Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The top commander of Iran’s elite Revolutionary Guards issued a stark warning to Israel on Thursday, vowing that Tehran would deliver a harsh response to last week’s Israeli strikes on the Islamic republic.

Major General Hossein Salami, the head of the guards corps, warned in a speech that Iran’s retaliation would be “unimaginable” as Iranian officials stepped up their rhetoric against Israel.

“Israelis think they can launch a couple of missiles and change history,” he said. “You have not forgotten . . . how Iranian missiles opened up the sky . . . and made you sleepless.”

Separately his deputy, Brigadier General Ali Fadavi, told Al Mayadeen, a Lebanese television channel close to Iran, that a response would be “inevitable”. In more than 40 years, “we have not left any aggression without a response”, he said.

The belligerent comments came as the Islamic regime weighs its options following Israel’s attack on Saturday, during which Israeli war planes launched three waves of strikes at Iranian military installations. The targets included missile factories and air defence systems in three provinces, including Tehran.

Regime insiders told the Financial Times that the options being considered include a possible strike before next week’s US presidential election, or Iran’s leaders could decide to hold off for now.

“The winner of the US election could take an Iranian attack personally and act against Iran. So, if Iran wants to respond to Israel, the best time is before the US election,” one insider said. “The only thing that could change this would be a fair breakthrough in ceasefire talks between [Hizbollah in] Lebanon and Israel which does not seem very likely.”

The US has this week stepped up efforts to broker a deal to end the conflict that has lasted more than a year between Israel and Hizbollah, Iran’s most important proxy.

But there was little optimism of a breakthrough as Israeli Prime Minister Benjamin Netanyahu insisted Israel retain the right to unilaterally enforce any agreement that would lead to Hizbollah withdrawing from southern Lebanon.

Another Iranian insider indicated Tehran might opt to maintain psychological pressure on Israel rather than launch a direct assault.

“With Hizbollah launching tens of rockets into Israel daily in a legitimate war, a direct response may not be necessary right now,” the insider said. “What benefits us is not a direct war with Israel. We need to keep the level of people’s stress low so that they can live their lives. This is the top priority.”

But an Iranian analyst said the dilemma for Tehran was “that Israel would take any delay in Iran’s response as a sign of weakness and would feel emboldened”.

Iran’s initial reaction to Israel’s strikes — which were in retaliation for an Iranian missile barrage fired at the Jewish state on October 1 — suggested that Tehran’s response would be measured and not immediate, Iranian analysts said.

Speaking on Sunday, a day after Israel’s attack, Ayatollah Ali Khamenei, the country’s supreme leader and ultimate decision maker, refrained from vowing to retaliate.

Instead, he said the strikes should neither be “overestimated or underestimated”. Iranian state media played down the impact of the attack, which killed four soldiers and a civilian, saying the damage was limited.

But Tehran has shown a willingness to risk an escalation with Israel as regional hostilities triggered by Hamas’s October 7 2023 attack have spread across the Middle East, thrusting Iran’s years-long shadow war with its regional enemy into the open.

In April, it fired more than 300 drones and missiles at Israel in a clearly telegraphed retaliation for an Israeli strike on the republic’s embassy compound in Syria, which killed several senior guards commanders.

It gave little notice before launching 180 ballistic missiles at Israel on October 1, a more severe attack that was in response to the Israeli assassination of Hassan Nasrallah, Hizbollah’s leader and a close confidant of Khamenei.

“Only a shock can stop Israel from its aggressions and free the region from the current stalemate,” the first regime insider said. “Iran might even go for a big bang and do something totally outside Israelis’ calculations as there is no other way to stop it.”

The US, which has pledged an “ironclad” commitment to the defence of Israel, has warned Iran not to retaliate as western nations have sought to contain the crisis amid heightened fears of all-out war.

“We will not hesitate to act in self defence. Let there be no confusion. The United States does not want to see further escalation,” Linda Thomas-Greenfield, the US ambassador to the UN, said this week.

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Estée Lauder, the beauty company that owns Clinique and MAC Cosmetics, has cut its dividend and ditched its profit forecast as a sales slump in China deepens, prompting a 25 per cent plunge in its shares as trading opened in New York.

The New York-listed beauty group, which is in the midst of a turnaround and leadership transition, said on Thursday that a recovery in Chinese demand had proved slower than expected, with sales in the country falling by a double-digit percentage in the three months to the end of September.

As a result of the difficulty in forecasting when the Chinese market will recover, Estée Lauder said it was withdrawing its outlook for the rest of the year and reducing its dividend to a “more appropriate” level.

Fabrizio Freda, who will retire as chief executive in January after 16 years at the company, said Estée Lauder expected “still-strong declines” in demand in China as well as in tourist shopping in Asia in the near term, and “ongoing normalisation of growth in prestige beauty, most notably in North America”.

The beauty industry has taken a hit from the economic slowdown in China, which has been a major profit engine for Estée Lauder and its larger rival L’Oréal in recent years.

The dour outlook will be another challenge incoming chief executive Stéphane de La Faverie will have to contend with when he takes the reins at a time when the Lauder family that controls the beauty group is stepping back from day-to-day management.

The company is implementing a turnaround programme designed to cut costs and overheads while reinvesting in its brands and innovation. Freda said the reset had “delivered promising initial results”.

After underperforming peers during two years of falling sales and profits, Thursday’s outlook cut is another blow for a company whose shares are now down 55 per cent this year, reducing its market value to $23bn.

L’Oréal, the world’s biggest beauty company, last week missed quarterly sales expectations and flagged ongoing weakness in China and in travel retail. Its shares are down 23 per cent this year.

Estée Lauder reported a 4 per cent year-on-year drop in sales to $3.36bn in the three months to the end of September. It expects the rate of decline to accelerate to 6 to 8 per cent in the current quarter.

All of Estée Lauder’s divisions had falling sales this quarter, with skincare — its biggest by sales — down 8 per cent on a like-for-like basis. Losses in make-up, its second biggest, deepened in the quarter compared with the same period a year ago.