04/20/2009 05:12 am ET Updated May 25, 2011

Realism and Leverage for Engaging Iran

President Barack Obama's unprecedented video message to the Iranian people yesterday is a strong indication that Iran will continue to be a high priority for the new administration. Engagement through new diplomatic avenues, like the video, is worthwhile, but we must not lose sight of the challenge Iran still poses.

As if we needed a reminder, Secretary of State Hillary Rodham Clinton's recent trip to the Middle East made clear that Iran plays a central role in the thoughts and fears of most countries, whether Arab or Jewish. While Israel might justifiably be most vocal about the threat that a nuclear-armed Iran poses for its people's future, the Gulf states, Saudi Arabia, Jordan, moderate Lebanese and others are also clearly on edge.

Indeed, in a recent interview on CNN with Gamal Mubarak, the heir apparent to his father in Egypt, this articulate young man made it clear that his country, too, had serious differences of opinion with Tehran about the future of the region.

On issue after issue, from a negotiated two-state solution to the Israeli-Palestinian conflict to curbing radical Islamic fundamentalism, Iran remains a major stumbling block.

It is also worth noting that just in the last few years, as Iran's nuclear development has proceeded in earnest, a number of other regional states including the United Arab Emirates, Saudi Arabia, Egypt and Syria have all signaled their intention to develop their own nuclear programs. A future nuclear arms race in the Middle East, which had never been an issue in all the decades since Israel ostensibly became a nuclear weapons state, is now a very real possibility due to Iranian proliferation.

While the Obama administration is still formulating its policy on Iran, the public debate for quite some time - both here in the U.S. and in Israel - has focused too much on extremes: on the one hand, conservative hard-line proponents of the military option against Iran's nuclear installations; on the other, those liberal champions of dialogue and negotiation with Iran which, so the thinking goes, are ready to cut a deal which might not even achieve disarmament.

While this debate plays out, the Iranian nuclear issue only grows as a problem, with no resolution in sight.

What is needed, it seems to me, is a policy that understands both the clear limitations of either "just bombing," or "just talking." Rather, real sanctions that take into account present economic realities could provide us in the West and the Middle East with the best opportunity to attenuate Iran's behavior and goals.

First, we have to acknowledge that at no point since we began to take Iran's nuclear ambitions seriously a few years ago has the global price of oil been so weak. For all the very real damage that the global financial crisis has inflicted, it has arguably hit energy producers like Iran even harder. Export revenues have cratered, government budgets have been slashed, and the very real structural difficulties Iran had before - like high unemployment and inflation - have been exacerbated.

More importantly, because it lacks an adequate domestic refining capacity, Iran still needs to import about 40 percent of the gasoline its people use. Herein lies the opportunity. Recently, a bipartisan group of congressional members called on the U.S. government to sever its business ties with a Swiss firm responsible for supplying Iran with about 25 percent of its gasoline imports. While commendable, these initiatives need to be publicly embraced by the administration and implemented quickly. The responsible thing to do would be to pursue such corporations, and offer them a simple but ethical choice: Washington or Tehran.

Such sanctions and divestment strategies, combined with a firm but expansive diplomatic outreach, will provide the West with the strongest point of departure from which to engage Iran.

However, and this is the second point, we should be preparing a secondary plan. American contingency planning and the credible threat of further economic hardship have to be taken into account by Iran. When American and Israeli politicians say publicly that "all options are on the table," they should really mean it - and not just use such language as an unrealistic threat for a massive military campaign.

Other options should include physically targeting Iranian gasoline imports and shutting down, by any available means, Iran's primary oil refinery. While clearly risky, such options would entail far less damage than air strikes against Iran's underground nuclear facilities, and could have surprising and positive consequences.

In effect, what we need is a graduated scale of diplomacy and coercion for engaging Iran, in order to achieve the best possible outcome for the U.S. and its regional allies. As a liberal and progressive, I abhor the notion of conflict and bloodshed and very much want to find a diplomatic solution to the Iran nuclear issue.

During my many years in international business and public life, I have had the good fortune of sitting down for lunch with people with whom I completely disagreed, in practice and principle: Soviet communists, heads of state from various unsavory regimes, benighted religious figures, corrupt business leaders. The dialogue between us, while always helpful in reducing tensions and intellectually stimulating didn't obscure the main lesson: idealism without realism, and negotiations without leverage, simply don't work in this world.