(Bloomberg) -- The shape-shifting conflict in the Middle East saw Iran openly go on the offensive for the first time since the war in Gaza began, as Tehran’s latest round of existential brinkmanship with Israel spread further from the tiny Mediterranean enclave.

The show of force broke with the stealth that’s come to define Iran’s role in the conflict so far, after allies like the Houthis in Yemen and Lebanon’s Hezbollah led the military campaign in support of Gaza. It was a message from an emboldened Iran that relegated its proxies to the sidelines, signaling an appetite to replace an unstable status quo by taking the fight where it saw fit.

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New flashpoints lit up almost daily. First Iran seized an oil tanker off the coast of Oman in what it said was a retaliation for the US’s “theft” of its crude from the same ship last year.

Then it launched missile strikes on an alleged Israeli spy base in northern Iraq and ISIS in Syria, signaling that Tehran was willing to use force to push back what it saw as Israeli influence, and creating an opportunity to show off new high-tech missiles that could in theory reach Tel Aviv. 

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Next came a further strike — this time on Pakistan to the east — targeting another militant group that Tehran says organizes attacks from the porous border region. Though Pakistan launched reciprocal strikes the following day, both sides moved quickly to de-escalate by affirming their “brotherly” relations.

A day later, Iran announced air and naval drills around the Persian Gulf coast, saying they will “create deterrence” around sensitive facilities like refineries, ports and nuclear power plants.

The flurry of interventions followed a series of strategic blows to Tehran. In December a suspected Israeli strike in Syria killed one of its top commanders. Then came similar hits on a Hezbollah commander in southern Lebanon and a Hamas leader in Beirut, all chipping away at the leadership of Iran’s “resistance front” of regional allies opposed to Israel and the US.

“There was internal pressure in Tehran on the need to flex its military muscle to deter further targeted killing of its senior commanders and strikes against its allies in the region,” said Ali Vaez, director of the Iran Project at the Washington-based International Crisis Group.

Iran has also faced pressure from multiple deadly attacks by militant groups on its own soil that killed around 100 people since December. They undermined security at a commemoration for slain general Qassem Soleimani, a hero to the Islamic Republic, ahead of elections in March that were already set to test the legitimacy of a regime rocked by protests and an economic downturn.

It’s a confrontation playing out against the backdrop of a market that’s so far not overly concerned. 

Crude in London has been largely steady through the Middle East tensions, trading below $80 a barrel as supplies haven’t been hit despite the shipping chaos. But traders will be aware that the more active involvement of Iran in the crisis holds risks to crude flows from the energy-rich region.

‘Strong Signal’

“The Iranians are making a show of force,” said Amin Saikal, adjunct professor at the S. Rajaratnam School of International Studies at Nanyang Technological University in Singapore. “It is also sending a very strong signal to Israel and to the United States that ‘we are not going to lay down.’”

What matters now is whether the adversaries conclude Iran is settling scores or upping the ante.

Two Western officials in the region see Tehran caught in a predicament, needing to carve out a role for itself as many of its proxies push for stronger steps. While facing the need for action, Iran can’t afford a full-blown escalation at this time, one of the officials said.

Though it didn’t directly instigate Houthi attacks, Iran is now supplying the Yemeni militants with support that ranges from supplies to targeting information, another said. 

The US reckons Iran’s regional foreign policy is showing signs of overreach and may be risking a backlash, according to people familiar with American thinking. One US official pointed to an Arab League emergency meeting condemning the Iranian strike on Iraq. That made Tehran look isolated in a conflict that had initially boosted its ties with former Arab rivals due to their shared solidarity with Palestinians.

“Iran doesn’t get enough credit for its strategic calculus — it’s been advancing its goals at the lowest cost possible for it,” said Bader Al-Saif, an assistant professor at Kuwait University and a non-resident fellow at the Arab Gulf States Institute in Washington.

“It doesn’t want an all-out war or a direct escalation at least, something Israel is trying to pull it to,” Al-Saif said. “But all of this tit-for-tat could backfire and cause more havoc on a region already on fire.”

As soon as a day after the retaliatory military strikes by Islamabad, officials from both countries moved to defuse tensions. Pakistan has sparred intermittently with Iran over attacks by militants along their 900-kilometer-long (560-mile-long) border — but never on this scale.

“Iran’s strike into Pakistan was both reckless and feckless,” said the International Crisis Group’s Vaez. It risked antagonizing a Muslim neighbor that supports an independent Palestinian state and isn’t to blame for Iran’s setbacks, he said.

While Pakistan and Iran have quickly tried to de-escalate, no such move is on the agenda with Israel. There, officials are determined to end – not just stem – the threat from Hamas.

Israelis “are in a far more risk-acceptance place than they have been a very long time,” said Emily Harding, former director for Iran on the US National Security Council and now an expert at think tank CSIS. “Iran needs to be careful not to miscalculate.”

--With assistance from Jennifer Jacobs, Peter Martin, Fiona MacDonald, Golnar Motevalli, Philip J. Heijmans, Demetrios Pasigos, Rakteem Katakey, Matthew Martin and Thomas Hall.

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