This is a rush transcript from "Your World," January 12, 2012. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST OF "YOUR WORLD": Things are escalating. As Phil [Flynn] pointed out here.

To Connecticut Senator Joe Lieberman on what the U.S. should be doing.

What do you think, Senator?

SEN. JOSEPH LIEBERMAN, I-CONN.: Well, I think we should be doing exactly what we are doing.

The fact is, the president has said it is unacceptable for Iran to develop a nuclear weapon. Most of the countries of the world, leaders of the world say that. It would change the balance of power in the world. It would ignite a nuclear arms race in the Middle East.

And it would back up all the terrorists that Iran now puts against us and our allies. So, we have got to continue to turn the economic screws on Iran. The Congress adopted overwhelmingly and the president signed at the end of December legislation that would enable us to basically say to countries of the world, you have a choice to make: If you are going to deal with the Central Bank of Iran on oil purchases and other purchases, you can't do business in the United States of America.

I think we are shaking up that fanatical regime in Iran, and I hope that we shake them up enough to stop their nuclear weapons program.

CAVUTO: What has surprised me, Senator, is that even those countries that directly get their oil from Iran -- we do not, even though, as you have pointed out in the past, Iran can influence those prices.

LIEBERMAN: Right.

CAVUTO: Japan is willing to accept less oil from Iran. Even oil-hungry nations in Europe, the recipients of that oil that comes through the Strait of Hormuz, are willing to do the same.

Now, they are saying that. It is like me with a diet commitment. The proof is in the pudding if you do it. But what is that telling you, that - - is the world is getting anxious about this, belatedly and finally, or are they just buying time?

LIEBERMAN: No, I think the rest of the world understands that, for everybody, no matter where you are, if Iran has a nuclear weapon, they will hold it as a sword over everyone else's head and ultimately it will destabilize the Middle East. And that will cause oil prices to run way, way up in the years ahead.

So I think also our allies in places like Japan and South Korea understand how important this is to us and our sense of security. And they are joining. And that has got to even rattle the fanatics in Tehran more than I think they already are worried economically. So it is a very good sign.

If most of the world holds together, we have a real chance to bring this to a peaceful conclusion. And that would, of course, not only be in the interest of the rest of the world. It would be in the interest of the people of Iran, most of whom are not as fanatical as the people in power in Tehran right now.

CAVUTO: But, Senator, I know you are a foreign policy expert, but, as you know, I play one on TV.

(CROSSTALK)

LIEBERMAN: Yes. And, incidentally, you have convinced me.

CAVUTO: Yes. See, there you go.

But isn't China the real wild card here, though, sir? China of course would be directly affected by a Strait of Hormuz disruption. Oil prices would skyrocket there as well. You would think it would be in the Chinese interest to say, don't even go there, but oddly quiet. What do you make of that?

LIEBERMAN: Yes, they are quiet. I would say there's two things going on.

One, the Chinese are actually having a dispute over oil prices with Iran. But the second thing is, I hope and believe that the Chinese are being increasingly given assurances that, if they can't buy the oil that they need from Iran, other suppliers will take care their needs, including, obviously, most significantly, Saudi Arabia, which can produce more daily than it is producing now.

I just came back from a trip last week to the Middle East and I visited, among other countries, Libya and Iraq. And those are two countries that are every day increasing their production of oil on the world markets. Ultimately, together, they are going to produce a lot more than Iran does now.

CAVUTO: Very good point.

Real quickly, political, if you don't mind...

LIEBERMAN: OK.

CAVUTO: ... growing talk of pressure for the president to do something dramatic ahead of the election, because Mitt Romney is gaining steam, assuming he is the nominee, maybe dump his vice president, put Hillary Clinton in there.

What do you think of that?

LIEBERMAN: I know that is a game that happens every four years.

I remember it happened -- they were talking about it with President Bush and Dick Cheney.

CAVUTO: Right.

LIEBERMAN: It's not going to happen. Joe Biden has really served this president with great effect and loyalty and...

CAVUTO: Really?

LIEBERMAN: Yeah.

(CROSSTALK)

CAVUTO: Do you really believe that?

LIEBERMAN: No, he has been very loyal. He has done everything they have asked him to do.

(CROSSTALK)

CAVUTO: Well, he has been very loyal, but has he helped the president?

LIEBERMAN: Yes, I think he has. And I think the president appreciates that.

And I just don't think you can -- you can eject a sitting vice president who is well-liked by a lot of people.

CAVUTO: FDR went through vice presidents like tissue paper.

LIEBERMAN: Yeah. Well, this -- we are not there anymore.

CAVUTO: OK. We are not there anymore.

(LAUGHTER)

CAVUTO: Senator, thank you very much. Happy new year.

LIEBERMAN: Take care, Neil. You, too.

CAVUTO: Always good seeing you.

LIEBERMAN: Happy new year. Thank you.

CAVUTO: Joe Lieberman.

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