Byte by byte: Iran and Israel’s escalating cyberwar

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The Economist.

Hello and welcome to the intelligence from hi, I'm Rosie Blore.

And I'm Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world. For airlines and for Trustbusters, air travel is a constant pitched battle between two vendors, Airbus and Boeing. But as both run into turbulence, that's at last making a bit of room for some competition maybe.

And it's time for an update to our Cary Bradshaw Index. The likelihood that the average worker in a given city can afford to live in a studio flat like the eponymous Sex and the City star. Just don't set your heart on New York. But first, There has been progress of sorts. In the latest round of Hamas Israel ceasefire talks. Last night in Tel Aviv, America's Secretary of State Antony Blinken said a new proposal had been agreed to at least by one side.

In a very constructive meeting with Prime.

Minister Netanyahu today, he confirmed to me.

That Israel accepts the bridging proposal, that he supports it. It's now incumbent on Hamas to do the same.

At stake is an end to the razing of Gaza and the release of Israeli hostages. A deal could also serve another goal, giving Iran a reason not to retaliate for the assassination of a Hamas leader on its soil three weeks ago. Since then, onlookers have waited anxiously for a further escalation and perhaps even a breakout of full scale war between Tehran and Tel Aviv. Yet beneath the din of assassinations, missile strikes and angry rhetoric, another conflict is quietly playing out in parallel.

Since the October 7 attacks by Hamas on Israel, cyberattacks on Israel have grown massively, about threefold.

Shashank Joshi is the Economist Defence Editor.

Iran and its Lebanese militant ally Hezbollah are working much more closely together in the cyber domain. They're expanding their operations. For now, Israel still has the edge in cyberspace, but its enemies are getting better over time.

We know that Israel and Iran have engaged in cyber attacks before. So to what extent is the activity now an escalation, and to what extent is it actually something new?

A lot of it's really basic stuff. Iran hasn't succeeded in seriously penetrating or disrupting critical infrastructure like power or water facilities. A lot of it is defacement of websites. Very basic stuff. We have seen an attack on an Israeli hospital, Ziv Hospital. That was a big deal because we had never previously seen Iran in Hezbollah, a hospital in that way. So we're seeing an expansion in targets. But the really interesting thing, I think, is that so much of this is a kind of information warfare. A lot of what Iranian hackers are trying to do is not so much turn the lights out or poisoning water supplies, which they have tried in the past. A lot of this is psychological, it's intimidating. Israelis.

Explain a bit more what you mean by information warfare. Can you give me some examples?

There's a really interesting example that was described by the Shin Bet, which is Israel's domestic security agency, which said Iranian operatives had actually sent flowers in Israel to the family home of one of the families of a hostage held in Gaza. And the note said, may her memory be a blessing. We all know that the country is more important. And it was a very interesting message because, of course, that really touches a nerve. It touches that nerve in Israeli society between those who think that fighting Hamas is the priority or those who think getting the hostages back is a priority. And so what Iran is doing is using cyberspace, using that digital domain, to reach out to Israelis, both to frighten them, to scare them, and actually to make things happen in the real world, to cause havoc, to cause these political social fractures. And in some cases, this doesn't even require hacking at all. They, in one example, said, we have hacked into the cameras outside an air force base in Israel, and it turned out to be a completely different site. Nothing to do with it. But in a way, it doesn't matter. You don't actually have to have hacked anything. You can just say you've hacked something, and the point is to strike fear into Israeli society.

And you mentioned Hamas there. How does that group feature in this cyber war?

What's really interesting is that Hamas is basically an irrelevance, at least since December or so. At the beginning of the war, we did see some interesting Hamas operations. They hacked Israeli surveillance cameras and were able to monitor developments, gather intelligence, and that was very, very worry for the Israeli government. They shut those down mostly. And since December, Hamas has basically been irrelevant as a cyber force. The officials I spoke to in Israel told me that that was down to the military operations in Gaza, which have disrupted the group's hackers as well as its fighters.

Okay, so this really is a battle between Israel and Iran and Hezbollah. You mentioned earlier that Israel has the edge for now. How asymmetric is this cyber conflict?

