Shattering of Axis of Resistance

The recent collapse of Bashar al-Assad’s regime in Syria marks a significant and unexpected development for Iran, comparable in its surprise to the Taliban’s swift takeover of Kabul in 2021. Iran has been a steadfast ally of Assad, who thought the cost of resistance is less than the cost of compromise. Tehran provided Damascus with substantial military and financial support throughout the Syrian civil war. The sudden downfall of Assad’s government not only disrupts Iran’s strategic foothold in the Levant but also challenges its influence in the broader Middle East region.

The rapid fall of the Western-backed government in Kabul — with which Tehran had sought to engage diplomatically to maintain stability along Iran’s eastern border — similarly caught the Iranian leadership off guard. This event as well as Assad’s toppling both underscore the volatility of regional alliances and the complexities Iran faces in navigating its foreign policy objectives amid rapidly changing political landscapes.

While Iran had at least prepared for a scenario of the Taliban’s return and established some contacts and exchanges with the group even before the latter returned to power, the collapse of the Assad regime, described as a key link in the Axis of Resistance, came more suddenly.

Only a few days before the fall of Damascus to the Hayat Tahrir al-Sham (HTS), Iran started evacuating its key assets and personnel, including high-ranking military advisors and members of the Islamic Revolutionary Guard Corps (IRGC), to save critical resources.

It is vital for Iran at this point to secure a role in shaping the future of Syria’s political landscape to prevent an adversarial government and to be able to preserve some level of strategic influence in the region.

Although the common border with Afghanistan is perhaps the number one security concern for Iran to the east, Syria’s strategic value cannot be overstated when it comes to Iran’s western flank.

Syria was the heart of the resistance, which provided a direct link to Hezbollah in Lebanon and supported Iran’s deterrence against Israel. Thus, losing Syria not only disrupts the Axis of Resistance but also weakens Iran’s ability to project power in the region.

In the absence of Iranian proxies on the ground, the resulting power vacuum is likely to be filled by Turkey or Saudi Arabia, which in turn could force Iran to redirect its focus to defending its interests in other places.

At home, the legitimacy of the Iranian regime was severely damaged by its violent crackdowns on the Mahsa Amini protests in late 2022-early 2023. At the same time, Iran’s broad and substantial investments in Syria and elsewhere, which many Iranians saw as a costly miscalculation, intensified public criticism and political dissent over neglected economic issues.

Fears that their country could follow a path toward civil war, similar to those in Syria and Libya, deterred some from advocating for regime change at any cost. If Syria now descends into another civil war with further destruction, it could validate these concerns. However, if Syria manages to form an inclusive and stable government free of revenge, it could inspire Iranians.

In the aftermath of Assad’s collapse, Tehran will likely recalibrate its regional strategy, strengthening its militia networks, particularly Hezbollah and Shi’a militias in Syria and Iraq as the primary focus. These will need to serve as Tehran’s primary tool for projecting power in the absence of a friendly Syrian government.

Iran may also attempt to expand its regional alliances with Russia and China to sustain its ambitions. However, given the outcome of its previous reliance on Moscow to protect the Assad regime, Iran may need to recalculate the level of Russian support it can truly expect.

Rethinking its Syria policy may additionally encourage Tehran to shift from overt to covert approaches — a potentially challenging aim due to Iran’s over-stretched resources.

Assad’s downfall marks a significant setback for Iran’s regional strategy, disrupting the latter’s network of alliances and diminishing its influence in the Levant.

Courtesy: Middle East Institute

 

 

 

Iranian strategy to keep its influence intact in Middle East

According to Reuters, Iran has opened a direct line of communication with rebels in Syria's new leadership after the ouster of Bashar al-Assad It is an attempt to "prevent a hostile trajectory" between the countries.

The lightning advance of a militia alliance spearheaded by Hayat Tahrir al-Sham, a former al-Qaeda affiliate, marked one of the biggest turning points for the Middle East in generations. Assad's fall removed a bastion from which Iran and Russia exercised influence across the Arab world.

Hours after Assad's fall, Iran said it expected relations with Damascus to continue based on the two countries' "far-sighted and wise approach" and called for the establishment of an inclusive government representing all segments of Syrian society.

