Financial meltdown defuses military options on Iran

By Dan Williams - Analysis

LONDON (Reuters) - The global financial crisis has eclipsed Western jitters over Iran's nuclear program and may have put paid to the possibility of the United States or Israel resorting to preemptive military strikes.

To bomb Iranian sites now, diplomats and analysts say, would risk triggering an even more intolerable tumult should Tehran choke off oil exports -- something neither U.S. President George W. Bush nor his imminent successor looks likely to countenance.

With the U.N. Security Council in stalemate after Russia and China balked at initiatives to pass a fourth round of sanctions against Iran, Western powers may be forced to focus on diplomatic engagement and economic incentives instead.

That would leave Israel, which has vowed to deny Iran the means to threaten its existence, with a stark choice between launching unilateral attacks and being branded a warmonger or accepting the prospect of an arch-enemy with nuclear weaponry.

"We have made it clear that an offensive option against Iran is not something we want contemplated at this time," said a U.S. diplomat who has had extensive dealings with Israel.

Some analysts suggest Israel could strike after the November 4 U.S. election but before Barack Obama or John McCain becomes president in January, to avoid alienating American voters while capitalizing on the parting largesse of the Bush White House.

Yet there are already signals of a softening in Washington's hard line on Iran, which insists its atomic ambitions are peaceful -- for example, a State Department proposal to open an interests section in Tehran, perhaps as early as next month.

Sam Gardiner, a retired U.S. air force colonel who runs wargames for government agencies, said the banking meltdown and non-Middle Eastern crises such as the Russian-Georgian conflict and escalating American operations against al Qaeda targets on the Pakistan-Afghanistan border had overhauled American agendas.

Whether the new president is the conciliatory Obama or more hawkish McCain, he will inherit foreign policy priorities that stress containment or cooperation on Iran, Gardiner said.

"The consensus among American decision-makers is that bombing Iran is not the path to pursue right now. I see players being more and more cautious about the consequences to fragile economies of an oil spike," Gardiner said.

U.S. military commanders have long voiced misgivings about the idea of opening a front with Iran that would sap the resources of their protracted campaigns in Iraq and Afghanistan.

BLOOD AND OIL

Though they have the planes needed for massive bombing runs, the Americans' budgets, gutted by government bank bailouts, may find it hard to fund a new war -- especially if ground troops are dragged in or if Iran responds by stoking Iraq's insurgency.

"It stands to reason that it (an offensive against Iran) would be expensive, and they (U.S. forces) are already doing a lot," said Mark Stoker, a defense economist at the International Institute for Strategic Studies in London.

One effect of the international money woes has been the sudden slashing of oil costs by more than half from their July peak of $147 a barrel. It is a silver lining for those who want to curb Iran, the world's fourth-biggest producer of crude.