Without being too cynical, the proposed U.S.-Iran treaty seems unlikely to extinguish Iran’s nuclear ambitions in the long run. I would argue that Iran is less dangerous than is believed by the neocon community – with Pakistan and North Korea in the mix, it probably ranks only third among risks of nuclear outbreak. However that risk has increased substantially in the last two decades, and is now greater than at any time in world history. It’s worth thinking through what a nuclear attack, even an isolated, relatively modest explosion in a major city, would do to the global economic structure.

Whatever one’s view of the potential U.S./Iran treaty, it has the potential to satisfy two objectives. First, it could bring Iran back into the global political economy. This was attempted by President Reagan as far back as 1985-6, with the Iran/Contra negotiations (both legs of which I approved of). An opportunity was undoubtedly missed in 1997-2005, when Iran was run by the relatively moderate and civilized Mohammad Khatami. While no such accommodation was possible in the Mahmoud Ahmadinejad years from 2005 to 2013, it may again be possible now.

Second, if the treaty were to restrain Iran from proliferating nuclear weapons, it would be highly advantageous, since this would prevent their proliferation across the Middle East. Regrettably, this second objective appears less likely to be achieved than the first.

The probability of all-out nuclear holocaust probably peaked at the time of the Cuban Missile Crisis. The Soviet Union, with almost infinite territory, a relatively primitive non-nuclear economy, and a potentially ruthless leadership dominated by the military, was more or less unique in its ability to survive a nuclear attack. As tensions lessened after Cuba and the Soviet Union grew more pluralist and more economically complex, that survivability lessened and so did the risk of all-out nuclear war. Better control systems and failsafe procedures on the U.S. and Soviet nuclear arsenals also helped reduce risk. “Dr. Strangelove,” that disturbing 1963 comic masterpiece, was obsolete within a couple of years of its creation.

The risk of nuclear outbreak was minimized between 1985, when Mikhail Gorbachev succeed to power in the Soviet Union and 1998, when Pakistan got the bomb. Since 1998, while the probability of all-out nuclear holocaust has not increased significantly, the probability has increased immensely of a “small” nuclear attack, probably involving one or a small number of nuclear weapons, concentrated on or a few Western cities.

During the nuclear “holiday from history” in 1985-98, the probability of a nuclear attack had been thought to have been minimized by two actions. The Nuclear Non-Proliferation Treaty (NPT) of 1970 was thought to have limited the number of nations with access to bomb technology. The disarmament agreements between the U.S. and the Soviet Union (and later Russia) were thought to have minimized the risk of an accidental all-out conflict and to have ensured that Soviet weapons were properly secured.

We now know both those beliefs to have been over-optimistic. Ukraine, by agreeing to give up its weapons acquired with the fall of the Soviet Union, laid itself open to Russian invasion only 20 years later. It is thus most unlikely that any country will ever again give up weapons voluntarily, and almost certain that countries whose neighbors acquire nuclear technology will themselves acquire it.

As for non-proliferation, we will in the near future have three powers, Pakistan, North Korea and Iran, which are to say the least imperfect barriers against further proliferation (as the activities of Pakistan’s A.Q. Khan demonstrated) and it must be indisputable that in the near future, NPT or no NPT, the number of nuclear powers will increase rapidly. Some of them will pose no threat to the established world order; with others there will be no such assurance. In addition, with several new powers at various stages of developing nuclear weapons, the probability of a non-state actor getting hold of one or more must be considerably increased. As for delivery mechanisms, rocketry technology is improving all the time, as is guidance technology, so it’s likely that even the least sophisticated nuclear program will include the capability to deliver a warhead by missile anywhere in the world, with a reasonably high level of precision.

Some uses of nuclear weapons in the hands of new states will be relatively benign; the ability to threaten non-nuclear neighbors and to protect oneself against threats from nuclear neighbors will result mostly on intense diplomatic activity. It is also fairly unlikely that one of the new nuclear powers will as a formal act of government launch a major attack against a Western state (including Israel) because of the likelihood of a devastating response from the United States and its allies. However, several of the new nuclear powers and potential nuclear powers have a degree of ambiguity about control of the weapons concerned. In Pakistan, for example, governments have been mostly West-friendly if not always wholly competent and uncorrupt, but elements in that country’s military forces are much less pro-Western and are capable in an extreme situation of acting independently.

It is thus fairly likely – perhaps a 25% probability — that by 2030 a nuclear attack on one or more major Western cities will have taken place, with the attacker being probably either an independent terrorist group or a minority element of the military in a country with nuclear weapons and imperfect control of its armed forces. The casualty level for such an attack will be in the hundreds of thousands in the short term, and the low millions in the long term, with higher casualty levels in the tens of millions being unlikely, assuming the attacker has not developed the more complex and sophisticated thermonuclear weapon capability. It is also possible that one or more uses of nuclear weapons will have taken place in the Middle East or around the Moslem/Christian divide in Africa.

The “foreign policy” question of how the West should respond to such an attack will depend on its details, and is in any case well above my “pay grade.” I will discuss herein however the equally important question of what effect such a “successful” attack will have on the global economy.

It is overwhelmingly likely that the first successful nuclear attack, or possibly the first outside the Middle East/North Africa, will be made against one of about half a dozen major global cities. As such its victims will include a high proportion of well-known people, as well as a disproportionately high number of victims in financial services, the major media and politics. (The distribution between politics, the media and finance will depend on which city is targeted, as will the predominant nationality of the victims – a Paris attack would produce qualitatively as well as nationally different victims to an attack on New York, for example, while an attack on Los Angeles would be different again.)

If it became clear that, absent a major war, only a few cities were overwhelmingly likely to be targeted by nuclear weapons, the main economic incentive would be for decentralization. It would be clear that overwhelming concentrations of financial, media and political power rendered a city especially vulnerable to nuclear attack, and that smaller concentrations in regional cities were much less likely to attract the attention of bombers. Given the capabilities of modern communications, in any case, the need for physical concentration in an activity is much less than it was 30 years ago.

Thus vulnerable institutions would decentralize to provincial cities. In Britain, the overwhelming dominance of London would be ended, with the Bank of England perhaps moving to Manchester while the Stock Exchange, really at this stage a bunch of servers and some senior management, relocated perhaps to Birmingham. In the United States, the Federal Reserve Bank of Kansas City might become the central nexus of the overall Fed system (thus immeasurably improving monetary policy, based on the current incumbents!)

Economically, this would be very healthy indeed, except for the city that had suffered the attack. The concentration of wealth in the half-dozen “world cities” has inflated their real estate costs beyond belief, and made them almost uninhabitable for all but the very rich, and impossible for the young to settle down in unless they inherit a house. The property markets in such places are serious promoters of excessive inequality and blocks against social and career mobility; their decentralization would be a major boon.

The long-term prognostications are more gloomy. Unless some mechanism is found whereby nuclear proliferation can be reversed, nuclear weapons will proliferate further. Eventually some group will acquire one that merely wants to spread terror, without any notable political goal, in which case the restricted list of vulnerable cities will expand to include anywhere with a substantial population. As readers of this column will know, there are a number of ways in which human civilization could decay over the next century or so. While global warming is very unlikely to cause such a decay (because very unlikely to occur sufficiently rapidly to prevent successful; adaptation), global nuclear proliferation most certainly could.

Thus when investors are assessing global risks, as they refuse to do while money is so cheap and plentiful, nuclear proliferation is certainly one they should take very seriously indeed.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)