Yemen’s Houthis are unabashedly part of Iran’s so-called “Axis of Resistance.” In Lebanon and Iraq, banners hang from walls depicting the Yemeni flag alongside Iran, Iraq, Lebanon, Syria, and the Palestinians to signify the military and diplomatic alliance. While many in US Central Command and the State Department long questioned the degree of Iranian command and control over the Houthis, perhaps to deny policymakers the evidence they might use to derail the 2015 Iran nuclear deal or to continue support for Saudi Arabia’s war in Yemen, the Islamic Republic itself was more direct: Ali Shirazi, Supreme Leader Ali Khamenei’s representative to the Qods Force, said as much in January 2015, stating, “The Islamic Republic directly supports the Houthis in Yemen.”
As the Houthis endanger shipping through the Bab el-Mandeb, a channel through which nearly one-tenth of the world’s maritime hydrocarbon trade transits, the Biden administration plays defense. US Navy ships use $2 million missiles to shoot down drones that cost $2,000 for Houthis to build.
To an extent, Houthi actions are in solidarity with Hamas. The Iranian leadership perceives the West as weak. Ceasefire calls by the French, Germans, Australians, and Canadians only convince Supreme Leader Ali Khamenei that the West will snatch defeat from the jaws of victory by throwing a lifeline to enable Hamas’s survival. Iran’s strategies are seldom unidimensional, however. Any terrorism carries with it the cost of retaliation. Lebanese still mock Hezbollah Secretary-General Hassan Nasrallah as the fifth Teenage Mutant Ninja Turtle as they joke that he lives in the sewers, fearful of spending much time in the open since Israel pounded Hezbollah in the 2006 war. For years after, Nasrallah understood he misestimated Hezbollah’s cost-benefit calculation before launching its attack on Israel.
While the October 7 terror attack was a blow against Israel, the cost to Hamas has been extreme. For Iran, however, the price of instigating the war may be worth it in many ways. The Islamic Revolutionary Guard Corps has never hesitated to wage war against Israel to the last Palestinian. Israel does more to safeguard Palestinian lives than Iran ever has. For Tehran, Palestinian lives are cheap. In this case, however, the Revolutionary Guards may believe activating the Houthis is worth any cost simply because of its commercial interests.
The Iranian economy serially underperforms, not because of sanctions but because of mismanagement. The Revolutionary Guards dominates and distorts the Iranian economy by using its military power to advance its own business interests. They are an outlier, but not unique. There is a similar dynamic at play in Egypt, China, and Cuba.
Enter the G20’s new trade scheme. On September 9, 2023, world leaders at the G20 announced the launch of the “India-Middle East-Europe Economic Corridor” (IMEC). “This landmark corridor is expected to stimulate economic development through enhanced connectivity and economic integration across two continents, thus unlocking sustainable and inclusive economic growth,” the White House explained.
From the Iranian standpoint, IMEC is a disaster. The Iranian government had long sought to sell itself to India as the hub of a north-south trade corridor into the Caucasus and Central Asia. IMEC explicitly bypasses Iran in favor of the United Arab Emirates and then transshipment of goods to the Mediterranean. While India and the G20 envisage the transport of goods via rail, road, and pipeline corridor across Saudi Arabia, Jordan, and Israel, interim commerce could go via ship through the Bab el-Mandeb and Suez Canal. Either way, the trade explicitly bypasses Iran. For the Islamic Revolutionary Guard Corps this represents a multibillion-dollar loss as they monopolize most business and transport inside Iran. Indeed, in some years, the Revolutionary Guards’ economic wing accounts for 90 percent of its budget.
If the current chaos spreads to make seaborne shipment through the Red Sea untenable, the Revolutionary Guard would consider that a win worthy of its investment in the Houthis. If they can next block any land corridor by sponsoring chaos in Jordan and/or the West Bank, from Tehran’s perspective, that is even better. (Jordan, beware).
Too often, US officials speak of “whole-of-government” approach as a mantra that applies only to Washington. Adversaries, though, also embrace the concept. Both the Iranian leadership and the Islamic Revolutionary Guard Corps sponsor terror out of antipathy toward Israel’s existence. Simultaneously, however, they also factor the bottom line into their calculations. Activating the Houthis may cost Tehran several million dollars, but they stand to gain billions of dollars if their gamble pays off. Just as Israel upended Hezbollah’s cost-benefit analysis in 2006, it is essential the United States do likewise in Iran’s gamble today.
