Are the U.S. and Iran fighting a shadow war or on the verge of a diplomatic breakthrough? Maybe both.

Iranian civilians view some of their military's missiles during an exhibition in January in Tehran.

Nuclear talks and rocket attacks. Just another day in U.S.-Iran relations.

F. Scott Fitzgerald once wrote that “the test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function.” This is the sort of intelligence that might be required to understand the current state of relations between the U.S. and Iran: two countries that seem to be simultaneously drifting toward proxy war and toward a diplomatic breakthrough.

Both trends were in evidence on a single recent day. In the early-morning hours of Aug. 24, the U.S. launched two airstrikes in Syria targeting what the U.S. said were militant groups linked to Iran’s Islamic Revolutionary Guard Corps (IRGC). That evening, three U.S. troops in Syria were injured in two separate rocket attacks, the latest in a series of attacks on U.S. personnel in Syria and Iraq that the U.S. has blamed on Iran-linked groups. The U.S. responded with Apache helicopter strikes that killed four militants and destroyed seven rocket launchers. Alongside this tit-for-tat U.S.-Iran violence, American ally Israel has carried out an increasing number of strikes against Iranian assets in Syria as well as a not-officially acknowledged but fairly obvious campaign of sabotage and assassination within Iran itself.

But while the rockets were firing Aug. 24, U.S. diplomats were sending a response to Iran’s latest comments on a draft agreement that would restore the 2015 Iran nuclear deal. There’s still considerable disagreement between the two sides — more recently, the U.S. State Department on Sept. 1 described Iran’s latest proposals as “not constructive” — but after months of deadlock, they are talking (via European intermediaries, that is) and there does appear to be some momentum toward an agreement.

So, are U.S.-Iran relations improving or are they deteriorating dangerously? Remarkably — and as Fitzgerald might have appreciated — the answer to these questions may be “both.”

A long-running shadow war

When he visited Israel and Saudi Arabia in July, President Biden boasted of being the “first president to visit the Middle East since 9/11 without U.S. troops engaged in a combat mission there.” But “combat” is a relative term. The U.S. has kept roughly 2,500 troops in Iraq and 900 in Syria, ostensibly to continue to assist local partners in the ongoing fight against the Islamic State, or ISIS. But increasingly, those American troops have come under fire from, and retaliated against, Iran’s proxies. Just last week, an IRGC ship seized an American sea drone in the Persian Gulf and tried to tow it away before being warned off by U.S. warships.

It’s a shadow war that has gone on in different ways for years. Iran-backed insurgent groups were blamed for many of the deadliest attacks against U.S. troops in Iraq between the initial U.S. invasion in 2003 and the 2011 withdrawal. According to a Pentagon estimate, Iran was responsible for the deaths of more than 600 U.S. troops during this period. In 2014, U.S. troops returned to Iraq and later entered Syria to combat ISIS. For several years, an uneasy truce, bordering on tacit cooperation, prevailed between the U.S. and Iran-backed groups that were doing much of the actual fighting against ISIS.

But when ISIS began to lose much of its territory and the threat from the group subsided, the shadow war returned. In 2019, the U.S. began blaming Iran for a series of rocket attacks on American targets in Iraq and responded in kind, beginning with strikes against the paramilitary group Kataib Hezbollah in Iraq and Syria on Dec. 29, 2019. The group’s supporters responded by besieging the U.S. embassy in Baghdad; soon after that, a U.S. drone strike killed Qassem Soleimani, the mastermind behind Iran’s foreign operations, and Iran fired ballistic missiles at U.S. bases in Iraq.

This sequence, the closest the U.S. and Iran have come to outright war, came against the backdrop of the Trump administration’s “maximum pressure” campaign against Iran, which included the withdrawal from the nuclear agreement, the strengthening of sanctions, the listing of the IRGC as a terrorist organization, and rhetoric that often bordered on calls for regime change.

Biden came into office in 2021 vowing to return to the nuclear deal and take a more balanced approach to the Middle East. Nevertheless, the very first military action he ordered was a February 2021 series of airstrikes targeting Iranian-backed groups in Syria.

