Prepare for the worst, I have copied this article by Nick Louth from the MSN website , it’s everybody’s worst fears and is nightmare scenario.

 

What would happen to the world economy if Israel launched an attack on Iran?

 

Practice attacks over the Mediterranean this month by the Israeli Air Force, and missile tests by Iran have fuelled fears that emnity between the two Middle Eastern nations may move beyond a war of words.

 

The most likely scenario for conflict is seen as an Israeli air strike against Iran's nuclear research facilities, one that would need to be carried out before the American presidential election in November, or at the very latest before the presidential handover in January. While George W. Bush is reported to have given his blessing to an Israeli military strike, his successors may not be so relaxed about it, and for good reason.

 

Quite simply the economic consequences of such a raid would be cataclysmic.

It isn't just that Iran is the world's second largest oil producer, with the third largest global reserves of oil and the second largest of natural gas. The truly significant part is where Iran actually is. Even assuming that Iran was militarily humbled, it would still be able to turn off almost the entire Middle Eastern oil tap, not just its own production.

 

That would hit every single oil importing country on the planet. Forget the well-publicised missile tests. When you're that well-placed, you don't really need much military power to to make your point.

 

A map makes it clear. Iran runs along the entire northern edge of the Persian Gulf, including the 34-mile wide Straits of Hormuz through which 40% of all the world's crude oil passes. With dozens of supertankers passing through just one narrow two-mile channel in the straits, carrying 13.4 million barrels of crude oil each day, closing down traffic would be militarily simple. One large tanker, sunk or set ablaze in the channel, might be all that is required.

Opec general secretary Abdalla Salem El-Badri said last week that an attack on Iran would see an "unlimited" rise in prices because any loss of Iranian production, or constriction of shipments through the Strait of Hormuz, were irreplaceable. In effect, we'd stop worrying about the price of oil and start worrying if we could get the stuff at all.

 

An Israeli assault on Iran right now could not be worse timed for the global economy. The US and British economies are teetering on the brink of recession, major stock markets are 20% below their peaks, investors are on the edge of panic and even the biggest financial US financial institutions are running short of capital to meet losses.

 

Interest rates, the usual weapon to ease recessionary fears, cannot be cut without further stoking inflation, to which soaring oil and food prices have contributed.

 

As for the black stuff itself, the world may not be running out, but it is barely able to pump and refine enough to meet soaring demand. With the easy and cheap deposits running low, future supply looks to come increasingly from expensive and hard to exploit fields, which will keep prices high for years to come. All that is without even considering what would happen to supply after a military flare-up.

 

There is still plenty of scope to get this brinkmanship resolved by diplomacy. The fact we have heard so much about Israeli military plans against Iran could means that what we are actually seeing is American and Israeli pressure for a diplomatic solution. Let's hope so.

 

The issues are real enough. Israel, which has several hundred nuclear weapons of its own, has accused Iran of trying to use a civilian nuclear programme as a cloak for building its own atomic bombs. The US Pentagon, having long made the same accusations, in 2007 released National Intelligence briefings which cast doubt on that conclusion, and said Iranian efforts to build a bomb ceased in 2003.

 

Whatever Tehran's ultimate ambitions, the United Nations has been pressurising Iran because of its lack of openness over its nuclear plans, which may leave it in breach of membership of the Nuclear Non-Proliferation Treaty.

Iran has also been subject to some severe financial sanctions which have hit its banks hard. Foreign companies tempted to invest in Iran are being leaned on heavily by the US to think again. Just this month French oil group Total pulled out of a $10bn plan to help develop the world's largest gas reservoir, the South Pars field.

 

While the US itself is now thought unlikely to attack Iran, a Pentagon official, in a surprisingly candid interview with the Sunday Times this month said that George W. Bush had given Israel the "amber light" to do so. A green light, though, would only be given if an Iranian attack was thought imminent.

 

“Amber means get on with your preparations, stand by for immediate attack and tell us when you're ready,” the official told the paper.

This is terrifying, and intended to be, being mainly for Iranian consumption rather than ours. Given the consequences of an attack, all we can hope is that this is the last part of a diplomatic push, not the first part of a military one.