After losing its nuclear sites, air defenses, and proxy networks, Tehran's vast subterranean missile arsenal has become the last card in a high-stakes game of deterrence — and the biggest obstacle to a deal
Executive Summary
- Iran is producing hundreds of ballistic missiles per month in underground "missile cities," rebuilding an arsenal estimated at 2,000+ weapons capable of penetrating US and Israeli defenses — making military strikes against Iran far costlier than Washington publicly acknowledges.
- The missile program has become Tehran's sole remaining deterrent after the June 2025 war destroyed its nuclear facilities, degraded its air defenses, and Israel's broader campaign dismantled much of its proxy network — yet Iran refuses to put missiles on the negotiating table.
- As Netanyahu flies to Washington this week to press Trump for broader demands including missile limits, and the US warns its own ships to stay away from Iranian waters, the missile question threatens to collapse the fragile Oman diplomatic track before it truly begins.
Chapter 1: The Last Shield Standing
Eight months ago, Israel's Operation Rising Lion and the subsequent US strikes on Iran's three main nuclear facilities fundamentally altered the Middle East's strategic landscape. Prime Minister Netanyahu declared that Israel had removed "two immediate existential threats" — nuclear annihilation and destruction by 20,000 ballistic missiles.
But that second claim was premature.
Israeli military assessments after the June 2025 war suggested that about 200 missile launchers — roughly half to two-thirds of Iran's ballistic launcher inventory — had been destroyed. The launchers, however, were always replaceable. What matters is the missiles themselves, and on that front, the picture is radically different.
Before the war even began, Tehran had already decided to ramp up production to between 2,500 and 8,000 missiles per year, according to Israeli military intelligence. The production takes place in a network of underground facilities — "missile cities" buried deep beneath Iran's mountains — that survived the June war largely intact because they were never the primary target. The US and Israel prioritized nuclear sites and air defense systems. The missile infrastructure was too dispersed, too deeply buried, and too extensive to destroy in a 12-day war.
The result is a strategic paradox: the war that was supposed to defang Iran instead elevated its missile program from one deterrent among several to the only one that matters.
"In the absence of any meaningful air force and air defenses and with decimated allies and nuclear capabilities, Iran's ballistic missiles now constitute the backbone of Iran's deterrence," said Behnam Ben Taleblu, senior director of the Iran Program at the Foundation for Defense of Democracies.
Chapter 2: Inside the Underground Cities
Iran's ballistic missile program is one of the largest in the Middle East, comprising several missile families with ranges from 300 to 2,500 kilometers.
Key Missile Systems Capable of Reaching Israel (~1,700+ km range):
| Missile | Fuel Type | Range | Warhead | Key Feature |
|---|---|---|---|---|
| Sejil | Solid | ~2,000 km | ~500 kg | Fast launch, harder to intercept pre-launch |
| Emad | Liquid | ~1,700 km | ~750 kg | Iran claims "high accuracy" guidance |
| Qadr | Liquid + Solid (2-stage) | ~2,000 km | ~750 kg | Hybrid fuel shortens prep time |
| Khorramshahr-4 | Liquid | ~2,000 km | Up to 1,800 kg | Newest; deployed in underground cities Feb 2026 |
| Shahab-3 variants | Liquid | ~1,300-2,000 km | ~750 kg | Most numerous in arsenal |
The Khorramshahr-4, unveiled in underground deployment in early February 2026, represents a significant capability upgrade. With a range of 2,000 km and a warhead capacity of up to 1.8 tons, it is specifically designed for what Western analysts call "heavy strike" missions — and could theoretically carry a nuclear warhead if Iran ever develops one.
The underground missile cities serve multiple functions: production, storage, and launch preparation. Their depth and dispersal make them extremely difficult to target. During the June 2025 war, the US used its most powerful bunker-busting ordnance — the GBU-57 Massive Ordnance Penetrator — against nuclear facilities. But the missile complexes are distributed across dozens of sites, many of which Western intelligence has not fully mapped.
Iran was recently reported to be constructing new large security barriers around underground tunnel complexes, suggesting both expansion and hardening of existing facilities.
Chapter 3: The Deterrence Paradox
The Wall Street Journal reported that approximately 2,000 Iranian missiles could penetrate US defenses in a saturation attack — a figure that has significantly influenced Washington's calculus on military action.