Since then, the Pentagon has blamed what it calls “Iran-supported malign actors” for a steady stream of attacks using rockets as well as increasingly sophisticated drones. The pace of these attacks has only increased as negotiations over the nuclear deal have intensified. For a time, the Biden administration was selective in its military response. The White House National Security Council stated last June, “Not every response will be seen or visible, but Iran fully understands that the United States is prepared to respond directly to any threat against U.S. personnel.”

Now, it appears, the responses are getting far more “visible.” Hussein Banai, a professor at Indiana University and an expert on U.S.-Iran relations, says this exchange of fire with the U.S. can serve to bolster the credibility of the regime in Tehran. “What’s important for them is that they are seen as still keeping up what they call sacred resistance in Syria,” he told Grid. Even when it’s the U.S. attacking, Banai said, it “gives them a kind of notoriety. They’re concerning enough to the Americans that they’re being struck.”

Could the shadow war ever reach U.S. soil? The details remain murky, but the U.S. alleged that the Iranian military was behind a plot to assassinate former U.S. National Security Adviser John Bolton. That suggested there are still ways this exchange of violence could escalate sharply.

The window to a nuclear deal reopens

In a Grid article in May, we joked that given how many times diplomats have warned that the “window is closing” on chances to revive the nuclear agreement, it must be one of the world’s slowest-closing windows. Lately however, the window has opened just a bit more.

To recap: Under the 2015 nuclear deal, formally known as the Joint Comprehensive Plan of Action (JCPOA), Iran agreed to limits on its nuclear enrichment activities and to permit international nuclear inspections in exchange for sanctions relief. Donald Trump pulled the U.S. out of what he called the “worst deal ever” in 2018 and re-imposed sanctions. Since then, Iran’s attacks on the U.S. and its allies have continued and the country’s nuclear program has accelerated. Experts say that in the absence of the deal, Iran has stockpiled enough enriched uranium so that it could build a nuclear weapon in a matter of days. (This isn’t to say it would actually have a nuclear weapon in this time frame; building a usable nuclear device and the means to deliver would take at least a year if not more.)

The Biden administration came into office pledging to negotiate a return to the deal, but progress has been very slow. In talks mediated by the European Union, the two sides have spent months trading demands and accusations. Washington also has a credibility problem: The Iranians are skeptical that any deal they negotiate will stay in place if Trump or another Republican returns to the White House in 2024.

The talks appeared to be on life support until last month, when Iranian negotiators dropped their demand that the Revolutionary Guard Corps be removed from the U.S. terrorist list — a nonstarter for the Americans. The two sides are now trading drafts of an EU-penned agreement. Last week, the EU’s foreign policy chief, Joseph Borrell, expressed optimism that a deal could be concluded “within days”; a State Department spokesman also described the U.S. side as “cautiously optimistic.”

What makes this recent diplomatic progress all the more remarkable is that it’s happening while the U.S. and Iran trade fire in Iraq and Syria. The U.S. side has insisted that the two issues are not linked.

“Whether the JCPOA is reborn or not, it actually has nothing to do with our willingness and resolve to defend ourselves,” Under Secretary of Defense Colin Kahl said after the Aug. 24 strikes.

This is consistent with an argument made for the Iran deal from the beginning: that whether Iran curbs its regional ambitions or improves relations with the U.S. or Israel, what matters most is that it doesn’t have nuclear weapons. “If they don’t change at all, we’re still better off having the deal,” then-president Barack Obama said in 2015.

Critics of Biden’s approach are skeptical of this effort to compartmentalize. Abbas Milani, co-director of the Iran Democracy Project at the Hoover Institution, told Grid that he worries about how Iran would use the sanctions relief that would come with a new deal. “You can’t suddenly give Iran $30 or $40 billion,” he said, “and think that a significant portion of it is not going to end up supporting this regime’s regional shenanigans and its proxies.”

The view from Israel

On Aug. 24 — that same day when the U.S. and Iran’s proxies were trading fire, and the U.S. was conveying its latest diplomatic message to Tehran — Yair Lapid, the prime minister of Israel, slammed the emerging agreement as a “bad deal” that would give Iran billions of dollars to “spread terror around the globe.” He made clear that Israel would continue to “act to prevent Iran from becoming a nuclear state,” a reference to an ongoing Israeli sabotage campaign targeting the Islamic Republic’s nuclear program.

