Reidblog [The Reid Report blog]

Iran's role as both an oil producer at a time of record prices and as a player in the politics of neighboring Iraq have made it trickier for the Bush administration to get tough on Tehran in the nuclear showdown. The administration has threatened to seek United Nations sanctions against Iran in the fall if the country refuses to accept international oversight of its nuclear program.

For their part, Iran's leaders seem to sense their advantages. In recent weeks, they have made clear they believe they have plenty of leverage and are less vulnerable to economic pressures from the outside. The country's new, hard-line president, Mahmoud Ahmadinejad, recently said "no economic or political incentive can dissuade us from getting peaceful nuclear energy."

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The nuclear standoff comes at a particularly inopportune time for the Bush administration. In Iraq, the administration is scrambling to help the country's factions overcome differences and hammer out a constitution, taking a crucial step toward solidifying the country so U.S. troops might eventually withdraw.

Iran, which shares a long border with Iraq, has huge sway over much of Iraq's now-dominant Shiite population, and it could disrupt the constitutional process if it so chose. Western diplomats in Tehran say Iranian officials have been blunt in recent weeks on that point, threatening to cause problems in Iraq if the Bush administration tries to punish Iran with international sanctions.

The most influential man in Iraq, Grand Ayatollah Ali Sistani, a Shiite leader whose approval has been central to every political twist and turn, is Iranian. When Iran's foreign minister, Kamal Kharazi, visited Iraq recently he visited Mr. Sistani -- an audience so far denied to top U.S. officials. "It didn't exactly please us to see the Iranians getting face time with Sistani," said a senior American diplomat in Iraq.

At the same time, oil prices have become a domestic thorn for President Bush, and any move that might push them higher could cost him support. Oil hit a nominal record of more than $66 a barrel last week before slipping slightly to $63.25 a barrel yesterday in New York trading.

Iran pumps around 3.5 million barrels a day, or about 4% of global oil production. It is the second-largest producer of oil in the Organization of Petroleum Exporting Countries and has the world's second-largest natural-gas fields. Analysts are divided over whether Tehran would openly use its energy leverage in a diplomatic standoff, if only because the Iranian government is so dependent on oil revenue.