Proxies on the Move
Start with a number that should stop you cold: nearly $1 billion, moved through eight cryptocurrency wallets, cashed out at mainstream exchanges, funneled through cross-chain bridges and shadow banking — all to keep the Houthis fighting 65. This isn't a ragtag militia scraping by on Iranian wire transfers. It's a financially self-sustaining war machine, and it's still blocking the Bab al-Mandeb strait 14,42,56.
That detail matters because it reframes the entire proxy picture. Iran's "Axis of Resistance" — Hezbollah in Lebanon, the Houthis in Yemen, Kataib Hezbollah and affiliated militias in Iraq — has proven more durable and operationally independent than almost anyone predicted 34,42,48. These groups aren't just extensions of Tehran. They're actors with their own logistics, their own finances, and their own reasons to keep fighting.
In Lebanon, Israeli airstrikes hit Deir Qanoun en-Nahr, Hannaouiyah, and Nabatieh in the Tyre district, killing at least eleven people including healthcare workers and paramedics 47. This happened despite a fragile US-mediated ceasefire still nominally in place 47. Hezbollah, substantially degraded by Israeli strikes in 2024 34, has nonetheless claimed anti-ship cruise missile strikes off the Lebanese coast 9,12,18,39,60. Israeli media reported that one vessel targeted was British rather than Israeli 23,30,39 — a claim corroborated by three sources that, if confirmed, would mark a striking geographic expansion of Hezbollah's maritime reach. Watch that story closely.
In Iraq, Kataib Hezbollah — a US-designated terrorist organization 4,32,43 — is operating with a level of authority that blurs the line between militia and state 43. A kidnapping in Baghdad on March 31 required US diplomatic and military channels to negotiate, directly or through intermediaries, with the militia to secure the victim's release on April 7 11,43. That's not a footnote. That's Washington effectively recognizing Kataib Hezbollah as a governing power. An FPV drone strike on the US Victoria military base near Baghdad International Airport has since added to the pressure 21,27,52, and a French soldier was killed in Iraq in what officials described as an attack 1,25,33,50 — a reminder that the threat to coalition forces is persistent and ongoing.
The most consequential gap in the current diplomatic picture: analyst Scott Lucas has noted that Tehran's links to these regional groups are no longer being included in the US-Iran negotiating framework 46. Any deal that gets done will be a deal about nuclear enrichment and sanctions — not about the proxy architecture that is actually doing the fighting.
The Gulf: From Neutrality to Fracture
The Gulf states tried to stay out of it. That posture didn't survive Iranian strikes on their territory 2,8,16,20,26,51.
Saudi Arabia, Qatar, and the UAE initially attempted to hold a non-aligned position 2,51. That's over. The China-brokered Gulf rapprochement — one of the more significant diplomatic achievements of recent years — has reportedly collapsed entirely 51, removing a key buffer from regional politics. Political fractures among the three major Gulf states are now visible and documented 51. The GCC is no longer a bloc; it's a collection of governments making individual calculations.
The UAE's experience illustrates how fast those calculations can change. Iranian strike forces targeted Emirates Global Aluminium, forcing a shutdown that drove worldwide aluminum prices 15% higher 3,6,17,29,38,59. The UAE then accused armed groups in Iraq of being behind a drone strike on the Barakah nuclear plant 45 and demanded Baghdad prevent hostile acts originating from its territory 45. Saudi Arabia intercepted drones the following day 42 — informal coordination, even amid the political fractures.
Despite the fragmentation, Gulf actors have played a genuine stabilizing role. Gulf mediation reportedly postponed a planned US strike on Iran scheduled for May 19 64. Qatar and the UAE remain active in the broader mediation network alongside Pakistan 47,64. These are not passive bystanders.
The most telling long-term signal is infrastructure. The UAE is fast-tracking the ADNOC West-East pipeline — currently 50% complete, due 2027 — and redirecting volumes through an existing 1.8 million barrel-per-day line to Fujairah 54,63,67. Abu Dhabi is not waiting to see how the Hormuz situation resolves. It is engineering around the strait on the assumption that the risk is now permanent.
Pakistan Steps In — and Complicates Everything
The most consequential new actor in this crisis isn't a Gulf state or a European power. It's Pakistan.
Islamabad has become the central diplomatic intermediary in the Iran file — not just a message carrier, but a shaper of proposals and draft texts 7,10,13,15,19,24,31,37,40,41,45,47,58,61. Interior Minister Mohsin Naqvi and Field Marshal Asim Munir have both traveled to Tehran 42,45,46. Prime Minister Shehbaz Sharif visited Beijing to discuss the crisis 41, with Army Chief Munir in tow 42. Pakistan is now embedded in a mediation network connecting Washington, Tehran, Gulf capitals, and Beijing 37,58,76 — a position that will give it leverage and visibility long after the current crisis fades.
