This is a rush transcript from "On the Record," December 18, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: This is ominous. Why is Iran in Iraq tonight? Iranian forces seized an oil well in Iraq on a cross-border raid. The oil field is in southeastern Iraq, about 200 miles from Baghdad. Iranian troops reportedly raised an Iranian flag at the well after seizing it.

Joining us live is former U.S. ambassador to the United Nations John Bolton. Ambassador, now what? I mean, what -- first of all, maybe tell us a little bit more about this.

JOHN BOLTON, FORMER U.S. AMBASSADOR TO THE U.N.: Well, this, I think, is actually potentially fairly serious. I don't get excited about everything that happens, but this -- the timing of this and what it represents I think is a real potential signal from Iran that they're flexing their muscles, throwing their weight around.

Let's not forget these two countries were at war with each other for most of the 1980s, a costly, bloody war. For Iran now to even go 500 yards into Iraqi territory to seize an oil well is really quite a provocative act. And the Iraqi reaction so far is to simply say, We want to resolve it by diplomatic means. But I think they've got to be thinking, Is this the first step, are there other provocations coming? I think this is a very, very serious development, combined now with missile launches by Iran, with the continued progress in their nuclear weapons program.

VAN SUSTEREN: Is this a border dispute? I mean, it's about 500 yards over the -- what at least we thought was the border. Is this, like, a border dispute, where Iran is saying, Look, this is ours, or is this a situation where Iran says, basically, Tough, we want it?

BOLTON: Well, I think the border is ambiguous. In part, it's about oil, but in part, I think this is just pushing Iraq when they think they can get away with it. And that's why I suspect in Baghdad tonight, there are a lot of people saying to themselves, You know, I always didn't think those Americans were too bad, because they have to be wondering how this develops once American forces draw down and are pulled out. Is this just the beginning of Iranian belligerence, a return to that tension of the 1980s?

VAN SUSTEREN: And of course, we backed Iraq in the 1980's in the Iraq against Iran war.

BOLTON: Sort of. A little bit.

VAN SUSTEREN: Sort of -- I mean -- I mean, to the extent that -- I mean, at least they -- we looked more favorably -- more favorably -- so now what?

BOLTON: Well, I think the Iranians are watching the Iraqi response. If there's not much of one, and so far there hasn't been, I wouldn't be surprised to see another provocation. You know, there's probably another oil well another half a mile away, and they'll just keep doing it to see how far they can push.

Plus, I think this means other interference inside Iraq. There's already a lot of it going on by Iran, aiding Shia, and disrupting efforts at bringing the Sunnis and the Kurds into government. I think Iran is feeling its oats. I think they see no pushback on their nuclear program, no pushback on Hezbollah in Lebanon, and now they're going to show that they can assert themselves visibly and militarily inside Iraq.

VAN SUSTEREN: So what's in it for Iran?

BOLTON: Well, I think there are several things, first to demonstrate that they are -- they remain a rising power.

VAN SUSTEREN: Is that (INAUDIBLE) to us or was that to Iraq? I mean, is that to the world or to just Iraq?

BOLTON: Well, to Iraq and to the Arab world as a whole because these -- the people they're looking to influence inside Iraq are Shia, like they are, but they're Arab. And there are substantial Shia populations in the Persian Gulf states. So you have a country that wants to dominate inside the Islamic world, that's pressing close to getting nuclear weapons, that's the world's central banker for terrorism. This is a signal to every Arab regime in the Gulf region that has a Shia population that Iran is on the move.

VAN SUSTEREN: What would you recommend that the United States do or not do?

BOLTON: Well, I think in this case, it's something that we ought to do behind the scenes with the Iraqi government to say, You cannot accept this, because once they begin to push here, if they think that they can continue to do this -- it's not just the visible military movement across the border, it's the clandestine activities they're going to carry on to destabilize the government inside Iraq and jeopardize the political progress that's been made in the past couple of years.

VAN SUSTEREN: I thought that the thinking was that Iran was covertly doing that, trying to destabilize Iraq, was in Iraq anyway. I mean, this is sort of -- this is -- this is overt. This one -- and does that make a difference?

BOLTON: Absolutely. You're exactly right. They've got very extensive activities supporting a range of terrorists and Shia extremists inside Iraq now. But go back to the level where they're doing it with military forces across or at least -- across international borders, at least in an ambiguous zone, I think demonstrates a level of confidence in Tehran that we haven't seen in a long time. And I think it's because they see the U.S. under President Obama as a declining power in the region.

VAN SUSTEREN: Well, it seems that, you know, Iran is muscling its -- I mean, for some reason, I'm fixated on the fact that Ahmadinejad was received so well in South America, I mean, you know, the fact that he was in Brazil and in Venezuela. I mean, we're seeing an awful lot of them flexing their muscles.

BOLTON: Well, I think particularly with Venezuela. That's the most troubling of all. This is a country that has natural supplies of uranium, cooperation on nuclear programs, supposedly another peaceful civil nuclear power program in Venezuela. But given Chavez's support for anti-democratic forces all across the region, when you see that kind of cooperation, I think it is worrying. And I think it's very disturbing that Brazil, a functioning democracy, a rising economic power, is getting that close to Iran, as well.

VAN SUSTEREN: Does Iran want Iraq's oil?

BOLTON: Well, I think, ultimately...

VAN SUSTEREN: Or is it to be -- or is it just -- or the power?

BOLTON: Well, I think it's both economic and political power. I think they want hegemony within the Islamic world, within the -- within in the Middle East, and I think a major element of that hegemony is, basically, control over the oil on the southern shore of the Persian Gulf.

VAN SUSTEREN: Well, just as -- no sooner did we have our discussion about Pakistan that we move over a little bit, and I guess we'll see what's happening on Monday. Ambassador Bolton, nice to see you, sir.

BOLTON: Good to be here.

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