At its root, the spat now threatening the third Gulf War since Iraq invaded Kuwait in 1990 is simple. The West claims that Iran, a signatory to the Nuclear Non-Proliferation Treaty, is attempting to build nuclear weapons in contravention of its commitments under cover of pushing for nuclear power. These fears are well founded.
In 2002 an exiled Iranian revealed that Tehran was working on uranium enrichment at a secret underground facility at Natanz. By 2nd February this year, the International Atomic Energy Agency was able to circulate at its board meeting a 15-page Iranian document, detailing procedures for casting enriched uranium into hemispheres. This shape is relevant only for nuclear weapons, not nuclear energy.
Iran's response? It said it had received these details from agents of Abdul Qadeer Khan, the father of the Pakistani atom bomb. But its alibi was that it had never asked him to supply them!
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Such a defence is absurd. Iran clearly needs nuclear weapons more than it needs nuclear power. It has the world's second largest oil and natural gas reserves. Domestic demand is so small that it can export the bulk of its 4 million barrel per day production. And Iran already generates a fifth of its electricity from hydro-electric power. Indeed, there is hardly a country on earth that has a better outlook for energy security.
Its fears of military insecurity, however, are well founded. US forces are active in two neighbours, Afghanistan and Iraq, and America also has bases in Qatar, Pakistan and Turkey. US aircraft carriers and submarines armed with cruise missiles are now patrolling the Persian Gulf.
Moreover, the 1980-88 Iran-Iraq war, in which the West backed and covertly supplied Saddam Hussein, is still seared into Iranian memories. More than one million Iranians died, some of them gassed. And a regional enemy, Israel - which is not a member of the NPT - has several hundred nuclear weapons plus the means to deliver them.
Like all nuclear aspirants, Iran saw Washington's pressure on North Korea almost evaporate the moment it became clear that Pyongyang did indeed possess useable nuclear weapons. Iraq, however, did not have the bomb - and it was invaded.
In short, it would make sense for Iran to have nuclear weapons. Official claims it doesn't want them defy logic.
So far, Europe and the United States have taken a 'good cop, bad cop' attitude. The EU3 meaning Britain, France and Germany haggled for two years with Tehran. The US, which has not ruled out military action should talks fail, has remained in the background.
And while talks continued, Tehran suspended the most sensitive activities, including fuel enrichment. However, the unexpected victory of hardliner Mahmoud Ahmadi-Nejad in presidential elections in June 2005 threw the negotiations into turmoil.
Ahmadi-Nejad, a blacksmith's son who came to power on an anti-poverty and anti-corruption ticket, is inexperienced in foreign affairs. Anti-Israeli sentiment is never far from the surface in Iran, but Ahmadi-Nejad's public denial of the Holocaust - and his call for the destruction of Israel - was a propaganda gift to the hardliners in Jerusalem and Washington.
Just as damaging, Ahmadi-Nejad has replaced many diplomats and experienced officials who negotiated with the EU3. The result has been a more confused stance, with some Iranian officials talking of leaving the NPT, followed by subsequent denials. But the overall drift has been towards a harder line, coming to the fore on January 3rd when Tehran announced it would restart laboratory-scale uranium enrichment. Washington is now pursuing a barely concealed policy of regime change.
President Bush has just asked Congress for an extra $75m to fund opposition groups in Iran, including reformers, political dissidents, trade unions and human rights groups. He's also asked for money to fund a US-run 24-hour TV station to broadcast in Farsi.
No wonder that Tehran's hardliners feel the West is bent on destroying Iran. Indeed, the US and Britain undermined the previous Iranian president, Mohammed Khatami, when the reformist was in power. They stepped up their criticism of Iran, instead of supporting his efforts at dialogue with the West.
Bellicose rumblings from Washington have also been counter-productive. Iranians were horrified to be labelled as a member of the 'Axis of Evil' by Mr Bush in 2002. Tehran still recalls the US role in the coup of 1953. It toppled an elected leader and ushered in the absolutist monarchy that only ended with the Shah's deposition during the revolution of 1979.
Today, many Iranians see double standards at work in US policy. While North Korea is clearly a Stalinist dictatorship and Saddam's Iraq was a tyranny, Iran remains more democratic - even with the blocking role of senior clerics - than key US allies in the region such as Egypt and Saudi Arabia.
Everyone over the age of 15 can vote, and the press is free though harried. The social freedoms of women, a litmus test of civil liberty in Islamic states, are also improving. They have a growing role in business and education. Indeed, 64% of students are female.
