After the looming fiscal cliff, the next major challenge facing the United States will be preventing Iran from obtaining a nuclear weapons capability. Living with a nuclear Iran is strategically untenable. Like the fiscal cliff, this is a matter of both economic and national security. Preventing Iran from acquiring nuclear weapons carries various risks, but inaction has its costs, too—especially to the price of oil and, in turn, to the U.S. economy.

International sanctions against Iran have already restricted its oil exports, reducing global supply and putting upward pressure on oil prices. But a military strike against the Islamic Republic could disrupt the flow of oil in the region, as Iran might retaliate against the West by attempting to close the Strait of Hormuz, through which one-fifth of the world’s oil supplies pass.

The disruption of oil flows would have significant economic repercussions. Yet failure to stop Iran’s nuclear-weapons program also would have myriad direct and indirect consequences. We led a Bipartisan Policy Center task force—including former elected officials, military leaders, diplomats, energy analysts and economists—that examined the energy-related costs of inaction.

Energy markets respond both to actual supply disruptions and to expected changes in supply and demand. A nuclear Iran would raise the likelihood of instability, nuclear proliferation, terrorism and war—and could thus drive oil prices up without disrupting the flow of oil.

Read this article in full at the Wall Street Journal.

See also BICOM’s Expert View paper ‘Fallout: The Economic Cost to Britain of a Nuclear Iran‘, by Dr. Paul Rivlin.