DAVOS - Arab League's Moussa warns U.S. against Iran attack

DAVOS, Switzerland, Jan 24 (Reuters) - The threat of a U.S. attack on Iran is very serious and would risk spreading sectarian violence throughout the Middle East, Arab League Secretary General Amr Moussa said on Wednesday.

"It's a 50/50 proposition, and we hope that it won't happen. Attacking Iran would be counterproductive," Moussa told Reuters at the World Economic Forum.

U.S. President George Bush in his State of the Union address on Tuesday spoke of an "escalating danger" from Shi'ite extremists, many taking direction from Iran. Bush called them just as dangerous to the United States as al Qaeda.

Moussa advocated dialogue rather than military action to resolve both Iraq and U.S.-Iranian tensions.

"If there were to be a war, other genies will get out of the bottle. You cannot imagine the impact on the Gulf countries, on the Mediterranean," Moussa said.

His concern over an looming U.S.-Iran confrontation was shared by business leaders and political commentators at an opening session on the Middle East at the Forum, an annual gathering of the world's rich and powerful.

Some said it would risk sectarian divisions spilling over and ripping at the fabric of other nations, such as Lebanon, Bahrain and Saudi Arabia. It would also undermine strong economic growth in many Arab countries in the past three years. This growth is important for stabilising the region, they said.

One panellist said a serious danger would be any crash in the crude oil price, engineered by Saudi Arabia, to squeeze Iran's finances as a way to bring the country to its knees.

As a major crude producer, Iran relies heavily on oil revenues. These have soared since crude prices roughly doubled in the past three years, almost reaching $80 a barrel last summer before retreating to the mid $50s currently.

Moussa also said that Bush's plan to build up troops in Iraq and pursue a military solution will not resolve sectarian clashes that are ripping the country apart, he said.

"Iraq is broken," Moussa said.

He proposed a diplomatic solution, advocating a United Nations' Security Council resolution that Iraq should not be partitioned, an agreement on reconciliation and amendment to its constitution.