Shadow Leverage Issue 3: The Regional Proxy Dilemma

Negotiations between Washington and Tehran are entering an increasingly complex strategic juncture, with most of the 60-day timeframe established under the "Islamabad Truce" having elapsed without a decisive agreement. This has been accompanied by renewed hostilities and the Strait of Hormuz once again closing to international shipping.

These developments on the ground coincide with intensive international diplomatic efforts to contain the repercussions of an open military conflict that has clearly weighed on regional and global economic growth.

At the heart of this negotiating landscape is the conspicuous absence of the regional proxy issue from both the draft preliminary agreement and the current talks. Rather than signalling that the issue has been sidelined, this absence raises fundamental questions about the future of the complex network that has for decades formed a central pillar of Iran's deterrence doctrine.

Current political dynamics suggest the proxy issue is no longer a secondary matter that can be deferred or ignored. Instead, it has become a structural fault line that cuts across each side's conception of security and stability, as well as the limits of any viable settlement.

Its exclusion from the initial formulations reflects a clear recognition of how difficult it would be to incorporate the issue without directly confronting red lines at the intersection of Iran's deterrence doctrine, the US vision of regional security, and Israel's efforts to translate military pressure into irreversible negotiating gains.

The dilemma takes on even greater significance in light of recent macroeconomic analyses indicating that the costs of proxy involvement have extended well beyond direct military losses, striking at the heart of the global economy. Proxy-related operations along critical maritime corridors, particularly in the Red Sea, have severely disrupted supply chains and inflicted tens of billions of dollars in losses on international trade through unprecedented surges in shipping and insurance costs. They have also created unconventional threats to the security of digital infrastructure, most notably subsea fibre-optic cable networks.

Security experts emphasise that the structural attrition the Axis of Resistance suffered during the intense confrontations of 2024 and 2025 prompted Tehran's leadership to reassess its tactics and instruments, but not to abandon them.

The crisis stems from a fundamental divergence in the actors' perspectives. Iran regards its network of proxies as a forward line of defence and an integral component of its national security, integrating these groups with its missile and drone capabilities. Washington and Tel Aviv, backed by regional powers, by contrast, view dismantling and disarming these groups as a mandatory precondition for any new regional security architecture.

This reality places the proxy issue at a critical intersection between three complex levels: Iran's pursuit of strategic depth for its defence; US efforts to neutralise sources of asymmetric threat; and regional and international concerns that link market stability and freedom of navigation to ending the activities of these groups around maritime chokepoints and in the Eastern Mediterranean. Any settlement that fails to define the place and functions of these proxies would therefore amount to little more than a fragile truce vulnerable to rapid erosion.

This section examines the divergent perspectives of the key actors on the regional proxy crisis. It assesses how these competing positions may clash or converge behind closed doors at the negotiating table. The paper asks a central question: will these discussions translate into strategic trade-offs that underpin a comprehensive and sustainable settlement, or will divergence between the parties' red lines reduce the anticipated agreement to little more than a temporary tactical freeze before an even more violent round of conflict?