It is worth stepping back from this and recalling a very important geopolitical fact: when it comes to conventional warfare, Iran is weak and feckless. As described by the CSIS Gulf Military Balance in 2010:
The Southern Gulf states have far more modern weaponry and military technology than Iran, and far larger numbers of modern weapons. They are spending far more than Iran, and importing far more – with far better access to the most modern weapons. Iran so far has not made good on its claims of creating a significant domestic industrial capability to provide its own modern weapons, and much of its inventory is either the worn product of the Iran-Iraq War, or an even older inventory of weapons it obtained from the US and Europe during the time of the Shah. Iran is anything but a meaningful military hegemon, and is – in fact – a third rate military power in every aspect of warfighting other than irregular warfare.It is worth noting the hypocrisy that even after the 1979 Iranian Revolution, during the Iran-Iraq war (which the US ostensibly heavily backed the Iraq side), the US also illicitly supplied Iran during the Iran-Contra affair by selling them the kinds of surface-to-air weapons that provide a modicum of deterrence today.
To the extent that the media and political class acts as if Iran is a big military threat in the conventional sense, it is largely wrong. However, Iran does have various capacities in what is termed "asymmetrical warfare". That is, either an offensive or defensive capacity that is militaristically significant without having conventional power anything close to that of the dominant players (namely, the US, Israel and even other regional forces).
On the offensive side is largely the same ability that any weak force has: supporting guerilla tactics (sometimes termed terror tactics in the post 9/11 world). The obvious manifestation of this is in Lebanon with Iranian support for Hezbollah. Iran can't hope to win a conventional military war against Israel or, really, any but the smallest of its neighbors, but it can supply fairly small weapons and provide other support to miitant groups like Hezbollah. As we saw in the 2006 invasion of Lebanon, such a force was able to essentially throw out the Israeli invasion despite the overwhelming asymmetric nature of Israeli airpower and armored units. However, there are inherent limits to guerilla tactics, namely that Iran doesn't have the capacities itself let alone being able to bring Hezbollah up to the military capabilities to the level to invade and occupy Israel the way Israel invaded and occupied Lebanon.
The largest fear with regards to Iran is that it will obtain nuclear weapons. As I have argued, these ought to be considered as deterrents and as a defensive weapon. Likewise, Iran currently has a larger missile capacity than most similarly small militaries. Especially if it got nuclear weapons, it would thus have an asymmetric ability, relative to its overall strength, to make a unilateral strike at another country even if it had no hopes of occupying them. Tactically, however, such unprovoked strikes make no sense and should be classified as defensive deferents. Contrast this with Israel, which it has recently been uncovered that there is a secrete deal to sell 55 bunker busting bombs in Israel. In conjunction with similarly secret agreements for an air corridor through Saudi Arabia, Israel is far better poised for asymmetric air strikes (theoretically even nuclear ones) on Iran than vice versa.
The major advantage that Iran has defensively is the lack of a relevant proxy force to do the ground fighting for the West. In Afghanistan, Somalia and Libya, these countries had local groups on the ground already entrenched in a civil war for which the west could back with overwhelming airpower. It makes it possible for the invasion to be relatively painless (in Afghanistan, for instance, the US lost a single soldier up until after the taking of Kabul because the Northern Alliance did all the ground fighting with only limited US SOF on the ground to direct air power). An invasion of Iran that aims for regime change (and not just striking some facility like the Israeli strikes on Osirak) thus necessitates an invasion of the level of Iraq where there is a full occupation with the ground war fought by western soldiers. This of course is technically feasible (and even the invasion of Iraq only took a couple weeks, the outcome was preordained) but the level of involved creates a deterrent.
It is worth noting the above militaristic factors above as well as my previous description of militaristic motivations for Iran and nuclear weapons. However, a lot of the geopolitics of the region are not really dominated by the hard military facts on the ground but by the softer and more rhetorical saber-rattling intended to score various domestic and international points. By presenting itself as powerful, legitimate and defiant to the west, Iranian leadership gains a lot of political capital both domestically and in neighboring Islamic countries. The launch last year of a rocket that carried turtles and worms into space has essentially no purpose, but it grants the Iranian regime some credibiity for its technological prowess. A nuclear weapon is the ultimate projector and symbol for power and it is for this reason that it is so sought after. Indeed, public opinion polls have shown majorities of the Muslim world think it is a good thing if Iran were to get a nuclear weapon, despite the Sunni-Shia divide, likely because it changes the balance of power with respect to the West accordingly. The recent symbolic sending of a warship through the Suez is a similar saber-rattling example. Iran doesn't have a meaningful naval ability to provide a threat in the Mediterranean, but it gives them geopolitical clout and a perception of influence.
Statements like the one I opened with at the UN where Ahmadinejad drones on about holocaust and 9/11 denial are meant as inflammatory and it is meant for countries from the west to walk out on them for it. The simple act of defiance to the west buys a lot of appeal. The notion, for instance, that 9/11 was a conspiracy actually has fairly widespread belief in the Arab world (and even a nontrivial following in the West). Regardless of what he actually believes, there is value in saying it. It is also important to realize that Turkey and Iran are in competition for influence in the region. The immensely popular Erdogan is a historic western ally, maintains good relations with the west such as cooperating on the war in Iraq and having EU ambitions, and generally promotes secular democracy. Iran provides a sharply alternate role model - which many find attractive - and the statements that seem so extreme to us are essentially just trying to emphasize these distinctions as sharply as possible.
It is something of an irony that the West and Iran are in a sense working together at inflating the threat of Iran. For the west, seeing Iran as a big threat gives them justification for their geopolitical policies while for Iran it gives them the credibility they seek on the Arab Street. These force combine to make it appear as if Iranian military capacities are much higher than they truly are. When one strips away the pretenses and rhetoric, the threat of Iran is very marginal. It is perhaps interesting to note that not once since its inception count modern country out of the Great Game of the nineteenth century has Iran started a war of aggression. While it is beyond the scope of this post to justify, I would conclude by claiming that the most effective way to deal with Iran is not through exchanging their own self-identification as a defiant and powerful threat, but to be hands off in a way that allows the internal, secular Green Movement to transform the country, aided by economic integration and political rapprochement that provides the incentives for in kind reciprocity in these areas.
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