DEFEAT IS NEVER pleasant, but often it is better to lose than to win. Defeat in the Second World War was the best thing that ever happened to Germany and Japan in their thousand years of recorded history. For America, losing in Vietnam was also a blessing in disguise. While defeat seemed to shatter the illusion of an “American century” of global dominance, it was followed by 30 years of almost uninterrupted prosperity, a political renaissance for conservative values and America’s total victory over communism in the Cold War.

Such thoughts may not offer much consolation to George Bush, Tony Blair and Ehud Olmert as they contemplate their defeat at the hands of Iran and its Hezbollah allies. But the ordinary citizens of America, Britain and Israel should try to draw some constructive lessons from history, even while their leaders make ever greater fools of themselves with their idle threats against Iran’s nuclear ambitions.

The “international community” is now totally powerless in its nuclear confrontation with Iran, even more so than with North Korea. Pyongyang needs food and fuel to survive and is therefore susceptible to pressure from China. Iran, at the moment flush with oil wealth, needs nothing and is not dependent on anyone.

The sort of economic and diplomatic sanctions being ominously debated by the UN Security Council — curbing investment in Iran’s oil industry or banning exports of machinery and luxury goods — would be worse than ineffective. They would actually strengthen the regime of Iran’s fanatically anti-American and anti-Israeli President, Mahmoud Ahmadinejad.

Economic sanctions would help Ahmadinejad by adding to the xenophobic paranoia that always tends to reinforce nationalist extremists, at least in the short term. In the case of Iran, however, there is another, more important, reason why sanctions would be counter-productive. Far from defeating Iran through economic exhaustion, sanctions would make the country, or at least its Government, even richer and more powerful than it is today. This paradox, which has never before arisen in the use of economic sanctions for diplomatic purposes, arises because of the state of the global oil market today.

Oil prices have more than doubled in the past three years because steadily rising demand, especially from China, has run up against the limits of global production capacity. If Iran, which is the world’s third-largest oil producer after Russia and Saudi Arabia, had even a small part of its exports removed by sanctions from world markets, the oil price would shoot up to $100 or more. As long as the percentage increase in oil prices was higher than Iran’s percentage loss of export volumes, sanctions would result in the Government’s total revenues going up, instead of down.

Iran also controls the Straits of Hormuz, the narrow strip that separates the country from the Arabian peninsula and which provides a passage for roughly 40 per cent of the world’s internationally traded oil. If Iran were to close the Strait of Hormuz or otherwise threaten foreign shipping in response to an attempt to impose economic sanctions, the oil price would jump not just to $100 a barrel but probably to $150 or beyond. As a result, the Iranian Government could quite conceivably double its present revenues after the imposition of sanctions. Thus sanctions would provide President Ahmadinejad with even more money to buy popularity among his domestic voters, and unleash an even greater torrent of oil money to finance Hezbollah terrorists in Lebanon and anti- American Shia in Iraq.

But if sanctions are doomed to failure, what about military options? As a last resort, couldn’t America or Israel stop the nuclear programme by threatening to bomb Iran? Sadly or happily (depending on your worldview), the answer is a very clear “no”. Militarily, America and Israel have now shot their bolts in Iraq and Lebanon respectively. They have neither the firepower nor the willpower to do anything to stop Iran’s nuclear programme — and even if they did have the capacity to strike Iran’s nuclear facilities, they could not afford the risk of destabilising their other Middle Eastern interests even further by taking military action. Moreover, both America and Israel now understand that a bombing campaign that could not be backed by an infantry invasion would only reinforce the existing regime’s grip on power.

The last argument against a military strike, but by no means the least one, brings us back to the oil issue. If the US or Israel were to bomb Iran’s nuclear installations, Iran would have the strongest possible pretext to ramp up the oil price to $150 a barrel or higher by closing or restricting traffic in the Strait of Hormuz. Thus a military attack on Iran, just like economic sanctions, would increase the Government’s capacity to finance global terrorism and curry favour with the Iranian public. It would also cause potentially catastrophic disruption to the world economy when the American public is already turning against the Iraq adventure and Republicans face a potentially disastrous electoral defeat.

What then should America and its allies do in the face of Iran’s nuclear defiance? The answer is clear: concede defeat. Iran has won this tussle and there is no point in pretending otherwise. Instead of trying to stop Iran’s nuclear programme, the international community must bring Iran back into the civilised world. The only way to do that is to stop issuing empty threats and to start offering Iran real incentives for co-operative behaviour — non-aggression guarantees from America and Israel, removal of the residual US economic sanctions dating back to the 1980s and the prospect of steadily improving treatment in investment and trade. Of course, such a U-turn seems inconceivable while President Bush remains in office. But remember President Nixon’s historic opening to China as he was losing the war in Vietnam. To paraphrase Johnson, a politician’s mind can be concentrated wonderfully by the knowledge that he is faces defeat.

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