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Now, a closer look at one of the challenges Secretary Panetta must manage. Tensions with Iran these days are as high as they have been in years. With Iran threatening to block U.S. ships from entering the Persian Gulf and the United States vowing not to back down, the stage appears set for a fight. And yet, what's happening with Iran right now may be more of an economic confrontation than a military standoff. NPR's Tom Gjelten explains.

TOM GJELTEN, BYLINE: The West wants to prevent Iran from developing a nuclear weapon. The plan, for now at least, is to use sanctions as pressure. The resulting economic pain might induce the Iranian regime to give up any thought of a weapons program. But international inspectors say Iran is getting closer to that nuclear capability. The Israelis are worried and impatient and may at some point act on their own to take out Iran's nuclear facilities militarily. If war is to be avoided, the Obama administration may need to persuade the Israelis that current policies will get the Iranians to back down. Danielle Pletka is head of foreign policy studies at the American Enterprise Institute.

DANIELLE PLETKA: How do we reassure the Israelis? It's by being more forward leaning, by being more aggressive with sanctions and having a stronger military presence. Well, the problem with that is, that in and of itself agitates the Iranians; they come out with counter actions and we see an escalation as we've seen over the last week.

GJELTEN: It appears the Iranians don't like being squeezed. The latest sanctions idea is to make it hard for Iran to sell its oil. In theory, that should hurt. The country depends heavily on oil revenue. Suzanne Maloney, an Iran specialist at the Brookings Institution, says the Iranians therefore see themselves already as under attack, if only in economic terms.

SUZANNE MALONEY: And so they're going to fight back in every way that they have at their disposal.

GJELTEN: Even Iran's military threats serve a purpose in this economic struggle. When the Iranians talk about closing the Strait of Hormuz, for example, oil prices jump. That's because 20 percent of the world's oil passes through that strait. And forcing up the oil price means two things for Iran: First, it brings more money. A four-dollar-per-barrel increase equals about $10 million a day extra for Iran. Second, spiking the oil price is a way to hurt the U.S. and European economies. It's as if the Iranians are saying you go after our economy, we'll go after yours. Again, Suzanne Maloney:

MALONEY: They have this belief that somehow there's vulnerability that they might be able to exploit by exacerbating the global financial recession and by insuring that we don't see the kind of recovery that is obviously particularly important to the Obama administration in an election year.

GJELTEN: Here's the fight: The Iranians want to hurt the West's economy, but protect their own. The U.S. and its allies want the opposite: for Iran to suffer, but for us to prosper. And one thing the Iran story shows is that economic warfare can be trickier than military conflict. A country can bomb another without itself being affected, but the global economy is so interconnected that it's hard to hurt your enemy without being hurt yourself. For every move the West makes to manipulate the oil trade, the Iranians can make a counter move, says Suzanne Maloney.

MALONEY: Ultimately, there are so many different factors at play here, and the oil markets have a tendency to respond in unpredictable fashion. The Iranians have multiple means of playing into that through their rhetoric and their actions in the Gulf.

GJELTEN: And remember, the ultimate goal for the U.S. and its allies is to convince Iran to give up a nuclear weapons program. Even if this economic war works to the West's advantage, that doesn't necessarily mean it will make the Iranians give up having a bomb. Danielle Pletka says sanctions would be more effective if the Iranians were still a long ways from getting a nuclear weapon.

PLETKA: But right now they can see a light at the end of the tunnel on their nuclear program. They're only going to have to withstand a little more pain in their calculation. So, can we inflict enough economic pain on them that they're willing to say, OK, maybe we're 12 to 18 months away, but we'll give up on that because we really need to stop this bleeding?

GJELTEN: Not likely, she says. All in all, a risky game for both sides and getting more challenging by the day. Iran's leaders say they intend to carry out more military exercises in the Persian Gulf next month. Tom Gjelten, NPR News, Washington.

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