in damages, while Palestine’s GDP has fallen by 27%, causing a $7.1 billion economic loss in 2023 alone. Poverty has spiked, with 1.74 million additional people driven into destitution.

Israel, backed by the US, has utilised advanced weaponry such as Dumb Bombs, Bunker Busters, and Joint Direct Attack Munitions. The US has continued its support with significant military aid, including a $20 billion package and an additional $8.7 billion approved in September 2023.

The war has extended beyond Gaza, impacting Lebanon, Syria, and Yemen—areas of Iranian influence. Yemen’s Houthi rebels have attacked Israel-bound ships, disrupting trade and increasing shipping costs by 15-20%. The Suez Canal’s trade volume has dropped by 50%, according to the IMF.

Tensions between Israel and Iran have escalated, with both sides engaging in missile exchanges. Israel’s Prime Minister Netanyahu claimed that Hezbollah leader Hassan Nasrallah had been killed, provoking retaliation from Iran, which launched 180 rockets toward Israel. The US has pledged to support Israel, warning of severe consequences for Iran.

Despite ongoing negotiations in Doha, the conflict shows no sign of ending, leaving the Middle East in a precarious position. To explore the war’s broader implications, CNBC-TV18 interviewed key experts: journalist Negar Mortazavi, former Israeli envoy Daniel Carmon, former ambassador Anil Trigunayat, and journalist Fatima Karim Khan.

Below are the excerpts of the discussion.

Q: The US and Israel are at the moment discussing the possibility of attacking Iran’s oil facilities. And Iran has said that if Iran can’t supply oil in the region, then it will make sure others cannot as well. How serious can the ramifications be in case there is any further escalation from Israel at this stage?

Mortazavi: This can be a very serious crossroad or a juncture in the war. It can turn into a major escalation, basically bringing the war to the next level. Or it can be similar to the tit-for-tat between Israel and Iran that we saw back in April, where both sides avoided a major escalation back then.

I think the main decision-maker here is the United States. The Israelis have been pushing the United States to either support them more, enter the war in attacking Iran. And so far, the Biden administration has drawn a very clear line that they’re not interested in direct war with Iran. So I think the ball is obviously in Israel’s court, because Iran just launched this attack in retaliation to Israeli attacks and assassinations, and now Israel is vowing to respond. But how severe the response is going to be depends on how much support they get from the United States.

President Biden just made it clear that he wouldn’t support attacking Iranian nuclear sites, for example, which is something that Israeli officials have been asking for. And now there seems to be a focus on Iranian oil centers, refineries, or export centers. And depending on how much damage it’s going to cause to the Iranian economy, to the oil infrastructure, the Iranians can interpret this as sort of either a tit-for-tat, a proportionate response, or if they see it as a major escalation, if it inflicts a lot of damage or casualties on Iran, then I think the Iranians are signaling that they’re prepared to take this to the next level and escalate.

Q: Looking at the way the situation is escalating, what are the kind of resources that Iran really has at this juncture? Experts believe if Iran is drawn into a full-fledged war, that is something it cannot really win, it cannot succeed. Even Iran’s proxies in the region have been weakened over the past few months?

Trigunayat: There is no doubt that Israel has been one of the strongest armies with much superior intelligence, and this has already been shown. But Israel is currently engaged in several fronts. It has been fighting a war for one year, and but for the United States complete support, it would not have been able to continue this war. No country in the world today is capable of continuing with wars. We have seen what’s happening in Russia-Ukraine war. So Iran at the moment also is weighing because it has lost a strategic advantage with the decimation or decapitation of the Hezbollah leadership, on which it properly counted for its defence, because that’s the one country through Lebanon where they have the border. So whereas Israel and Iran don’t share a border. So the war has to be through missiles, air wars, or through the sea. So that is a very different kind of scenario we are looking at. But comparatively, I think conventional warfare, they are very much equal, more or less.

We know that the Iranians, despite all the sanctions for decades, have been able to beef up their own military strength significantly. But what I found in recent times is that while Iran has had a good firepower, at the same time, they missed out on their domestic vulnerabilities. And that has been witnessed quite a lot, where Israel has succeeded in the later half after being humiliated on October 7th completely through its intelligence failure, defence failure, and everything. So it has tried to redeem itself over time. But I think they’ll have to bring down the tempers. De-escalation has to come, because what we are looking at today is the escalation, which every country in the world wanted to avoid, is becoming very real today. So of course it will depend on how Israel is going to react. It will indeed react. Many people say it will happen on October 7th, just to convey a message.

Between Iran and Israel, the thing is, since Israel considers the whole axis of resistance and the three or four edges, which are their part of the Iranian nexus, it has been a war not only by proxy, but a direct war from Israel’s point of view. And therefore, if they say that Iran has directly hit us, I think that’s being naive and this is not true.

Q: In case this war in the Middle East now escalates, will it be limited to countries like Iran, Lebanon, Syria and Yemen, or do you think other countries in the Middle East will get involved?

Khan: I guess all of the countries in the region will at some point, have to be engaged in this tension. And we actually pray for de-escalation, but if de-escalation will not be enriched, in upcoming months, then I guess other countries in the region will be a part of this.

Q: What are some of the diplomatic tools or leverage points that Iran has at this juncture right now? What are the options, really, if it wants to control the situation?

Mortazavi: It looks like the calculation in Tehran this week was that they are taking too many hits, and they, meaning Iran and its allies, the so-called axis of resistance that includes Hezbollah also, Iran’s closest ally. After the assassination of Ismail Haniyeh in Tehran, and then the assassination of Hassan Nasrallah in Beirut alongside an Iranian commander, I think the thinking in Tehran was that if they don’t hit back, they are going to keep getting hit, and possibly harder. So they framed this attack as a warning shot, and they’re combining it with messaging with public and private messaging that, as they’ve said alongside, they don’t want an all-out war, direct war, especially with the United States, but even with Israel, and they will only escalate if this escalates further.

Now, what are the parameters of this escalation? What do each side understand and think of the other one as far as their red lines and deterrence versus escalation is not very clear. I mean, the problem is that the different sides of this war don’t really have a direct line of communication, of course, and messages have to go through intermediaries. There’s no direct line between Iran and the United States, obviously not with Israel. And they are having to work with intermediaries like Qatar, like Egypt, and others in the region who’ve been trying to help with the diplomacy. So I think one thing that seems to be Iran’s message from the beginning and consistently is they are trying to avoid an all-out war with the United States and Israel. But I think at this point, they’re showing some preparedness to potentially escalate and enter the war if the other side also escalates it to that point. So I think the diplomatic message and the message on the battlefield are trying to sort of be parallel, that they’re willing to take an off-ramp, at the same time they’re prepared to escalate depending on the response that’s about to come from Israel.

Watch accompanying video for entire discussion.