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One of the key foreign policy challenges facing president-elect Barack Obama when he takes office on 20 January will be the issue of Iran.

With Iranian presidential elections due in June 2009 and declining global oil prices widening the Iranian government's financial deficit, United States policy towards the Islamic Republic could influence the choice of its next president.

Obama has already outlined what seems like a policy departure from his predecessor. Whereas President George Bush favoured confrontational rhetoric, describing Iran as a member of the "axis of evil" in January 2002, Obama has emphasised negotiation and multilateralism in his campaign speeches, and in November 2007 even said he would offer economic inducements and a possible guarantee not to seek regime change.

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Ali Alfoneh is a visiting research fellow at AEI. Alex Vatanka is the senior Middle East analyst at Jane's Information Group.