Nouriel Roubini: Regime change in Iran could give peace a chance in West Asia
Hostilities between Israel and Iran may be ending after sharp US intervention, but the Iranian regime has been shaken and may fall. Should it be replaced, not just the West, but the whole volatile region might be better off.
Last November, I said that Israel was likely to attack Iran’s nuclear and other military facilities, even go so far as to eliminate the “regime’s top military and political leaders." I also argued that “any US administration would inevitably continue to support [Israel], directly or indirectly."
Regardless of divisions in Tel Aviv about the conduct of war in Gaza, the broad consensus across the Israeli political spectrum— including centre-left critics of Prime Minister Benjamin Netanyahu—was that Iran was close to developing a nuclear weapon, seen as an existential threat to Israel. Centrist leaders such as Benny Gantz and Yair Lapid criticized Netanyahu for being soft on Iran.
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It was only matter of time before Israel struck Iran, which, starting on 7 October 2023, had unleashed Hamas, Hezbollah, Houthis and Shia militias in Syria and Iraq against Israel. After Tel Aviv decimated these proxies and Iran lost deterrence, Iran’s only option was to gain nukes, an unacceptable outcome for Israel and the West broadly.
Thus, Israel’s attack against Iran. And since some of Iran’s hardened nuclear facilities were robust enough to withstand Israeli weapons, it was clear that the US would intervene to destroy those units, despite the anti-interventionist sentiment of US President Donald Trump’s political base.
Iran counter-attacked Israel with missile barrages [and later fired at a US base in Qatar, causing no serious damage]. [Trump announced a ceasefire thereafter], but the Iranian regime is so weakened that it can barely defend itself, let alone [hurt the US]. Yes, some Shia militias may try to attack well-defended US bases and troops in the region. But, leaving aside the risk of even more forceful US and Israeli attacks, they cannot damage much.
Also, the Iranian regime’s ability and veiled willingness to block the Strait of Hormuz, mine the Gulf and/or attack the oil facilities and pipelines of its Arab neighbours is limited. The regime is focusing on its survival, but its collapse looks likely in the coming months.
True, for now Israel’s attack has led even the anti-regime opposition to rally around the flag. Over time, however, a large majority of Iranians who despise a regime that has brought about the country’s economic ruin will rise against it and replace it with something else. In 1990, Iran’s per capita GDP was almost equal to that of Israel; today, Israel’s is nearly 15 times higher. Iran’s energy reserves rival Saudi Arabia’s, yet it has lost hundreds of billions of dollars in potential energy revenues in [fierce but futile] opposition to the West.
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Today, Iranians face skyrocketing inflation, collapsing real incomes, mass poverty and even hunger not because of US and Western sanctions, but because of their rulers’ policies. A country that could have been richer than any Gulf oil state is near bankruptcy, owing to the regime’s corruption, incompetence and strategic recklessness.
In addition to being a curse to its own people, the Islamic Republic has financed terror groups in West Asia for decades and caused state failure or semi-failure across the region: in Yemen, Lebanon, Syria, Gaza/Palestine and Iraq. Stabilization and recovery of the region’s failing and failed states requires regime change in Iran.
The Iranian people could trigger it over the next year. Iranians have revolted against their regime at least a half-dozen times in the last few decades, and, when given the chance, they have always chosen moderate leaders over theocratic zealots.
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For now, financial markets are correctly betting that the global impact of this recent war is likely to be minimal. Current movements of oil prices, US and global equities, US and global bond yields, and currencies suggest that a major stagflationary shock coming from a disruption of production and energy exports from the Gulf remains only a tail risk, not the baseline scenario.
The 1973 Yom Kippur War and Iran’s Islamic Revolution in 1979 led to a huge spike in oil prices that fuelled the severe stagflations of 1974-75 and 1980-82. This time is likely to be different: the energy input in consumption and production in oil-importing economies is much lower than in the 1970s; the US and other major new non-Opec energy producers have emerged; Saudi Arabia and others are able to tap large excess production capacity and inventories. And in case oil prices rise as US actions create new risks, various macro policies and other tools can be used to reduce the stagflationary impact.
A nuclear Iran would have been a threat not just to Israel but all Sunni regimes in the region, as well as the West. German Chancellor Friedrich Merz said what many world leaders think but don’t want to admit in public: “Israel is doing the dirty work for all of us." Even China and Russia have shown restraint. Radical forces have destabilized West Asia for decades, with spillover effects on the West. It took Israel to weaken and destroy Iran’s proxies.
Regime collapse in Iran may boost stability and allow for reconstruction, with diplomatic relations established between Israel and Saudi Arabia. A new government in Israel more open to peace with Palestinians and an eventual two-state solution will then be possible. But the Iranian Hydra needs to be replaced with a rational regime eager [for peace]. ©2025/Project Syndicate
The author is professor emeritus of economics at New York University’s Stern School of Business and author of ‘MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them’.
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