This creates what strategists call a "deterrence paradox": the more Iran's conventional military capabilities (air force, air defenses, proxy networks) are degraded, the more valuable its missile arsenal becomes. And because the missiles represent Iran's last remaining card, Tehran has zero incentive to negotiate them away.
Iran's Deterrent Capabilities — Before and After June 2025:
| Capability | Pre-War Status | Post-War Status | Current Deterrent Value |
|---|---|---|---|
| Nuclear program | 3 enrichment sites, 60%+ HEU | Destroyed by US strikes | None (rebuilding attempted) |
| Air defenses | S-300, Bavar-373 systems | Severely degraded by Israel | Minimal |
| Air force | Aging F-14s, Su-35 orders | Further degraded | Negligible |
| Proxy networks | Hezbollah, Houthis, Iraqi militias | Hezbollah decimated; others weakened | Reduced |
| Ballistic missiles | ~3,000-5,000 arsenal | Launchers hit, but missiles/production intact | Primary and sole deterrent |
| Naval/asymmetric | IRGC Navy, mines, fast boats | Largely intact | Secondary (Strait of Hormuz) |
Iran's Army Commander-in-Chief Major General Amir Hatami made the deterrence posture explicit on February 10, declaring Iran at its "highest level" of combat readiness: "If they make a mistake, they will certainly receive a response such as they have neither seen nor experienced up to now."
Chapter 4: The Negotiation Trap
The Oman talks on February 6 exposed a fundamental impasse. Iran insists the negotiations cover "solely" nuclear issues. The US side — represented by Special Envoy Steve Witkoff, Jared Kushner, and notably CENTCOM commander Admiral Brad Cooper in dress uniform — wants a broader deal encompassing missiles and proxy support.
Netanyahu is flying to Washington this week specifically to press Trump on expanding the scope of demands. Israeli officials fear a nuclear-only deal would leave the missile threat unaddressed while lifting sanctions that fund further missile production.
Three Stakeholder Positions:
Iran: Will discuss nuclear enrichment limits (possibly diluting highly enriched uranium) in exchange for complete sanctions relief. Missiles are a "red line" — non-negotiable. Foreign Minister Araghchi: "We did not discuss any other topics with the Americans."
United States: Publicly wants a comprehensive deal (nuclear + missiles + proxies). But the presence of Admiral Cooper at the table — and the maritime advisory telling US ships to stay away from Iranian waters — suggests Washington is acutely aware of the missile threat and may ultimately settle for less than it demands.
Israel: Demands maximum pressure including missile limits. Netanyahu argues that a nuclear-only deal without missile restrictions would be worse than no deal, because sanctions relief would fund accelerated missile production.
Adding complexity: Russia is engaging Oman to discuss mediation and "appears broadly supportive of an agreement that benefits Iran by lifting sanctions while limiting Iranian enrichment and having no effect on Iran's ballistic missile program" — essentially backing Iran's preferred outcome, according to the Institute for the Study of War.
Chapter 5: Scenario Analysis
Scenario A: Nuclear-Only Deal (45%)
Premise: The US accepts a narrow agreement — Iran limits enrichment to 3.67% (JCPOA levels) and allows IAEA inspections in exchange for phased sanctions relief. Missiles excluded.
Why 45%: This mirrors the JCPOA model (2015), which Trump himself initially rejected but which represents the path of least resistance. The ISW assessment that "some Iranian regime elements are signaling that Iran may offer relatively insignificant, nuclear-only concessions" suggests this is the most likely landing zone. Trump has shown a pattern of accepting symbolic deals he can market as victories (North Korea summits, Phase One China deal).
Historical Precedent: The 2015 JCPOA was explicitly nuclear-only. Missile and proxy issues were deliberately excluded to secure the deal. That template remains the diplomatic default.
Trigger: Iran formally proposes diluting its enriched uranium stockpile; Trump accepts, framing it as "bigger and better than Obama's deal."
Investment Implication: Oil prices decline 5-10% on reduced war premium. Iranian oil gradually returns to market (500K-800K bpd over 12 months). Defense stocks in the region see mixed reaction — reduced immediate conflict risk but long-term missile threat persists.
Scenario B: Talks Collapse, Military Escalation (30%)
Premise: Netanyahu successfully pressures Trump to demand missile limits as a precondition. Iran walks away. Military confrontation follows within 2-4 months.
