When the U.S. withdrew from the nuclear deal and renewed sanctions on the Islamic Republic, many asserted that the new measures could never have the effect of those in place during the pre-deal years, since European nations would not join in enforcing them. The Europeans have, in fact, held fast to the agreement, but, notes Patrick Clawson, European corporations are far from eager to do business in Iran. Furthermore, he writes, the U.S. can make serious trouble for Tehran by going after its financial institutions, which are already in a precarious state:

The Islamic Republic’s banking problems go well beyond . . . concerns about money laundering and terrorism financing. For one, few Iranian banks comply with international standards for preventing tax avoidance by foreign depositors. Thus, any international banks that deal with noncompliant Iranian institutions can be ordered to pay the U.S. income tax owed by depositors. Iranian banks also acknowledge that they do not meet the 8-percent “minimum capital-adequacy ratio” required by [international banking regulations], forcing any foreign banks that do business with them to take stringent precautions. . . .

Iran’s banks are also trapped by the government’s precarious finances. . . . To make matters worse, banks face competition from Iran’s many “credit institutions”—a euphemism for what began as unregulated banks set up by politically well-connected figures. . . . In his December budget speech, President Rouhani stated that six of these institutions control an astonishing one-fourth of Iran’s money market. . . . [M]any of these entities are basically Ponzi schemes, paying extremely high rates on deposits but with little prospect of being able to match them by earning similar interest on loans. . . .

Unlike in 2012, banks, not oil exports, are the Iranian regime’s greatest economic vulnerability. The more these banks are isolated from the global financial system, the more difficulty they will have gaining the confidence of Iranians and raising the funds they need. With banks starved of capital, the government has been forced to take or contemplate controversial measures such as cutting spending, driving up the rial/dollar exchange rate (which raises the amount of rials the government gets from oil exports), and printing more money. Yet each of these measures could cause major political problems at home by exacerbating inflation, undercutting confidence in the rial, or otherwise stoking resentment among the general public.

Early Friday morning, Israel attacked military installations near the Iranian cities of Isfahan and nearby Natanz, the latter being one of the hubs of the country’s nuclear program. Jerusalem is not taking credit for the attack, and none of the details are too certain, but it seems that the attack involved multiple drones, likely launched from within Iran, as well as one or more missiles fired from Syrian or Iraqi airspace. Strikes on Syrian radar systems shortly beforehand probably helped make the attack possible, and there were reportedly strikes on Iraq as well.

Iran itself is downplaying the attack, but the S-300 air-defense batteries in Isfahan appear to have been destroyed or damaged. This is a sophisticated Russian-made system positioned to protect the Natanz nuclear installation. In other words, Israel has demonstrated that Iran’s best technology can’t protect the country’s skies from the IDF. As Yossi Kuperwasser puts it, the attack, combined with the response to the assault on April 13,

clarified to the Iranians that whereas we [Israelis] are not as vulnerable as they thought, they are more vulnerable than they thought. They have difficulty hitting us, but we have no difficulty hitting them.

Nobody knows exactly how the operation was carried out. . . . It is good that a question mark hovers over . . . what exactly Israel did. Let’s keep them wondering. It is good for deniability and good for keeping the enemy uncertain.

The fact that we chose targets that were in the vicinity of a major nuclear facility but were linked to the Iranian missile and air forces was a good message. It communicated that we can reach other targets as well but, as we don’t want escalation, we chose targets nearby that were involved in the attack against Israel. I think it sends the message that if we want to, we can send a stronger message. Israel is not seeking escalation at the moment.