Well, Iran's getting better, I should say. What the Israeli officials told me was that, for example, if you have a public vulnerability for a piece of software, something that says, you know, hey, here's a flaw with this bit of Microsoft or Google. Previously, it would take Iranian hackers weeks to exploit vulnerabilities like that, and now it takes them days. And we're also seeing a lot more exchange of knowledge of exchange of targets, exchange of know how between Iran and Hezbollah. So they're working much, much more closely together. So there's undeniably an improvement. But what we have to bear in mind is that if you look at the last few years particularly, there's no doubt that Israel's ability to conduct cyberattacks in Iran is far, far more sophisticated. There's a group called Predatory Sparrow. Its logo is kind of like a little angry bird. And it's widely accepted amongst the cybersecurity community that this is basically a front for the Israeli government, for Israeli state hackers. And it has done some absolutely spectacular hacking operations inside Iran.

Such as?

Well, in 2021, it disrupted the rail network, it disrupted petrol stations, it hacked billboards with messages mocking Ayatollah Khamenei, the supreme Leader of Iran. In 2022, it did some remarkable things. It used cyber operations to cause physical damage inside 3 Iranian steel. Fact, in one case, with molten steel spewing across the factory floor. So just this astonishingly theatrical attack and a very rare example of a kind of cyber attack causing real world, immediate physical consequences. We don't often see cyber operations like that. And then in December, which was, of course, after the October 7 attacks, about 70% of Iranian petrol stations were brought down. And this is really interesting because these are very punchy attacks, very aggressive attacks, but they. But they've been done in a way in which the hackers are still trying to show that they're kind of being responsible, that they're minimising spillover onto civilians, that they're minimizing the risk of spillover and proliferation of the malware onto other targets. And that has basically led people to conclude this is the Israeli government saying, we're going to punch back against Iran very hard indeed, but we're still trying to be responsible as we do it.

So if Israel has considerable capabilities, but Iran is getting better day by day, where do you think this war goes from here?

I think Iran must know that if it were to conduct either a serious military operation, as of course is on the table right now, because we all are sort of waiting for potential Iranian retaliation for the killing of Hamas leader Ismail Haniyeh in Tehran, or if it conducts a very dangerous cyber operation and in the past it's attacked Israeli water facilities, then Israel could do serious damage in Iran. But there is an interesting twist to this, which is one thing that, that Israeli officials did tell me was that they are looking at Iran's assistance to Russia in the war in Ukraine. And we have seen and talked about the provision of drones, shells, even ballistic missiles, potentially. Their concern is that Russia could reciprocate in the form of cyber know how or tools, and that would make Iran a much more proficient cyber actor. I think that that's still unlikely. There's still quite a bit of mistrust between Russia and Iran. And one fascinating thing is that Russia still uses its own cyber capabilities to spy on Iran very intensively. In fact, there are some great examples where it basically spies on Iranian spies spying on other people. It's what people call fourth party collection. It's kind of stealing secrets originally stolen by Iran to its own benefit. So that suggests Russia might be quite cautious in handing over very advanced cyber capabilities to a country like Iran. But I think that Israel is still concerned as time goes on, as this relationship deepens, Iran could still become much, much better at hacking over time.

Shashank, thank you very much for your time.

Thanks very much.

Ros.

Foreign.

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When you're on a long haul flight, your choices are often pretty straightforward chicken or pasta, rom com or action movie. The make of the plane you're in also likely to be an either or Boeing or Airbus Now Boeing has recently faced public hearings about numerous safety concerns with its aircraft, including a door blowing out mid flight, dramatic scenes from an.

Alaska Airlines flight forced to make an emergency landing. The plane suddenly lost a section of its fuselage mid flight, leaving passengers and crew exposed to outside elements at a high altitude.

Meanwhile, the other of the ore Airbus has its own hurdles and delays in delivering its jets. It's almost like these stumbles make room for some fresh faced competitor.

I was at this year's Farnborough Air show, which is a big sort of jamboree for the aerospace industry.

Simon Wright is our industry editor.