But Pakistan's mediating role comes with costs. Washington's tilt toward Islamabad is generating measurable friction with India 72,76. And in May, Pakistan and India fought a brief air war 37 — with Trump claiming to have brokered a ceasefire 37 and the Indian government denying that characterization 37. The world's two nuclear-armed neighbors exchanged fire while one of them was simultaneously serving as a diplomatic intermediary in a separate nuclear standoff. That sentence deserves a moment.
India's position in this crisis is genuinely complex. Secretary Rubio's May 2026 visit to Prime Minister Modi centered on promoting US energy exports to diversify India away from Russian oil 49,69,73,76 — a conversation explicitly framed within the Hormuz disruption context 69. Yet roughly half of the prior 50% US tariff burden on Indian goods was explicitly linked to India's purchases of Russian oil 76. New Delhi is reportedly planning increased US crude procurement 72, but the broader crisis has temporarily set back its efforts to reduce Russian oil dependence 76. The Iran conflict is reshaping the US-India-Russia energy triangle in real time.
China, Russia, and the Art of Strategic Obstruction
Russia and China have adopted a consistent posture at the multilateral level: block, delay, and complicate. Both have resisted US-Bahraini and French proposals at the UN Security Council 47, effectively preventing any international legitimization of a coercive Hormuz reopening operation.
Russia's involvement goes beyond diplomatic obstruction. Russian intelligence support to Iran has been documented 5,22,28,36,57, including — in a claim that demands careful scrutiny — the reported destruction of a US AWACS aircraft in Saudi Arabia enabled by Russian intelligence 5,22,28,36,57. If confirmed, that would represent a direct Russian contribution to Iranian military effectiveness, not merely political cover.
The diplomatic choreography at the top has been striking. Putin conducted a two-day visit to China 42, during which Russia and China signed several agreements 42. Donald Trump visited Beijing and met with Xi Jinping in early May 37, with Xi hosting Trump for talks on ending the conflict before Putin's arrival 42. China has declined to serve as a mediator 55. Its preference, reading the pattern of its actions, appears to be managed US entanglement in the Middle East — not resolution.
The Spillover Nobody Is Talking About
The humanitarian and economic costs radiating across Iran's neighborhood are real, severe, and underreported.
Inside Iran, the picture is devastating. Absolute poverty has reached an estimated 40–44% of the population 62, with roughly 35 million people unable to meet essential living costs 62. Chicken production collapsed from 140 million to 94 million birds in a single month 62. The Pasteur Institute of Iran — a cornerstone of the country's public health system — was bombed during the conflict 44. The Iranian Red Crescent reported that more than 7,200 people were rescued from beneath rubble during US and Israeli attacks 44.
Beyond Iran's borders, the energy disruptions are generating distinct national crises. Pakistan is experiencing worsening LNG shortages 66, compounded by its diplomatic entanglement. Japan and South Korea have reverted to electricity-grade coal because LNG supplies tied to the conflict have been disrupted 70. In India, private-sector LPG imports dropped 44% in April, forcing state-run oil companies to increase supplies to auto-LPG vehicles by 86% year-over-year to offset the shortfall 75; industrial LPG consumption fell 82% year-on-year in the same month 75.
The food system transmission is the slow-moving crisis that deserves more attention. Nitrogen fertilizer prices have surged up to 80% due to maritime tensions 74, with shipping insurance and supply-chain difficulties feeding directly into agricultural input costs 74. These effects typically translate into food price inflation within two planting seasons 35. For Lebanon — already hosting a mass-displacement tent camp 53 — and for Iraq, where governance is contested between the state and armed militias 43, these economic pressures compound existing fragility in ways that could accelerate political instability well before any diplomatic settlement takes hold.
The European Union is not insulated. EU officials warn that oil and gas prices could remain elevated through 2027 68,71, with electricity price gaps widening relative to the United States and China 71. What began as a conflict over Iranian nuclear enrichment is now a structural energy shock with a multi-year tail.
What to Watch
The proxy architecture will outlast any bilateral ceasefire. The exclusion of Hezbollah, Houthi, and Iraqi militia relationships from the current US-Iran negotiating framework 46 means that even a nuclear-and-sanctions deal leaves the regional security architecture fundamentally unchanged. Kataib Hezbollah's de facto authority in Iraq 43, Hezbollah's continued maritime and ground operations in Lebanon 9,12,18,34,39,47, and the Houthi dual-chokepoint strategy at Bab al-Mandeb 14,42,56 will remain live volatility sources for shipping, insurance, and regional energy flows regardless of what gets announced in a press conference.
Watch the UAE's Fujairah pipeline volumes as a real-time indicator of how seriously Gulf states are treating Hormuz risk. Watch Pakistan's triangular positioning between Washington, Beijing, and Tehran — and the friction it generates with New Delhi. Watch the fertilizer price curve as a leading indicator of food system stress in the Global South. And watch whether the next round of US-Iran talks expands its scope to include the proxy networks that are, right now, doing the actual fighting.
The conflict doesn't stop at Iran's borders. It never did.
