Benjamin Netanyahu’s meeting with President Barack Obama on Monday went as well as could be hoped. The Israeli prime minister stressed his oft-repeated desire for the US to establish “red lines” for Iran, but avoided any appearance of a disconnect with Washington. Mr Obama promised that the US would watch Israel’s back and continue to deploy the latest tool in its diplomatic arsenal: financial sanctions, in this case powerful disincentives to importing Iranian oil. So we are unlikely to see an Israeli military strike soon, as Mr Netanyahu seems willing to give sanctions time to work.
Hopes that tensions might be eased through a diplomatic compromise were boosted yesterday when the US, Britain, France, Germany, Russia and China said they would go back to the negotiating table with Iran to discuss its nuclear programme.
In the meantime, Mr Obama faces an extremely difficult task: remaining tough on Iran without sabotaging the US economic recovery. While the strategy of squeezing Iran financially is logical, it comes with serious economic risks that are not often recognised. The old distinction between the financial and security spheres no longer holds: geopolitics drive markets even as markets drive geopolitics.