There is little doubt about Tehran's concern about how the change of power in Damascus will affect Iran's influence in Syria, the lynchpin of its regional clout.

But there is no panic as Tehran seeks diplomatic avenues to establish contact with people whom one of the officials called "those within Syria's new ruling groups whose views are closer to Iran's".

The main concern for Iran is whether Assad's successor will push Syria away from Tehran's orbit, a scenario Iran is keen to avoid.

A hostile post-Assad Syria would deprive Lebanese armed group Hezbollah of its only land supply route and deny Iran its main access to the Mediterranean and the front line with Israel.

After losing of an important ally in Damascus and the return of Donald Trump to the white House in January 2024, this engagement is key to stabilize ties and avoiding further regional tensions.

According to Reuters, Tehran has established contacts with two groups inside the new leadership and the level of interaction will be assessed in the coming days.

Tehran was wary of Trump using Assad's removal as leverage to intensify economic and political pressure on Iran, either to force concessions or to destabilize the Islamic Republic.

After pulling the United States out of Iran's 2015 nuclear deal with six major powers in 2018, then-President Trump pursued a "maximum pressure" policy that led to extreme economic hardship and exacerbated public discontent in Iran. Trump is staffing his planned administration with hawks on Iran.

In 2020, Trump, as president, ordered a drone strike that killed Qassem Soleimani, Iran's most powerful military commander and mastermind of overseas attacks on US interests and those of its allies.

Iran is now only left with two options: fall back and draw a defensive line in Iraq or seek a deal with Trump.

The fall of Assad exposed Tehran's dwindling strategic leverage in the region, exacerbated by Israel's military offensives against Hezbollah in Lebanon and the Palestinian militant group Hamas in Gaza.

Iran's clerical rulers spent billions of dollars propping up Assad during the civil war that erupted in Syria in 2011 and deployed its Revolutionary Guards to Syria to keep its ally in power and maintain Tehran's "Axis of Resistance" to Israel and US influence in the Middle East.

Assad's fall removes a critical link in Iran's regional resistance chain that served as a crucial transit route for Tehran to supply arms and fund its proxies and particularly Hezbollah.

 

 

Syria: Opportunities and Pitfalls for Israel

The fall of Assad, an implacable foe of Israel who turned Syria into a staging ground for Iranian threats and weapons transfers to Hezbollah, is not something Israel would lament. With Syrian rebel forces rapidly advancing south toward Damascus after already taking Aleppo and Hama, the ground in Syria is shifting.

This shift is due in no small measure to the twin blows Israel dealt Hezbollah and Iran since the launch of Operation Northern Arrows in mid-September, aimed at returning displaced Israeli residents to their homes along the northern border.

In its war in Lebanon, Israel decapitated Hezbollah’s leadership, killed and wounded thousands of its fighters, and significantly degraded its missile and rocket capabilities. Hezbollah, which once fought in Syria to prop up the dictatorial regime of President Bashar al-Assad, is in no position to help Assad today as his regime has crumbled.

Iran also suffered blows at the hands of Israel – most notably the destruction of much of its air defense network and critical missile manufacturing infrastructure during Jerusalem’s retaliatory raid on October 26.

With Hezbollah severely weakened and Hamas in Gaza also no longer an effective proxy, Iran – which has made an art form of sending others to be killed to further its own interests – finds itself unable to provide Assad with the same level of assistance it once did. It also struggles to project the same regional power if wielded just a few months ago.

Assad’s other ally, Russia, whose intervention in the civil war in 2015 tipped the scales in his favor, is also unable to give Assad what it did in the past, preoccupied and overextended with its own war in Ukraine.

With Hezbollah, Iran, and Russia weakened – two of them due to Israeli action – Syrian rebels seized the opportunity to advance, launching their offensive on the same day a ceasefire was implemented in Lebanon. Hezbollah, weary and depleted, was in no position to counter the rebel advance.

The fall of Assad, an implacable foe of Israel who turned Syria into a staging ground for Iranian threats and weapons transfers to Hezbollah, is not something Israel would lament. However, the composition of the rebel forces threatening Assad’s regime is not an alliance that the Jewish state can applaud.

