What would be the term to describe someone who has power, but chooses not to use it?
I would call such a person -- one who would use power only if necessary -- judicious. From M-W:
judicious: having, exercising, or characterized by sound judgment
A judicious person would certainly be worthy of respect and, when necessary, fear.
The closest one I know is iron fist in a velvet glove.
An iron hand/fist in a velvet glove: used to describe someone who seems to be gentle but is in fact forceful and determined — Cambridge English dictionary