It's great that David Frum recognizes that the true threat presented by Iranian nuclear weapons isn't an attack on Israel. Iran hasn't yet indicated an impulse for national suicide, and it's unlikely to do so in the future. I also think, however, that this threat is overblown:
The short answer: The world oil market.
In 1986, the US waged an undeclared proxy naval war to deter Iran from attacking oil tankers in the Persian Gulf. The US won of course and Iran lacked any effective riposte. This US operation played a decisive role in compelling Iran to accept peace in the Iran-Iraq war.
And it may have prompted Iranian leaders to decide: We need an effective counter-deterrent against the US. The US would have been much more reluctant to protect Kuwaiti tankers against a nuclear Iran. An Iranian nuclear bomb would act as a "Keep Out" sign to frighten the US away from a now truly Persian Gulf.
How precisely can Iran use nuclear weapons in order to force a positive outcome in a scenario like this? Nuclear weapons can produce lower level instability by ensuring grand strategic stability; if Iran knows that general war isn't on the table, it might be more inclined to muck around in smaller disputes. But this only goes so far, and in particular doesn't apply to the Iran-US case, because US superiority is so overwhelming that Iran could not be confidant of having its nuclear force survive a conventional first strike.
Stability-instability might be more of a problem if the Iranians held a military advantage at any level, but they don't; the US has full spectrum military supremacy.
When Frum and other Iran hawks talk about the strategic impact of Iranian nuclearization, they almost invariably overstate the problem. Nukes don't necessarily buy a lot of influence, mostly because threats of their use are not credible. The United States has lots of nukes, and we still have trouble making Iran do what we want. Israel has plenty of nukes, too, and they didn't prevent conventional wars in 1973, 1982, and 2006. I don't see how Iran, with fewer and less secure nukes, can make the US do what it wants. They real threat of Iranian nuclear weapons isn't an intentional launch, but rather the loss or theft of nuclear material/device, accidents, and the potential instability of the Iranian state.
-- Robert Farley