For all these reasons, one thing that is unlikely to change, revived deal or no, is Israel’s own shadow war against Iran. A big part of this war is being waged in neighboring Syria, where Iran-linked military groups, including Hezbollah, have been fighting for years on behalf of Bashar al-Assad’s government. For nearly a decade, Israel has taken aim at those Iran-backed groups, launching hundreds of airstrikes against their bases in Syria. Though well-documented, these strikes are generally not officially acknowledged by the Israeli government.

As with the U.S.-Iran violence, the Israeli air campaign started to intensify in 2019 as the war against ISIS wound down. In recent months, Israel has appeared to be targeting Syrian airports in order to disrupt deliveries of weapons to these groups. This included a strike that shut down Syria’s main civilian airport, in Damascus, for several days in June.

These recent attacks have coincided with an increasing number of apparent Israeli covert actions within Iran itself. As Naftali Bennett, Lapid’s predecessor as prime minister, told the Economist in June, “We are implementing the Octopus Doctrine. We no longer play with the tentacles, with Iran’s proxies: we’ve created a new equation by going for the head.”

Israel has a long-running campaign of sabotage and assassination targeting Iran’s nuclear program. That campaign’s most dramatic episode was the 2020 killing of Iran’s top nuclear scientist using an AI-assisted machine gun mounted on the back of a pickup truck. Israel never publicly acknowledged that it was behind the assassination, but there is no doubt — from Washington to Tehran — that Israel was responsible.

Lately, the Israeli campaign appears to have expanding to targets beyond the nuclear program. The New York Times reported in May that Israeli officials had acknowledged to the U.S. that they were behind the assassination in Tehran of a Revolutionary Guard colonel they suspected of plotting to kill Israelis overseas. Hundreds of Iranian drones were reportedly destroyed in an apparent Israeli airstrike in March. According to media reports, the Biden administration has something of a “don’t ask, don’t tell” policy toward these actions: it is not informed of them ahead of time, does not interfere with them, and does not criticize them after the fact.

Iran’s retaliation for this covert war has been limited. “I don’t think they have it in them right now at this moment to respond, so they have decided to ignore it,” said Milani. But he also said this reluctance may not continue indefinitely. “The regime has been, I think, convinced that it is on a collision course with Israel and has been building up its infrastructure in Lebanon, in Syria, and in Gaza to hit back when that confrontation comes.”

As for the nuclear deal, the Israeli government remains opposed, but its current leaders have taken a subtler approach than their predecessor, Benjamin Netanyahu, who famously addressed the U.S. Congress to lobby against the deal.

“Netanyahu believed that this was a doomsday scenario, an existential threat, the Holocaust all over again,” said Nimrod Novik, a former foreign policy adviser to Prime Minister Shimon Peres who is now a fellow at the Israel Policy Forum. Novik described Israel’s current crop of leaders — Lapid, Bennett and deputy prime minister Benny Gantz — as having a “more balanced approach. They consider [Iran’s nuclear ambition] a very serious threat, but not existential. All three are far more careful not to undermine strategic relations with the U.S. They realize that the American factor is the primary element in Israel’s national security.”

Moment of flux

Whether or not a new nuclear deal can be reached is, for the moment, anyone’s guess. Whether or not proxy warfare throughout the Middle East between Iran and its rivals will continue is an easier question to answer: Most observers believe it will.

Still, it’s not inevitable. And even as all this has been going on, relations between Iran and its Arab rivals across the Persian Gulf have seen a surprising improvement in recent weeks. The United Arab Emirates and Kuwait announced last month that they are restoring diplomatic relations and returning ambassadors to Iran — for the first time in six years. Meanwhile Saudi Arabia and Iran — antagonists for decades — have been holding ongoing talks about normalization.

As unpredictable as the region can be, it is possible to imagine that it might soon deliver a nuclear deal, an extension of the proxy war, and a Saudi-Iran rapprochement. Anyone who watches the region must be willing to anticipate multiple seemingly contradictory outcomes — sometimes all at once.

Thanks to Dave Tepps for copy editing this article.

Joshua Keating

Are the U.S. and Iran fighting a shadow war or on the verge of a diplomatic breakthrough? Maybe both.