They are led by Sunni jihadists recently aligned with al-Qaeda and who remain on America’s list of terrorist organizations and also include Turkish-backed Islamists.

Israel has a clear interest in seeing Syria removed from Iran’s “Axis of Resistance,” ending its role as a host for Iranian Revolutionary Guard Corps operatives and Iranian-sponsored militias and as a potential launch-pad for attacks against Israel.

Syria under Assad was a crucial pillar of Hezbollah’s strength in Lebanon, serving as the main conduit for smuggling missiles and advanced weaponry into the country. If Syria is taken out of the equation, Hezbollah – already reeling from Israel’s onslaught – will face even greater difficulties rebuilding.

This would be welcome news for many in Lebanon seeking freedom from Hezbollah and Iran’s stranglehold. One significant side effect of Assad’s fall could be a chance for the Lebanese to finally regain control of their own country.

While these developments are largely positive for Israel, they come with complications. Jerusalem has no interest in seeing its neighbor to the northeast taken over by Sunni jihadists of the al-Qaeda ilk or Turkish-backed Islamists. Israel’s experience with such groups – like Hamas in Gaza – has been anything but encouraging.

What happens in Syria will most definitely have an impact on Israel in the future that is why Jerusalem must keep a vigilant eye there, sending messages to all concerned that there are two developments it will not tolerate. The first is chemical weapons depots falling into the hands of jihadist or Islamist rebels, and the second is the mass deployment of Iranian troops into the country.

Those are redlines that, if crossed, would severely compromise Israel’s national security and would necessitate immediate Israeli action to prevent.

Beyond these redlines, Israel can do little to positively impact developments inside Syria, other than working behind the scenes with the US to establish channels with more moderate elements in the opposition, hoping they will emerge as a constructive force in shaping Syria’s future. 

Courtesy: The Jerusalem Post

Syrian army announce fall of Assad regime

The Syrian army command notified their officers that the Assad regime has fallen, a Syrian officer informed Reuters on Sunday morning.

At the same time, the head of Syria's main opposition group abroad Hadi al-Bahra Syrian said on Sunday that Damascus is now "free of Bashar al-Assad."

Assad flew out of Damascus for an unknown destination on Sunday, two senior army officers told Reuters, as rebels said they had entered the capital with no sign of army deployments.

Thousands in cars and on foot congregated at a main square in Damascus waving and chanting "Freedom," witnesses said.

On its telegram, the rebel group stated, "After 50 years of oppression under the regime, and 13 years of crime, tyranny and displacement, and after a long struggle and fight and confronting all forms of occupation forces, we announce today on 12-8-2024 the end of this dark era and the beginning of a new era for Syria."

"To the displaced all over the world, free Syria awaits you."

It added that the new Syria will be a place where everyone "coexists in peace, justice prevails and rights are established, where every Syrian is honored and his dignity is preserved, we turn the page on the dark past and open a new horizon for the future."

 

Shia-Sunni Conflict in Syria to Get Louder

The current situation in Syria presents three significant implications. First, the recruitment of fighters, motivated by financial incentives or sectarian affiliations, is expected to rise. Second, the majority of these recruits are likely to come from the South Asian region. Videos circulating on social media already show individuals with Pashto or Hazara accents celebrating the withdrawal of Bashar al-Assad’s forces from key cities, leaving behind military-grade weapons, ammunition, and vehicles. Third, existing foot soldiers in Afghanistan, Pakistan, and Iran may see new opportunities to leverage their combat experience, contributing to the rekindling of the Syrian conflict.

Shia militias, including the Zainabiyoun Brigade and other groups from Iraq, are also being drawn into the conflict. As a result, Syria is poised to become the site of escalating sectarian violence, with Sunni and Shia factions, supported by various regional and international actors, facing off.

What Impact Will This Have on the Gaza War?

How will these developments affect the ongoing conflict in Gaza? Will they weaken Hezbollah in Lebanon? And what strategic advantages might Israel and its regional or international allies gain?

Currently, Hamas is on the defensive, and the Syrian situation could demoralize its forces if Bashar al-Assad and his allies lose their grip on power, potentially drawing them into direct confrontation with rebel factions.