Why 30%: Netanyahu has a track record of successfully lobbying US presidents on Iran (he helped torpedo the original JCPOA continuation in 2018). Trump's "armada" deployment and the maritime advisory suggest genuine military preparation. However, the WSJ's reporting that 2,000 Iranian missiles could penetrate US defenses creates a powerful counter-incentive — the cost of war is much higher than 2025.
Historical Precedent: The 2019 near-miss when Trump ordered strikes on Iran but cancelled them 10 minutes before execution. The June 2025 war, which lasted 12 days and resulted in Iranian civilian casualties of 1,060-1,190 dead. Both show the US is willing to approach the brink but has historically pulled back from full escalation.
Trigger: Iran tests a new long-range missile or is caught accelerating enrichment beyond the current suspended state. Israel conducts a unilateral strike on missile facilities.
Investment Implication: Oil spikes to $90-100+/bbl. Gold surges past $5,500. Strait of Hormuz disruption risk (21% of global oil transit). Defense stocks rally sharply.
Scenario C: Comprehensive Deal Including Missile Limits (25%)
Premise: Protracted negotiations over 3-6 months produce a broader framework that includes some missile restrictions (range caps or production limits) alongside nuclear constraints and partial proxy disengagement.
Why 25%: This is the most ambitious outcome and the hardest to achieve. Iran has never agreed to missile limits in any international agreement. The JCPOA negotiations (2013-2015) explicitly failed to include missiles after years of trying. However, Iran's severely weakened position — no air defenses, no nuclear program, decimated proxies, ongoing internal unrest — creates unprecedented pressure to make broader concessions.
Historical Precedent: Libya's 2003 comprehensive disarmament deal under Gaddafi, which included nuclear, chemical, and missile programs. However, Gaddafi's subsequent overthrow (2011) serves as a cautionary tale for Iranian leaders about the dangers of disarming.
Trigger: Extreme economic pressure — Iran's oil exports have been further squeezed by secondary sanctions (Trump's February 2026 executive order targeting nations buying Iranian oil). Internal unrest continues.
Investment Implication: Strongest positive market reaction. Oil declines 15-20%. Middle East risk premium drops significantly. Iranian reconstruction investment opportunities emerge.
Chapter 6: Investment Implications and the Strait of Hormuz Factor
Beyond the direct nuclear/missile negotiation, Iran retains significant asymmetric leverage through the Strait of Hormuz — the world's most important oil chokepoint, through which roughly 21% of global petroleum liquids transit daily.
The February 10 US Maritime Administration advisory telling American ships to "remain as far as possible from Iran's territorial sea" is not routine. It reflects a genuine assessment that Iran could target commercial shipping as either retaliation for military strikes or leverage during negotiations.
Key Market Indicators to Watch:
- Oil: Brent crude currently pricing in a moderate war premium. Any Hormuz disruption could add $20-30/bbl overnight.
- Gold: Already at $5,020/oz, partially reflecting Middle East risk. A deal collapses → $5,500+. A deal succeeds → pullback to $4,700-4,800.
- Defense Stocks: Raytheon (RTX), Lockheed Martin (LMT), and missile defense specialists like L3Harris benefit from prolonged tension. Israeli defense firms (Elbit, Rafael) directly exposed.
- Shipping: Tanker rates (particularly VLCC) highly sensitive to Hormuz risk. Any advisory escalation = freight rate spike.
Conclusion
Iran's underground missile cities represent the ultimate paradox of the post-June 2025 Middle East: by destroying Iran's nuclear sites and degrading its conventional military, the US and Israel inadvertently made the one capability they didn't destroy — ballistic missiles — infinitely more valuable to Tehran.
As Netanyahu arrives in Washington this week, the fundamental question is not whether Iran will make a deal, but what kind of deal the missiles allow. Tehran knows its 2,000+ missiles are the only thing preventing another attack. Putting them on the table means removing the last shield. Keeping them off the table means any deal will be incomplete and unstable.
The underground cities will keep producing hundreds of missiles per month regardless of what happens in Oman or Washington. Time, in this negotiation, is on Iran's side — and everyone at the table knows it.
Sources: Newsweek, Ynet News, Al Jazeera, ISW Iran Update, WSJ, CSIS Missile Threat Project, Foundation for Defense of Democracies
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