Over the past three years, there have been many attempts to find a resolution to the war in Yemen. None have been successful. In September, for example, U.N.-brokered peace talks collapsed when the Iran-backed Houthi rebels declined to send a representative. But now, it seems conditions in Iran might force that country to cut its losses and limit its involvement there.

Iran is under serious pressure at home right now due to two factors. The first is U.S. oil and gas sanctions, which went into effect Monday. The regime in Tehran has already faced significant opposition resulting from the country’s economic struggles this year, and the sanctions will likely compound the problem. With declining finances, Iran’s funding of operations in Yemen might divert finances from elsewhere and cause further social strain domestically.

It’s unclear how much money Iran is spending on Yemen, but it has supplied its allies there with munitions, surface-to-air missiles and surface-to-surface ballistic missiles. According to reports, Iran spends nearly $15 billion per year on defense, though many believe the real figure is much higher. Annually, it spends an estimated $6 billion-$20 billion in Syria, $1 billion on Hezbollah and $100 million on Hamas. If these figures are accurate, its total defense expenditure would have to be much higher than $15 billion.

Much of the internal opposition in Iran has focused on its involvement in conflicts abroad and the need to invest more at home. There have been numerous signs that Iranians are increasingly frustrated with the economic and political situation in the country. Nationwide protests erupted repeatedly throughout 2018, and the declining value of the currency has made daily necessities increasingly expensive. Some Iranians have even taken to social media to apologize for the Iranian hostage crisis in 1979 – a sign that they’re not afraid of regime reprisals.

The second factor is the looming threat of an Israeli war with Hezbollah, a staunch Iranian ally. On Nov. 1, Israel warned Lebanon, through France, that it must take action against Hezbollah’s production of rockets in Lebanese factories, likely an attempt to publicly show that it has made every effort to try to avert war. Hezbollah has received rockets from Iran for years and, more important, has recently boasted about getting precision missiles from Tehran, a far more serious threat to Israel than artillery rockets. Israel knows from past experience that, in the case of war, airstrikes alone wouldn’t be enough to eliminate these weapons. Ground operations, therefore, may be required, and this could substantially compromise Iran’s position in southern Syria. Lebanon and Syria are ultimately more critical to Iranian interests than Yemen is, and if a conflict in Lebanon is really in the offing, Tehran likely won’t want to continue spending its resources in Yemen.

Iran also faces a rising threat from insurgents at home. Attacks by Iranian Kurdish militants in western Iran have increased this year. In October, 29 members of the Iranian Revolutionary Guard Corps were killed during a parade in Khuzestan, a strategic western province that shares a porous border with Iraq. In the southeastern province of Sistan-Baluchistan, Sunni insurgents abducted several IRGC members and are holding them in Pakistan. The Iranians have blamed Saudi Arabia for the attack, and though Iran has a tendency to blame Riyadh and other adversaries for its problems, this charge is credible. Indeed, Saudi Crown Prince Mohammed bin Salman has threatened in the past to take the Saudi fight against Tehran to Iranian territory. Riyadh’s investments in development projects in Gwadar, Pakistan, near Iran’s eastern border, can also be seen as an attempt to increase its presence closer to Iran.

Iran, therefore, is overstretched and facing threats from all directions. There are signs, however, that other major players in the war in Yemen may be gearing up for a cease-fire or, at least, a de-escalation in the fighting. The Saudi-led coalition in Yemen is bolstering its offensive against the strategic city of Hodeida. In late October, it sent 10,000 additional troops, including Sudanese forces, to assist in the assault on the city, which began on Nov. 2. The coalition claims that it’s taking territory around Hodeida. Pictures, videos and other information posted on social media appear to corroborate this, showing that coalition forces and their allies are advancing, albeit with resistance, toward the city. Reported casualty figures for Saudi airstrikes are higher than they have been for previous Saudi attacks. On Nov. 4, Yemen’s official Saba news agency also reported the coalition cut off the Houthis’ main supply line to Hodeida, which a Houthi spokesperson denied.

(click to enlarge)

We would expect to see a new offensive launched right before another round of serious negotiations. During such talks, parties often try to improve their bargaining positions by acquiring more territory. And it’s hard to believe that the timing of this offensive – beginning just three days before sanctions on Iran came into effect and around the time that the U.S. called for a cease-fire in Yemen – is a coincidence.

Another sign that more serious talks may be ahead came from Pakistan. Following his recent visit to Saudi Arabia, Pakistani Prime Minister Imran Khan stated that Pakistan is willing to act as a mediator between Saudi Arabia and Iran, later saying that informal talks have already begun. Iran, for its part, said it would welcome Pakistan as a mediator. These statements, combined with the challenges facing Iran and the intensifying offensive around Hodeida, may indicate that the chances for a settlement are improving.

Xander Snyder
Xander Snyder is an analyst at Geopolitical Futures. He has a diverse theoretical and practical background in economics, finance and entrepreneurship. As an investment banker, Mr. Snyder worked in corporate debt origination and later in a consumer-retail industry group at Guggenheim Securities, participating in transactions ranging from mergers and acquisitions, equity and debt capital raises, spin-offs and split-offs to principal investing and fairness opinions. He has worked on more than $4 billion worth of transactions. He subsequently co-founded and served as CFO for Persistent Efficiency, an energy efficiency company that used cutting-edge technology to create a new type of electricity sensor for circuit breakers and related data services. In his role, he was responsible for raising more than $1.5 million in seed capital and presented to some 70 venture capital and angel investors in the process. He also signed four Fortune 500 companies as customers, managed all aspects of company accounting, budgeting and cash flow, investor relations, and supply chain and inventory management. In addition to setting corporate strategy, he helped grow the company from two people to a 12-person team. As an independent financial consultant, Mr. Snyder wrote an economics publication for a financial firm that went out to more than 10,000 individuals and assisted in deal sourcing for a real estate private equity fund. He is an active real estate investor and an occasional angel investor. Mr. Snyder received his bachelor’s degree, summa cum laude, in economics and classical music composition from Cornell University.