World war four is off: time for a bargain with Tehran?

For investors, world war one was a bolt from the blue - a crisis almost wholly unanticipated by stock markets until the first week of July 1914. By contrast, world war two was long foreseen by the markets, priced in from as early as 1936.

World war three was different again. As the nuclear arsenals of the superpowers grew ever larger, it became harder to imagine a life worth living after Armageddon; shorting the planet was not really an option.

As it turned out, of course, the third world war was only the third world's war: a series of nasty proxy wars fought with conventional weapons in peripheral theatres from Angola to Guatemala to Vietnam. World war four was supposed to be the showdown between the west and radical Islam, forecast in 1993 by Samuel Huntington as the "clash of civilisations". Since the terrorist attacks of September 11 2001, investors have had to take this nightmare scenario seriously. And the worse things have gone in the Middle East since the invasion of Iraq, the more likely it has seemed the US might launch its next pre-emptive strike against neighbouring Iran.

Until last week, only a congenital optimist could rule out US air strikes on Iran's nuclear facilities. Mahmoud Ahmadi-Nejad, the Iranian president, seemed almost to be asking for a confrontation, openly boasting about his country's uranium enrichment programme and warning the US "not to play with the lion's tail". His American counterpart declared last August: "Iran's active pursuit of technology that could lead to nuclear weapons threatens to put a region already known for instability under the shadow of a nuclear holocaust." Indeed, George W. Bush went even further in October, saying: "If you're interested in avoiding world war three, it seems like you ought to be interested in preventing [the Iranians] from having the knowledge necessary to make a nuclear weapon."

The International Atomic Energy Agency reported an acceleration of Iran's uranium enrichment, escalating tension. Seven days ago, I would have put the probability of US military action at about 40 per cent. What did Mr Bush have to lose? Unable to seek a third term in office, he was said to be convinced that his successor would (perhaps literally) lack the cojones to confront Tehran. And the Israelis seemed to have shown the low political cost of air strikes with their hit on a suspected Syrian nuclear facility. It would not have been a world war, after all, though the impact on crude oil prices would surely have been substantial.

Then came the new National Intelligence Estimate, a very different kind of bolt from the blue. "We judge with high confidence," its authors declared, "that in fall 2003 Tehran halted its nuclear weapons programme." Do those words mean "world war four" has been cancelled?

Do not speak too soon. A senior official close to the IAEA told The New York Times: "We don't buy the American analysis 100 per cent. We are not that generous with Iran." A close reading of the assessment suggested Mr Bush could still find reason to be suspicious. The report expresses only "moderate confidence" Iran did not restart its nuclear weapons programme this year. Its authors believe "with low confidence that Iran probably has imported at least some weapons-usable fissile material".

Nevertheless, it has now become much harder for Mr Bush to justify pre-emptive military action in the year he still has in office. It is, says the report, "very unlikely" Iran could produce enough highly-enriched uranium to make a nuclear weapon by late 2009. The more likely date is between 2010 and 2015.

One prominent commentator, the erstwhile hawk Robert Kagan, now argues this is an opportunity for Mr Bush to morph into a dove by adopting a new policy of diplomatic engagement with Iran. But it just is not in this president's nature to beat his sword into a ploughshare. In any case, it seems doubtful the Iranians would take such a volte-face seriously.

Where Mr Kagan has a point is that the time may well have arrived to rethink US policy towards Iran. Until 1979, relations between Washington and Tehran were a foundation of American strategy in the Middle East. Since the revolution that overthrew the Shah, there have barely been any relations at all.

Iran has been and remains an important major sponsor of organisations hostile to the US and its ally, Israel, among them terrorist groups. The US response has been sanctions and more sanctions. The result has been worse than a stalemate. On Mr Bush's watch, Iran's political position has got stronger. If the US quits Iraq prematurely, Persian hegemony in the Gulf could become a reality, even without nukes.

Mr Bush's successor needs a different approach, offering a grand bargain to Tehran: economic assistance and diplomatic rapprochement for a renunciation of nuclear weapons and terrorism. Sounds implausible? No more so than Henry Kissinger and Richard Nixon's opening to Maoist China in 1972. But which of today's presidential candidates could pull it off? Surely not foreign policy novices like Barack Obama, Mitt Romney or Mike Huckabee. Surely not the fire-breathing Rudy Giuliani, a paid-up believer in world war four. Surely not, Iran being what it is, a woman.

Step forward John McCain. For who could more credibly put the next world war on ice than a veteran of Vietnam, itself a subplot in the third world's war?