You may not see mini-skirts on the streets of Tehran, but women are wearing make-up and showing their hair. And much of this improvement in civil liberties has gone hand in hand with a burgeoning economy. Iran's GDP is growing at around 4.8% a year and thanks to high oil prices it has $40bn of foreign exchange reserves. Income per capita has soared 40% since 2000, despite the rising population.
Huge problems remain, however. The state-sector is large and inefficient. Unemployment runs at 11%. Rising wealth is not evenly spread, and so Ahmadi-Nejad's sabre-rattling plays well to the disaffected.
At the start of this month, the International Atomic Energy Agency referred Iran to the UN Security Council for breaking IAEA inspection rules. It will hold a full meeting about Iran today to set the sanctions ball rolling. There are still opportunities for compromise, but the momentum favours confrontation.
Tehran is braced for sanctions. After endured 27 years of a US embargo, it feels it can survive them. Iran's leaders also warn that any Security Council action will lead to an ending of short-notice inspection rights. Last week, Tehran was reported by Iranian news agencies to be removing IAEA seals, cameras and monitoring equipment from Natanz. Iran has also cancelled talks due to take place in Moscow about proposals to shift the Natanz enrichment operations to Russia.
Of course, there is no guarantee the Security Council will back sanctions. Russia's foreign minister Sergey Lavrov said baldly last week that sanctions are generally ineffective, and that both Russia and China opposed them in the case of Iran. Moscow wants a compromise, partly for the kudos of resolving the dispute, but also because it doesn't want to further encourage US military action on its doorstep. China's interest, on the other hand, is commercial.
One of Iran's largest trading partners, China gets 17% of its oil from the Middle Eastern state. China's state oil company Sinopec was chosen to develop the vast Yadavaran oil field, which offers China one of the best prospects to secure energy supplies to fuel economic growth. But these deals could come to nothing if America strikes first.
Can you doubt Washington's enthusiasm for military action? The morass of Iraq, the ebbing popularity of President Bush, and military overstretch across the globe all suggest the US may back down. But the powerful 'neo-con' lobby in Washington favours air strikes to destroy Iran's nuclear facilities. This lobby still recalls the humiliation of the 1979 hostage crisis and the debacle of US helicopters, lost in the Iranian desert, colliding with each other. It wants to settle some old scores.
Besides, success in Iran would cement Bush's legacy and relegate the Iraq debacle to history. And air strikes would have the advantage of not needing Congressional approval, nor adding significantly to troop requirements. The attacks could be mounted from bases in Turkey, with support from US Navy aircraft carriers in the Gulf.
CIA chief Porter Goss visited Turkey on December 12th and according to a report in the German newspaper Der Speigel, he asked Turkish Prime Minister Recep Erdogan to provide support for a possible 2006 air strike against Iranian nuclear and military facilities. Any attack would have to reach more than two dozen targets, including research labs in the heart of Tehran and other populated regions. So however 'surgical' the intention, this would be a bloody affair, not least because the US would need to kill Iran's nuclear scientists and researchers to set back its nuclear ambitions.
Of course, Washington is well aware that the ramifications of such an attack will make Moslem protests over abuse at Abu Ghraib or the Danish cartoons seem like a picnic. The US hawks are also aware that the Shia majority in Iraq, taking religious direction from Iran-based clerics but relatively quiet under US occupation, may rise up en-masse if their neighbour is attacked.
Against these risks, Washington policymakers set the danger to the world if Iran does get nuclear weapons. And the most likely reason to expect US action is precedent. When Washington saw it couldn't get UN Security Council backing for a military action on Iraq, it gave up the diplomatic route and prepared for a direct attack instead, citing vaguer support in the existing UN resolution 1441.
The upshot today is that neither the West nor Iran will back down. But Russia and China are unlikely to back any UN sanctions with real teeth.
That leaves the very real risk that the US may act unilaterally.
By Nick Louth for The Daily Reckoning. You can read more from Nick and many others at www.dailyreckoning.co.uk.
A weekly contributor to the Financial Times, Nick Louth's career in financial and political journalism spans 20 years and as many countries. He is the author of 'Multiply Your Money: The Easy Guide to Savings and Investments', now published in paperback by McGraw Hill. Mr Louth is also a key contributor to the Fleet Street Letter.
Who is the richest person in the world?
The top five richest people in the world have a combined net worth of $825 billion. Who takes the crown for the richest person in the world?
By Vaishali Varu Published
Top 10 stocks with highest growth over past decade - from Nvidia, Microsoft to Netflix, which companies made you the most money?
We reveal the 10 global companies with the biggest returns since 2013. One firm has posted an astonishing 9,870% return, meaning a £1,000 investment would now be worth almost £82,000.
By Ruth Emery Published