| Dina Esfandiary, the Middle East lead for Bloomberg Geoeconomics, outlined in an analysis this week (Terminal subscribers only) why regime change (were it to occur) could lead to a more confrontational Iran. We reached out to her with a few follow-up questions about that scenario. Her answers were written before President Donald Trump announced that the US had launched airstrikes on Iran. Follow Bloomberg's coverage here. How likely is regime change in Iran at this point, and what would that entail? Regime change won’t come at the hands of Israel’s bombs. When an external enemy attacks, there tends to be a strong rally-around-the-flag effect in Iran (not unlike other countries!) This means that whatever discontent Iranians feel — and that discontent has been rising — gets pushed aside momentarily so the country can unite in the face of an external enemy. For as long as these strikes continue, and the more images of death and destruction get shared, the stronger this sentiment gets. And this is exactly what Iran’s leadership wants, because it buys them some time and breathing space. You’ve written that the removal of Ayatollah Ali Khamenei could lead to an even more confrontational Iran — why is that? The Islamic Republic is no monolith. There are reformists, pragmatists and hardliners within the elites. There is also a rising cadre of young, more ideological elements within the system who believe that the Islamic Republic has lost its way, and call for a return to the tenants of the 1979 revolution. The system has been preparing for the Supreme Leader’s succession for several years now, with each faction within the political system jostling to get their preferred candidate in the winning seat. There is a chance that this young ideological cohort of officials are able to get someone in that represents their views, or that the Revolutionary Guards, who are traditionally more hardline on Iran’s foreign policy, are able to get someone in. That might make Iran more confrontational. If we did see regime change in Iran, what would you be watching next? Who gains, who loses, and how might markets respond? It’s really difficult to tell what will come next because there is no viable, organized opposition in Iran right now. There are a few figures outside the country, but they are divisive and unlikely to get much support inside the country. This means that the field will be open to those who are stronger inside. The vision of the next leader, along with what relationships that person has, inside and outside the country, will tell us a great deal about what direction they hope to take the country in. Will they be open to bringing Iran out of isolation or will they double down and harden Iran’s stance internationally? Markets are likely to panic at first, especially if the person is unknown. | 