Iran and Russia are already evacuating some of their officials, but sectarian fighters loyal to the Assad regime will likely remain in Syria, continuing their resistance. Aerial support for Assad’s forces may still come from select countries, but unless a similar conflict arises in Iraq—where Sunni militias start pushing against Shia factions—a complete collapse of the Assad regime seems unlikely.

A Possible Escalation: Assad's Last Resort?

If Bashar al-Assad feels cornered and believes he must evacuate, he could resort to an extreme measure: launching a direct attack on Israel. What might such an assault look like?

First, a safe zone could be established for Iranian, Russian, or Syrian officials in the border region of Iraq, enabling them to continue strategizing and coordinating efforts in Syria and beyond.

Second, there would be a need for a large influx of Shia fighters into Syria and Lebanon to counteract new rebel offensives or Israeli airstrikes against Assad’s regime. These fighters could also act as conduits for weapons flowing into Lebanon, strengthening Hezbollah and other allies.

Coupled with aerial support, these forces could give Assad a better chance of reclaiming lost territories.

Wider Regional Implications: Yemen and Saudi Arabia

The sectarian tensions in Syria could also spill over into other parts of the region, particularly Yemen and Saudi Arabia, exacerbating existing conflicts there.

Critical Examination of Iranian Regional Policy

Despite continuous Israeli attacks targeting Iran's military doctrine in the wake of the regime’s brutal war in Gaza, the framework of that strategy remains largely intact and continues to operate across West Asia. However, in a recent article for Chatham House Bilal Y. Saab argues that the ceasefire in Lebanon has dealt a huge blow to Iran’s regional strategy. It may be said that the article fails to fully consider the current and delayed impacts of Israel’s unprecedented use of brute force on Tel Aviv. 

The military operations in the Gaza Strip and Lebanon have currently put huge burdens on the Israeli economy with long-term impacts expected to last for years. While unconditional US aid might temporarily alleviate investor concerns regarding Israel, the potential for renewed conflict poses a significant and lasting deterrent to investment.

The issue of settlers in northern occupied Palestine has not been yet solved and seems to be a problem in the foreseeable future for Israel. Also, the impacts of Israel’s action on Western public opinion cannot be undermined; this is being seen in some countries to put pressure on policymakers to take more progressive action against Israel. 

The author argues that Israel has achieved victory in its war with Hezbollah but the facts on the ground suggest differently. Tel Aviv since October 2023 has been targeting Hezbollah facilities and fighters across Lebanon but to no avail.

Hezbollah operations in northern occupied Palestine and even deeper in Haifa and Tel Aviv continued until the last moments before a ceasefire took effect last month. Israel’s limited, targeted operations in Southern Lebanon fell short of gaining significant territory and Hezbollah was successful in repelling those attacks. 

The Lebanon ceasefire, largely mirroring UN Resolution 1701, offers no significant changes. Hezbollah retains its weaponry and maintains the capacity to resume operations against Israel at any time. 

Bilal Y. Saab views the ceasefire as a setback for the Resistance Axis, arguing that it has left Hamas isolated. But this is not the case; factions in the Resistance Front have always contained autonomy in their decisions despite Western claims about Iran controlling it all. It is largely uncontested that Hamas started Operations Al-Aqsa Storm on its own without any prior notice to other groups and actors in the region yet, the whole front with a differentiating timetable joined Hamas in its fight against Israel.

For over a year, the conflict in Lebanon remained a relatively even exchange of attacks. Only after Israel significantly escalated its assaults, pursuing new objectives, none of which were achieved, did ceasefire talks commence. The ideology of creation of Hezbollah is based on confronting Israel and the current fragile ceasefire can be considered as a temporary tactical halt for the group in its fight against Tel Aviv. 

Furthermore, Saab prescribes renewed efforts for normalization of relations between Arab countries and Israel for what he calls a lasting victory for Tel Aviv. Saudi Arabia is one of the main players in the region which is reportedly eager to normalize ties with Israel. 

The regional landscape has shifted dramatically since the early Trump administration and the Abraham Accords. The Israeli onslaughts in Gaza and Lebanon have fueled widespread regional opposition to normalization with Israel. Also, Saudi Arabia's rapprochement with Iran suggests a decreased likelihood of Arab confrontation with Tehran.

