Iranian attack against Israel ‘increasingly likely’ - US; Hamas kills hostage, wounds two others

Hamas said on Monday that two of its members killed a male hostage and severely wounded two female hostages in separate incidents.

Israel’s sovereign debt was cut by one notch by Fitch Ratings, which kept a negative outlook on the credit as continued military conflict weighed on the country’s public finances.

US, Israel view an attack by Iran as ‘increasingly likely’

The US believes an Iranian attack against Israel has grown even more likely and may come as soon as this week, officials said, as allied leaders sought to head off all-out war and the Pentagon deployed more forces to the region.

Briefing reporters on Monday, White House spokesperson John Kirby said the US and its allies “have to be prepared for what could be a significant set of attacks”.

Israel believed it was “increasingly likely that there’ll be an attack” by Iran and its proxies, said Kirby. “We share those concerns.”

The White House comments were the strongest indications yet that officials expect that an attack may come at any time. Some have been puzzled that it has yet to happen, given Iran has threatened for days to retaliate after the assassination of Hamas leader Ismail Haniyeh in Tehran — a killing for which Israel has yet to take responsibility.

In the meantime, allies are doing everything they can to head off an Iranian strike, which they fear could spark a wider regional war. That effort has focused on trying to inject new life into ceasefire talks involving the war in Gaza between Israel and Hamas.

US Secretary of State Antony Blinken was scheduled to travel to the Middle East on Tuesday night, said Axios reporter Barak Ravid in an X post, citing an unidentified source. He would travel to Qatar, Egypt and Israel, according to the post.

The last time Iran attacked Israel, in April, it fired hundreds of ballistic missiles and drones, almost all of which were intercepted. Casualties were limited, and Israel responded at the time with a limited drone operation but elected not to escalate further.

Officials worry this time could be different, especially if an Iranian attack results in many dead or wounded.

In a joint statement on Monday, US President Joe Biden and the leaders of France, Germany, Italy and the UK backed efforts to complete a ceasefire deal between Israel and Hamas and secure the release of hostages held by Hamas. They called for “unfettered delivery and distribution of aid” and endorsed “the defence of Israel against Iranian aggression and against attacks by Iran-backed terrorist groups”.

UK Prime Minister Keir Starmer spoke to Iran’s President Masoud Pezeshkian, asking that Iran refrain from attacking Israel and “adding that war was not in anyone’s interest”, according to a Downing Street spokesperson.

“We don’t know when it will happen and if it will happen,” Colonel Gilead Shenhar of the Israel Defense Forces’ Homefront Command, which is in charge of civilian emergency preparedness, told Tel Aviv radio station 103 FM on Tuesday. “It’s possible that we will quickly transition from tense routine to the attack phase, which we refer to as ‘zero to sixty’.”

In a disclosure that may add new complications to the hostage release negotiations, Hamas, which is designated a terrorist group by the US and European Union, said on Monday that two of its members killed a male hostage and severely wounded two female hostages in separate incidents. It said in the statement that Israel’s airstrikes in Gaza stirred reactions that threatened the lives of hostages.

The US, Qatar and Egypt have called for a new round of talks on 15 August. But Hamas has pushed back against the proposal, saying discussions should centre on implementing previous plans.

Read more: US beefs up Middle East forces ahead of Gaza truce talks

Israel has agreed to attend the talks. One Israeli official said they would take place in Doha with a focus on whether Hamas might relent on truce terms. Another Israeli official said Arab mediators would confer with Hamas afterwards if the group boycotted the session. Israel hasn’t yielded on its main terms, said the officials, who spoke to Bloomberg News on condition of anonymity given the sensitivity of the issue.

On Sunday, the Pentagon announced it was sending even more forces to the region, including the USS Georgia, a submarine equipped with more than 150 Tomahawk missiles. That in itself is an unusual show of force given that the US rarely discloses the movements of its nuclear-powered submarine fleet, and Tomahawks have been used to strike ground targets in the region in the past.

Defense Secretary Lloyd Austin also ordered the USS Abraham Lincoln aircraft carrier and its strike group to speed up their arrival in the region. The vessel carries F-35 fighter jets, which could help strike targets and intercept any Iranian attacks.

Acting Iranian Foreign Minister Ali Bagheri Kani described an attack on Israel as “inevitable”, Italian Foreign Minister Antonio Tajani told Italian news broadcast TG4.

Tajani said any escalation would be a mistake and Iran should first evaluate the ceasefire negotiations.

“But it seems to me that the Iranians are in a very difficult position,” he said.

Israel’s rating cut by Fitch as war seen lasting into 2025

Israel’s sovereign debt was cut by one notch by Fitch Ratings, which kept a negative outlook on the credit as continued military conflict weighed on the country’s public finances.

The rating firm lowered the country’s score to A from A+, citing “continued war” and geopolitical risk as drivers, according to a statement on Monday. The Israeli sovereign dollar bond due 2031 fell by 0.4 cents on the dollar on Tuesday, with most other securities of the nation posting losses. The equity benchmark in Tel Aviv fell the most in a week.

The action “reflects the impact of the continuation of the war in Gaza, heightened geopolitical risks and military operations on multiple fronts”, analysts including Cedric Julien Berry and Jose Mantero wrote. “In our view, the conflict in Gaza could last well into 2025 and there are risks of it broadening to other fronts.”

Human losses, significant additional military spending, destruction of infrastructure and sustained damage to economic activity and investment could all lead to a deterioration in credit metrics, said Fitch. It added that tensions in the region “remain high”.

Read more: Bank of Israel sees longer war and less room for rate cuts 

Fitch projected the nation’s budget deficit could reach 7.8% of gross domestic product this year from 4.1% in 2023, and expected debt to remain above 70% of GDP in the medium term. The median for A-rating peers is 55% for 2025, Fitch said.

Israel’s credit grades have been under pressure for months. Moody’s Ratings gave Israel its first-ever sovereign downgrade in February, cutting its credit rating by one notch to A2 with a negative outlook.

Tuesday’s market reaction to Fitch’s move was muted, with small losses in bonds. The currency, meanwhile, rose for one of the best performances among emerging-market peers. DM

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