Commercial airliners and indeed the defence industry all turn up in force to show off their latest wares. But this year Farnborough wasn't quite as buzzing as it has been in previous. Generally there's a face off between Boeing and Airbus about who can get the most orders. There were some orders this time, but nothing really major and there were no new big developments for commercial airliners. But there are signs of problems in.

The air duopoly in the duopoly between.

Boeing and Airbus about which we've talked before. What do you think is going on here?

The main problem is with Boeing, where production has slowed because of safety issues after a door panel of a 737 Max short haul jet blew out in January. It was the latest of safety issues that have bedeviled Boeing of late, and regulators are scrutinising Boeing much more closely and they've enforced a sort of slowdown of production. Airlines are pretty enraged because they want new, more efficient planes to bring their costs down. But also Airbus have had its own problems with the supply chain which after the sort of ramp down of COVID very hard to ramp back up again. So they're actually delaying plans to produce more planes. The backdrop of this is there are huge orders for new planes at current rates. It would take both firms about 12 years to fulfill their current order books. And the growing demand for planes means that the amount they can have to produce in the next 20 years is around double the amount they've produced in the last 20 years.

So I dare say there might be room for a competitor in this duopoly.

It's always a question of how can the duopoly be broken and, and I think it's not a case of if because there's a Chinese competitor already in there. But the question is when will there be a significant challenge to the duopoly? Because it's very, very hard business to get into. There are huge barriers to entry. Newcomers need an enormous amount of cash to develop new planes, production lines, get them through the regulatory process and that sort of thing. It could take a decade from conceiving a plane to getting it into commercial service and for revenues to start coming in. And if you were a newcomer, that new plane would have to match or exceed the performance of the current planes produced by Boeing or Airbus to convince airlines to switch over.

But you say that there is a potential competitor from China in the mix now.

Not a potential competitor, they've already started making planes. It's a state owned company called Comac and it launched the C919. It's a plane it conceived of sort of almost 20 years ago that it recently gone into commercial service. They've delivered six planes to airlines already. And the reason is because China has the money and determination to enter an industry that's very hard to get into. But it's taken them a long time and it's taken an awful lot of money to get to this point. What I would say about COMAC as well is that so far the plane is only certified to fly in China and making international sales is going to be very hard because I don't think European or American regulators are going to rush to certify a new plane from a new company, particularly a Chinese one. Having said all of that, COMAC are intending to up their production of planes. They want to produce about 150 a year in five years time. But if you compare that to the 50amonth of short haul planes that Boeing is going to be making in a couple of years time and the 75 that Airbus are going to be making in roughly the same time period, they're still going to be minnows, but they do have a chance and they have more of a chance than some of the other potential competitors who are, well, Brazil's Embraer, which makes smaller, shorter range regional jets and is doing very well at that, is a possibility. But again because of all those barriers to entry, it makes it a big decision for Embraer to do that considering that they have a very nice place in a regional jet market. But there's lessons also to be learned from Bombardier, a Canadian firm that did the same kind of thing. They produced the C Series. The larger models went up against the sort of of smaller narrow bodies from Airbus and Boeing. The C Series was a pretty good plane, but the sort of financial strains it put on Bombardier and the strains of manufacturing meant that Bombardier wasn't really able to develop them further. Plus Boeing launched an anti subsidy case against it which resulted in the potential of huge tariffs for importing the plane to the us so because of all of that, Bombardier was forced to sell the program to Airbus for a nominal sum, which now produces a plane as the A220. And Bombardier doesn't make make large planes anymore.

But at the mention of subsidies, that's been at the center of the discussion around Boeing and Airbus for absolutely years. If there is this competitor in China, it's easy to imagine that what China can put behind that effort is going to make a real difference to what kind of market share it ends up with.

What really matters actually is the next plane that COMAC make. If anything, the barriers to entry are getting higher rather than lower because the the next generation of planes is going to have to be much more efficient. Decarbonizing aviation is at the top of the agenda of the industry and it's one of the hardest things to do and the technological leap for the next plane. Boeing and Airbus already working on that. Comac is working on selling the C919, so it's not clear that they're technologically able to make that next jump. So I think it's going to be hard for COMAC to make much of an impression outside China. In the super long run, Chinese determination and cash is probably going to mean that COMAC does become a reasonably sized competitor to Airbus and Boeing. But that long run is I think, a very, very long run, or shall.

