By Peter Apps, Political Risk Correspondent
LONDON (Reuters) - Worries of Israel striking Iran might or might not be overblown but across the region the largely hidden "cold war" between Tehran and its enemies is escalating fast, bringing with it wider risk of conflict.
Speculation Israel might attack Iran's nuclear program has been rife in the Israeli media and oil markets in recent weeks, with concerns that Tehran might retaliate with devastating attacks on Gulf oil shipments.
But that debate, experts say, misses large parts of the bigger picture. An increasingly isolated Iran alarms not just Israel and the West but its Gulf neighbors, especially longtime foe Saudi Arabia, and they are already fighting back - and the confrontation goes well beyond simply tightening sanctions.
From proxy wars in Iraq and Syria to computer worm attacks and unexplained explosions in Iran - to allegations of an assassination plot in Washington - a confrontation once kept behind the scenes is breaking into increasingly open view.
The storming of Britain's Tehran embassy last week - and the tit-for-tat shutdown of Iran's embassy in London - were just the latest signs that already limited dialogue is beginning to break down. That, analysts say, is inherently dangerous.
"With Iran, you have a government that is increasingly isolated and acting in increasingly unpredictable ways," says Jon Alterman, director of the Middle East program at the Center for Strategic and National Studies in Washington.
"There is certainly the risk that a country will take the deliberate decision to attack Iran. But there is also the risk that something happens that provokes... a war that nobody planned and nobody wants."
With the euro zone crisis still far from over and worldwide demand already faltering, such action and the resulting oil price surge could be disastrous for the global economy.
Confrontation is, of course, far from new. Tehran has long used militant groups such as Lebanon's Hezbollah and Hamas in the Palestinian territories to shape regional politics and strike enemies, particularly Israel.
The United States and Britain long accused Iran of using Shi'ite Muslim militias in Iraq to kill Western troops and impose Tehran's agenda.
The Sunni-ruled states of the Gulf, particularly Saudi Arabia and Bahrain, say Iran stirs up unrest in their Shi'ite communities, although many Western analysts believe blaming Iran for protests this year in those countries is an overstatement or at least oversimplification.
Many such confrontations across the region appear escalating fast - and becoming much harder for Washington and its allies to control.
"U.S. and Western power in the region is weakening, and that is leaving a vacuum - most notably in Iraq - and you can see the main stakeholders in the region reacting to Iran's readiness to fill that vacuum," says Reva Bhalla, head of analysis at US private intelligence company Stratfor.
This year's uprising in Syria - Iran's rare Arab friend - has created a new battlefield. Since the early days of the uprising, U.S. officials repeatedly and pointedly said they believed Assad's government was receiving support from Tehran.
Assad has since been rapidly abandoned by the Arab League, in a diplomatic effort led by Saudi Arabia and the other Sunni Arab Gulf states. Analysts and officials say that could have as much to do with pushing back against Iran as in reining in killings and rights abuses in Syria itself.
Saudi or other Arab backing for the increasingly armed opposition could escalate matters further, potentially producing a sectarian civil war lasting years and spilling across borders into neighboring states.
In Iraq, the withdrawal of U.S. forces by the end of this year leaves more room for both Iran and Sunni Arab neighbors to intervene through proxy militias. At worst, that could reignite the Sunni-Shia infighting that nearly tore the country apart during the US occupation.
"A proxy Saudi-Iranian war in Iraq represents a very considerable threat to oil supplies," said Alastair Newton, chief political analyst at Japanese bank Nomura.
Some of the increased friction with its neighbors could be a symptom of a power struggle within Iran itself, Newton said.
"I think one of the reasons you're seeing temperature rising between Iran and others is because you're seeing temperature rising in Tehran itself."
Recent events such as the embassy storming, in which Iran seemed willing to tear up the international rulebook, could be a sign of increasing clout of hardline clerics and Revolutionary Guard commanders.
The attack on Britain's embassy prompted widespread international condemnation and looks to have ushered in a much tighter sanctions. That too may strengthen the hardliners.
The United States said in October it had caught Iran plotting to blow up the Saudi ambassador to Washington DC in a downtown restaurant. Whether or not the plot was genuine - and whoever was behind it - it marked a further worsening of relations.
Iran's enemies appear to be using unconventional methods against it, suspected of striking within its borders. Israel and the United States both make clear they view covert operations as a sensible alternative to conventional military action.
Last year's Stuxnet computer worm, which damaged computers used in industrial machinery, was widely believed to have been a U.S.-Israeli attack to cripple Iranian nuclear centrifuges.
Several Iranian nuclear scientists have been killed or disappeared, and Iran blames U.S. or Israeli intelligence services.
Two explosions last month in Iran, one of which killed a Revolutionary Guards gunnery general and around a dozen other officers, prompted widespread speculation in Israel that its intelligence services were involved.
Iran said the first blast was an accident and has not given clear accounts of the second incident.
Israeli officials refuse to confirm or deny they were behind any specific incidents. Several commentators and newspapers warned such action could still backfire badly - perhaps prompting the kind of rocket attacks on Israel launched last week by Hizbollah from Lebanon.
"Faced with such operations, the Iranian regime is embarking on and will embark on a series of actions of its own," said a front-page article in the Israeli newspaper Maariv by Nadav Eyal, foreign editor for Israel's Channel Ten television.
As to whether a deliberate air strike on Iran's nuclear program is genuinely more likely in the coming months, experts are divided. The U.S. withdrawal from Iraq makes it possible for Israeli jets to pass through its airspace without needing U.S. permission. But many say the costs would be too high.
"The problem is that no one knows what the mid-term consequences would be," said Alterman at Washington's Center for Strategic and International Studies. "It could simply encourage the regime in place and intensify their commitment to following a nuclear program with even more energy than before."
(Additional reporting by Dan Williams in Jerusalem; Editing by Peter Graff)