Iranian regime collapse is now plausible as sanctions compound wartime economic damage. The proxy network is unraveling after losses to Hamas, Hezbollah, and Assad. Sustained financial, political, and maritime pressure is essential to complete the defeat.
Iranian regime collapse has shifted from a distant possibility to a plausible strategic outcome as Operation Economic Outcast compounds the damage of a war the regime never anticipated fighting on its own territory. The financial sanctions now unleashed are not merely punitive measures layered onto existing pressure. They target the economic enablers that sustain Iran’s ability to project power through proxies.
The regime’s longstanding preference for indirect warfare—keeping conflict far from its borders—has been shattered by the 12-day war of June 2025 and the current war that began on February 28. The fight is now centered squarely in Iran, and the proxy strategy is in disarray. Hamas has been pushed into less than one-third of the Gaza Strip. Hezbollah has lost approximately 80 percent of its rocket and missile capabilities. The Assad regime collapsed in 2024, removing Syria as a linchpin for Iranian proxy activity.
The Iranian regime collapse scenario is reinforced by the fact that the economy was deteriorating long before the current war erupted, with the conflict costing roughly 40 percent of prewar GDP. The question is whether Washington and its partners will maintain the integrated pressure—political, financial, maritime, and military—required to translate this moment of weakness into a decisive outcome.
Iranian Regime Collapse Now Conceivable
President Trump’s Operation Economic Outcast is unleashing a painful wave of financial sanctions on the Iranian regime and its economic enablers.
The plan has a reasonable chance of success. Regime figures are already expressing concern about the Iranian economy, which was collapsing long before the current war erupted.
Still, the Trump administration can dial up the pressure further by weakening the regime’s network of terrorist proxies.
How the Proxy Strategy Unraveled
Since the 1980s, the Iranian regime has preferred to fight its enemies by proxy, keeping conflict far from its borders. In so doing, the regime has been able to engage in hostile acts against the United States, Israel and other regional actors with little risk.
However, the 12-day war of June 2025 — not to mention the war that erupted on Feb. 28 — has changed that. The fight is centered squarely in Iran. The regime’s proxy strategy is in disarray.
Israel has also done significant damage to the Iran-backed Hamas organization, which thrust the Middle East into war on Oct. 7, 2023, when it slaughtered more than 1,200 Israelis and took more than 250 hostages.
The Israelis have steadily hammered the terrorist group and pushed it into a territory constituting less than one-third of the Gaza Strip.
Hezbollah and Assad Collapse
Israel has similarly damaged Hezbollah, which has reportedly lost some 80% of its rocket and missile capabilities since joining the war. The Israel Defense Forces took out the group’s top leader and many commanders.
Hezbollah is now the subject of intense diplomacy regarding the sovereignty of Lebanon, with international pressure mounting on the group to disarm.
The Assad regime in Syria, once a linchpin for Iranian proxy activity, collapsed in 2024. The new regime now rejects the Iranian regime and the Shiite militias that once roamed there.
Relatedly, Shiite militias in Iraq have been largely silent in recent months, with pressure building in Baghdad to neuter them.
The Houthis Remain the Last Threat
The most potent Iranian proxy group right now is the Houthi militia. The Houthis maintain the ability to fire ballistic missiles at foes of the Iranian regime. They can also attack maritime and naval vessels in the Red Sea.
For the U.S., Israel and regional allies to erode this proxy network further, an integrated strategy is necessary.
First, the political processes pressuring Iran’s proxy network in Lebanon, Gaza and Iraq must continue. The effort to purge Hezbollah, Hamas and the Shiite militias must be reinforced with consistent messaging, diplomatic initiatives and support on the ground.
Not a day should pass without formal messages or actions that reinforce the need to remove these terrorist groups from their havens.
Financial Pressure Must Intensify
Second, the financial pressure on the Iranian regime must be exerted to the fullest. Sanctions and other means of economic warfare are key to ensuring that the Iranian regime remains weak and unable to fund its proxies.
The ongoing war has cost Iran about 40% of its prewar gross domestic product, and “Economic D-Day” has left the regime with little room to rebound.
Third, an international coalition effort is needed to open the Strait of Hormuz and Bab el-Mandeb shipping corridors. Without the ability to threaten ships on its own or by proxy, the Iranian regime will lose the last bit of leverage it has.
Iranian Regime Collapse Requires Cohesion
Fourth, and perhaps most controversially, regional players and Western nations must welcome Israeli efforts to destroy the proxy groups in Lebanon and Gaza. These governments claim to reject Iranian proxy violence, yet their ambivalence about Israel’s efforts undermines that claim.
More broadly, ambivalence about American and Israeli efforts to defeat the regime is a problem. The lack of international cohesion yields the regime an opportunity to exploit fissures and dilute global efforts to end this war on the right terms.
Iran invested nearly five decades and billions of dollars in its proxy network. That entire project is on the verge of collapse. This does not mean it will rebound, but for now, the regime appears willing to reduce support for these groups to focus on defending its own territory.
The effort required to reach this point was enormous. This effort must now be taken to its logical conclusion: a full defeat of the regime and its regional terrorist network.