By Parisa Hafezi, Pesha Magid and Tuvan Gumrukcu
DUBAI/JERUSALEM/ANKARA, March 4 (Reuters) - The U.S.–Iran war widened sharply on Wednesday after a U.S. submarine sank an Iranian warship off Sri Lanka, killing at least 80 people, and NATO air defences destroyed an Iranian ballistic missile fired towards Turkey.
The escalation came as the powerful son of Iran's slain supreme leader emerged as a frontrunner to succeed him, suggesting Tehran was not about to buckle to pressure, five days after the United States and Israel launched a military campaign that has killed hundreds and convulsed global markets.
The missile incident is the first time that Turkey - which borders Iran and has NATO's second-largest military - has been drawn into the conflict, but U.S. Defense Secretary Pete Hegseth said there was no sense that it would trigger the Atlantic alliance's collective-defence clause.
In a sign of the conflict's expanding reach, Hegseth said the U.S. submarine strike hit an Iranian vessel off Sri Lanka's southern coast, thousands of miles (kilometres) from the Gulf, as fighting paralysed shipping through the Strait of Hormuz for a fifth day, choking off vital Middle East oil and gas flows.
U.S. President Donald Trump has pledged to provide insurance and naval escorts for ships exporting energy from the region to contain soaring prices, but at least 200 vessels remain anchored off the coast, according to Reuters estimates.
'NOT A FAIR FIGHT'
The United States and Israel pressed on with their round-the-clock assaults on Iran, with Hegseth saying the U.S. was winning the conflict.
"This was never meant to be a fair fight, and it is not a fair fight. We are punching them while they're down," Hegseth, sounding supremely confident, told a briefing at the Pentagon. "We can sustain this fight easily for as long as we need to."
By contrast, Iran is firing fewer missiles, signalling its military capabilities are greatly diminished, said Dan Caine, the chairman of the U.S. Joint Chiefs of Staff.
The Israeli military said its aircraft had struck a compound in eastern Tehran housing all Iran's security bodies, including the Republican Guard, intelligence, cyber warfare and internal police in charge of cracking down on protests.
Israel also told residents to leave a swathe of southern Lebanon on Wednesday as it presses its assault on the Iran-backed group Hezbollah, which has again dragged Lebanon into conflict by firing drones and rockets into Israel on Monday.
A fall in global markets turned into a rout in Asia, including a record-breaking crash in Seoul, as some investors were unconvinced by Trump's assurances he would quickly reopen the world's most important shipping corridor.
European markets later stabilised and turned higher after two days of sharp losses, on hopes that the war might end soon. Some traders said the improved sentiment followed a New York Times report that Iranian intelligence had reached out to the CIA early in the war about a path towards ending it.
A source from the Iranian intelligence ministry rejected the article as "absolute lies and psychological warfare in the midst of war", Iran's semi-official news agency Tasnim reported.
MOJTABA KHAMENEI NOT IN TEHRAN WHEN FATHER KILLED
As new explosions rang out in Tehran, plans were in doubtfor a funeral for the elder Khamenei, 86, killed by Israeli forces on Saturday in the first assassination of a nation's top ruler by an airstrike.
The body had been expected to lie in state in a vast Tehran mosque from Wednesday evening, but state media reported a farewell ceremony had been postponed.
Two Iranian sources, speaking on condition of anonymity, told Reuters that Mojtaba Khamenei, son of Iran's slain supreme leader, was not in Tehran when his father was killed.
Iran said the Assembly of Experts that will select the new leader would announce its decision soon, only the second time it will have done so since the Islamic Republic's founding in 1979.
Assembly member Ayatollah Ahmad Khatami told state TV the candidates had already been identified but did not name them.
Israel said it would hunt down whoever was chosen.
Other candidates for supreme leader include Hassan Khomeini, grandson of the Islamic Republic's founder and a champion of the reformist faction sidelined in recent decades.
But the favourite appears to be Mojtaba Khamenei, who has amassed power as a senior figure in the security forces and the vast business empire they control, the Iranian sources said. Choosing him would signal that hardliners remain in charge.
Some Iranians have openly celebrated the death of the supreme leader, whose security forces killed thousands of anti-government demonstrators only weeks ago in the biggest domestic unrest since the era of the revolution.
But Iranians angry with the government said there was unlikely to be much sign of protest while bombs are falling.
"We have nowhere to go to protect ourselves from strikes, how can we protest?" Farah, 45, said by phone from Tehran, adding the security forces "are everywhere. They will kill us. I hate this regime, but first I have to think about the safety of my two children."
U.S. SUBMARINE SINKS IRANIAN SHIP
U.S. Central Command said in a statement it had "struck or sunk to the bottom of the ocean" more than 20 Iranian ships, including the warship sunk off Sri Lanka in the first such action by a U.S. submarine since World War Two.
A Sri Lankan official identified the boat as the frigate IRIS Dena, saying it had been heading back to Iran from eastern India. Local authorities said 32 people had been rescued while 87 bodies had been recovered. About 60 sailors were unaccounted for from the estimated 180-strong crew.
"An American submarine sunk an Iranian warship that thought it was safe in international waters. Instead, it was sunk by a torpedo. Quiet death," Hegseth said.
Despite voicing misgivings about the war on Iran, some European nations found themselves drawn militarily into the Middle East to safeguard their citizens and strategic interests.
Britain and France said they would use naval and air forces to help defend against Iranian retaliation. Greece has also moved aircraft and warships to nearby Cyprus.
(Reporting by Reuters bureaus, Writing by Peter Graff, Timothy Heritage and Crispian Balmer, Editing by Aidan Lewis and Gareth Jones)