We say a very long Runway. Simon, thanks very much for your time.

Thank you. J.

In the hit series Sex and the City. Carrie Bradshaw lived an egregiously glamorous, cocktail flecked lifestyle in the heart of Manhattan. But one especially unlikely thing stood out, her solo living situation.

In New York.

They say you're all always looking for.

A job, a boyfriend or an apartment.

Regular listeners will remember that we've paid tribute to her in a very economisty way with the Carrie Bradshaw Index, which measures the affordability of renting a loan in America's largest cities. And as Lizzie Peet, one of our researchers, found out, for many it's getting a little less fanciful.

Living alone is kind of a dream goal for a lot of Americans who rent. A lot of people want to avoid sort of loud, messy or downright weird housemates. I think we've probably all had some personal experience there. But over the years this aim has become a lot harder to achieve for many. Now we've calculated again just how accessible this is.

Okay, so run me through it again. How do you calculate how accessible it is?

So we start with the basic rule that you shouldn't really spend more than 30% of your gross salary on rent. So we got data from Zumper, which is a property website, on 100American cities which had the studio apartment rents in each one. From that, we kind of reverse calculated the wage that you need to be able to afford on that basis. So the wage that you need to make sure you're not going over the 30% rule. Then we actually took the median wage in each area provided by the Bureau of Labour Statistics, and we divided that by this hypothetical wage that we'd come up with to get a Bradshaw score. So any city that scores below one, that means it's on of affordable.

And what did you find for those hundred cities?

So New York is again the least affordable city in the index and scores just 0.4. So the median studio rent of $3,675 would mean that you'd need a wage of about $147,000 to make it affordable, which is quite significantly above the median wage of the city. You can see the full chart with all these details on economist.com in the graphic details section.

And what about the overall picture? Not the sort of top and bottom of the league table, but broad trends that come out of all this.

Other places like Miami, Chicago and Boston are similarly unaffordable with scores below 1. At the other end of the scale, some of the best choices are cities like Detroit and Tucson, which would both need a salary of about $30,000 below their local medians. I guess kind of overall, if you want a pattern, the further you go in from the coast, probably the more affordable it gets. So cities like Charleston, San Francisco, Providence are all unaffordable. And on the other hand, cities like Pittsburgh, St. Louis, Memphis, in the American heartland are getting a lot more affordable to rent alone. A lot of that might not be that surprising. I mean, everyone knows that New York is insanely expensive. But overall, in our index, we're seeing that rents have actually fallen quite significantly from last year, at least for the studio apartments rents that we've been looking at from Zumper. So last year's Cary Bradshaw index had 36 affordable cities. So 36 out of the hundred cities that we looked at had scores over one. This year, that's shot up to 62, which is pretty significant climb. Cities that have become affordable having been unaffordable last year include major hubs like Phoenix, Dallas, Philadelphia, where rents have all gone down and wages have gone up. So that's pushed them into the affordable territory.

And what is it that's driving rents down in these places?

There are probably a few reasons for this change. There's been a construction boom actually across America, but particularly in the Sun Belt, which is a sort of horizontal stretch across the south of the country, which has helped bring rents down as it's bought more units into the market. Overall, half a million new rental apartments specifically are expected to be completed this year across the country, which is a record high. And there's an argument that high interest rates have expanded the rental markets by making people less reluctant to sell their property and more likely to rent them out, which is, again, boosted supply. So I guess what we're seeing is the end of the volatility. During COVID we've seen a bit more of a stabilization of the market, which has made Carrie's lifestyle of living alone perhaps more affordable as long as she's willing to leave New York.

Lizzy, thanks very much for your time.

Thanks very much for having me, Jason.

That's all for this episode of the Intelligence. Let us know what you think of the show. You can get in touch@podcastconomist.com we'll see you back here tomorrow.

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