Despite the author’s claims that an expanded Abraham Accords would lead to a Palestinian state, Israel has intensified settlement expansion in the occupied West Bank, particularly since the formation of the current far-right cabinet. All these factors point to one issue and that is the impossibility of a deal being in favor of Palestinians. 

Saab says “Iran also has to think twice about how Israel might react to even the attempt to resurrect its regional strategy.” However, Tehran’s response to Israeli provocations has been clear for over a year, any attack on Iran’s interests leads to retaliation. 

Contrary to Israeli actions, Iran's measured responses are not due to military concerns but rather reflect its defensive military doctrine—a fact often overlooked in Western assessments.

 Tehran does not seek regional war. Its doctrine which is based on two main pillars (inward and outward defense) has not wobbled despite being under constant attacks. Support for the Resistance Axis can be defined in outward defense and drone, missile advancements are in line with inward defense.

Should the regional status quo significantly change, Iran may employ alternative deterrent measures to counter threats to its national interests. This potential shift includes a reassessment of its nuclear doctrine, a subject of ongoing debate among Iranian scholars and policymakers.

 

PSX benchmark index up 7.6%WoW

Pakistan Stock Exchange (PSX) continued its bullish momentum throughout the week, leading to a major increase in the benchmark index, registering its highest ever weekly point gains of 7,697 and market closed at a record high of 109,054 points, up 7.6%WoW on Friday, December 06, 2024.

The bullish momentum was fueled by November 2024 inflation recorded at 4.9%YoY, lowest in nearly six and half years, fueling expectations for continued monetary easing in the upcoming Monetary Policy Committee scheduled for December 16, 2024.

Major contributing sectors to this rally were commercial banks, followed by Fertilizer, and Oil & Gas Exploration. Interest in the banking sector continued to rise, with gross advances increasing by 21%YoY as of November 15, 2024, taking the ADR to 46.9%, with expectations of crossing the 50% threshold before the year-end to avoid ADR-based taxation.

Meanwhile, fertilizer sector advanced on ENGRO’s agreement to acquire the Jazz Tower business, coupled with the Lahore High Court’s approval of the FFC-FFBL merger.

Saudi Fund extends term of US$3 billion deposits for another year.

Trade deficit for November 2024 was reported at US$1.6 billion, down 19%YoY.

Total debt dropped by 1%MoM to PKR69 trillion in October 2024.

Foreign exchange reserves held by State Bank of Pakistan (SBP) increased by US$620 million, following a US$500 million loan disbursement from the Asian Development Bank (ADB), taking total reserves held by SBP to US$12.0 billion as of November 29, 2024.

Market participation increased by 21.5%WoW to 1.7 billion shares, as compared to 1.4 billion shares traded in the earlier week.

PKR remained stable against the greenback, closing the week at PKR278.01 to a US$.

Other major news flow during the week included: 1) Saudi crown prince accepted invitation to visit Pakistan, 2) Oil sales surged to 25-month high, 3) Cement dispatches increased 5.58%YoY, 4) FBR decided to put more curbs on FATA/PATA steel sector and 5) Prime Minister hinted towards cut in policy rate.

Vanaspati & Allied Products, Transport, Refinery, Cable & Electrical goods and Engineering were amongst the top performing sectors.

Major selling was recorded by Individuals, Insurance companies, and foreigners with a net sell of US$26.0 million, US$21.0 million, and US$14.2 million, respectively. Mutual funds and companies absorbed most of the selling with a net buy of US$44.0 million and US$10.7 million, respectively.

Top performing scrips of the week were: CNERGY, Airlink, PABC, NML, and PAEL, while laggards included: EFUG, JVDC, HBL, AKBL, and PSEL.

Continuation of monetary easing due to disinflationary environment and improving macroeconomic environment would make investment in equities more appealing, currently trading at P/E of 5.0x and DY of 10.2%.

Moving forward, upcoming MPC meeting would remain in investor’s focus, also keeping cyclical sector attractive.

Aforementioned factors, along with declining external financing requirement under the IMF program, would keep foreigners’ interest alive.

Top picks of AKD Securities include: OGDC, PPL, MCB, FFC, PSO, LUCK, MLCF, FCCL and INDU.