THE ECONOMIST: What a second week of war will bring

The flames towered into the night sky, casting an apocalyptic glow over wartime Tehran. A late-night Israeli strike on March 7 hit several fuel-storage depots in the Iranian capital and in Karaj, 40km (25 miles) to the north-west. If they managed to sleep at all, residents woke to darkness: a dome of black smoke lingered above the city long after daybreak. Some petrol stations were closed or supplies were rationed for lack of fuel.

Throughout the night, Saudi air defences had shot down wave after wave of Iranian drones (21 in all) aimed at the Shaybah oilfield, one of the kingdom’s largest. The morning brought an Iranian attack on a water-desalination plant in Bahrain, which relies on such facilities for most of its drinking water. Officials said it caused damage but did not interrupt supply.

Such attacks point to a new phase in the third Gulf war. When it began on February 28th, both America and Iran might have hoped for a swift end. Donald Trump speculated that the Iranian regime could cut a deal within days and seemed to think any impact on oil prices, which topped $US100 a barrel when trading resumed after the weekend, would be fleeting.

Goldman Sachs, a bank, has warned that the price could rise to all-time highs, meaning some $US150 per barrel, if the war continues until the end of March. The Islamic Republic, for its part, wagered that the Gulf monarchies would prove America’s soft underbelly in the Middle East: cause them enough chaos, and they would beg Mr Trump to stop the war.

With the war now in its second week, though, both sides are confronting the limits of their strategies, which have achieved military goals but have so far been unable to deliver political ones. The regime has proved resilient thus far. So have America’s Gulf allies. The war is thus turning into a test of wills, one in which military might is not necessarily more important than the ability to withstand economic pain and damage to vital infrastructure.

You could fill a book with Mr Trump’s ever-shifting statements about the war, but most people in Washington believe he would have happily made a deal with a pliant regime insider. None has emerged.

The Iranians are unmoved by his demand to have a role in choosing the next supreme leader, as if this were a Persian reboot of “The Apprentice”, nor by his call for “UNCONDITIONAL SURRENDER”. Nor are there any signs of the public rising up to overthrow their government, as Mr Trump has urged them to do. An already war-fatigued populace hiding from toxic oil fumes and regime enforcers is unlikely to mobilise.

Indeed, America’s president says that Iran’s surrender could come simply when the country “can’t fight any longer”. That suggests a prolonged campaign to damage not only Iran’s military capabilities, but the economic base that underpins them.

The Islamic Revolutionary Guard Corps, the regime’s praetorian guard, profits handsomely from the oil industry. Apart from the strikes on fuel depots, which Israel says are controlled by the Guards, Mr Trump’s advisers have mused about sending special-forces troops to occupy Kharg Island, the site of Iran’s main oil-export terminal. Perhaps that is just talk: presidents do not often give previews of secret commando raids.

Regardless, America’s goal increasingly seems to be destabilising the regime rather than making a deal with it. Such an outcome would probably suit Israel, which for decades has seen Iran as its main foe. If it cannot topple the regime, Israel would settle for crippling it (along with its proxies, chief among them Hezbollah in Lebanon).

As for Iran, it has launched more than 2000 missiles and drones at Gulf states since the war began. Though most have been intercepted, they have caused real damage. At least 14 people (mostly migrant workers) have been killed. Oil refineries and gas-liquefaction plants have shut down. Thousands of flights have been cancelled. Desert metropolises that import almost all of their food have seen major supply-chain disruptions.

For all of this, however, Iran has not managed to cleave America from its Gulf partners. Despite some tough talk, they have yet to join the war effort themselves — but nor have they demanded that Mr Trump halt it. On the contrary, the intensity of Iran’s attacks has apparently cemented a view that the regime in Tehran is an unacceptable threat. In conversations over the past week, well-placed sources in four of the six Gulf monarchies said that America needs to finish what it started.

Some Iranian officials recognise that their approach might be counterproductive. Masoud Pezeshkian, the president, apologised on March 7 for the attacks on neighbouring countries. He said that Iran’s three-man interim leadership council, of which he is a member, had ordered a halt to such strikes, and that henceforth Iran would only attack American military targets in the Gulf.

If his message was meant to be conciliatory, though, his intended audience received it with scepticism, if not outright scorn. Officials in the Gulf know that no one in Iran listens to Mr Pezeshkian, a pragmatist who was allowed to win the 2024 election precisely because he was weak. Even before the war, he often lamented his own powerlessness. Moreover, the attacks on their countries are no accident: they are a deliberate strategy, one that Iran warned of before the war.

Predictably, then, the salvoes have continued even after Mr Pezeshkian’s decree. Along with the drones aimed at Saudi oilfields, Iran also fired at the diplomatic quarter in Riyadh and the international airport in Dubai. On March 8th a drone hit the headquarters of Kuwait’s public-pension fund. The volume of fire from Iran has decreased since the start of the war, but its drone swarms are increasingly focused on political and military targets.

Who will blink first? The war is already unpopular in America; a spectacular Iranian strike that sends oil prices soaring further would probably make it even more so. Some business types in the Gulf have started grumbling publicly about the cost of the war. If it drags on for months, their rulers will find it hard to keep a stiff upper lip.

Yet further escalation is risky for the Iranian regime. The Saudis have threatened to join the war if Iran seriously damages their oil industry. A strike that disrupts the water supply to a Gulf country might trigger a wider response. Iran thinks it can outlast its foes, rich countries that have limited tolerance for economic pain. But after decades of economic mismanagement, the regime could turn out to be less resilient than it thinks.