US: Strike on Iran could hurt world economy

US Defense Secretary Leon Panetta said he would raise American concerns about the unintended consequences of any military action against Iran during talks with his Israeli counterpart Ehud Barak on Friday, including its potential impact on the world economy.

Tension over Iran's nuclear program has increased since the International Atomic Energy Agency (IAEA) reported last week that Tehran appeared to have worked on designing a bomb and may still be conducting secret research to that end.

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Panetta, speaking to reporters traveling with him to Canada, said the United States believed the most effective way to confront Iran still was to use diplomatic pressure and sanctions to try to curb the Islamic state's nuclear program.

"Obviously to go beyond that raises our concerns about the unintended consequences that could result," Panetta said.

He pointed to a US analysis that a strike on Iran would set back its nuclear program, which Iran says is only for peaceful purposes, by one or two years at most. It would also have implications for US forces in the region.

Barak and Panetta last month. (Photo: EPA)

"And I have to tell you, thirdly, there are going to be economic consequences to that, that could impact not just on our economy but the world economy," Panetta said.

"So those things all need to be considered."

Panetta is due to attend a security forum in Halifax, Canada, where he will also hold bilateral talks with Barak on Friday.

"I've made those points before and I'll discuss them again," Panetta said, asked about what message he would deliver to Barak.

Diplomatic efforts

Iran has warned that it will respond to any attacks by hitting Israel and US interests in the Gulf. Analysts say Tehran could retaliate by closing the Strait of Hormuz, the waterway where about 40 percent of all traded oil passes.

"The United States feels strongly that the way to deal with that is to work with our allies, to work with the international community to develop the sanctions and the diplomatic efforts that would further isolate Iran," Panetta said.

"That is the most effective way to confront them at this point."

The six powers involved in diplomacy on Iran - the United States, Russia, China, France, Britain and Germany - hammered out a joint resolution in intense negotiations and submitted it to the 35-nation board of the International Atomic Energy Agency (IAEA), a Vienna-based UN body, which is expected to debate and vote on it on Friday.

It aims to increase pressure on Iran to address fears about its atomic ambitions. But it is not expected to satisfy those in the West and in Israel, who had hoped IAEA document would trigger concrete international action, such as an IAEA referral of its case to the UN Security Council.

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