How the US could squeeze Iran with economic isolation – and the risks involved

Treasury Secretary Scott Bessent says the US is getting ready to squeeze Iran with unprecedented economic pressure, a claim critics greeted with scepticism given the country is already subject to a naval blockade and thousands of sanctions. While the Trump administration has not said what it is planning to do, there are still pressure points that Bessent’s Treasury Department could hit. The main challenge is that targeting the remaining options risks blowback on the US economy. “Unless the president decides to prioritise addressing the Iran threat over all other issues, and namely China, it’s unlikely any action they take is going to materially change Iran’s calculus,” Bloomberg Economics analyst Chris Kennedy said. Below is a look at a few options. They are far from exhaustive and it remains unclear which, if any, the administration will pursue. Officials could combine several of these measures or opt for a different approach altogether. China buys more than 90 per cent of Iran’s oil exports. Penalties on entities that facilitate these purchases would directly reduce Tehran’s oil revenues. Washington has already sanctioned some Chinese teapot refineries and firms since the US started the war against Iran in late February. But so far, the US has stopped short of targeting the major Chinese banks that finance the trade. The risk is that hitting Chinese companies or financial institutions risks worsening tensions with Beijing ahead of a planned meeting between US President Donald Trump and Chinese leader Xi Jinping. There is also an economic trade-off, since curtailing Iranian barrels would remove discounted crude from the global market and could lift already elevated oil prices. In May, China ordered domestic companies not to comply with US sanctions on five refiners, while its biggest banks were caught between Beijing’s directive and the risk of losing access to the US financial system. There are a number of exchange houses in countries such as the United Arab Emirates that help Iran repatriate funds. Once Iran makes its oil sales, it still needs exchanges and intermediaries to convert payments – often received in Chinese yuan – into currencies Tehran can actually use. Treasury has already demonstrated that it sees this as a vulnerability, sanctioning some Iranian exchange houses, as part of Bessent’s “Economic Fury” campaign, for allegedly helping to launder billions of dollars in foreign currency. Such a move would keep Iran from accessing many of its funds, but Iran has spent years building alternative channels to move money outside the formal financial system. Cutting off individual exchange houses is likely to push transactions towards new intermediaries, currencies or digital assets, rather than stopping them altogether. The US could threaten secondary sanctions on any entity doing even limited business with Iran, similar to the approach Trump took towards North Korea in 2017. That could force foreign companies and banks to choose between doing business with Iran and retaining access to the US financial system, potentially extending Washington’s leverage well beyond entities directly involved in Tehran’s oil trade. Such a move could put additional pressure on Russia and China, but also on companies and financial institutions in countries around Iran’s borders – including US partners like Turkey – that maintain significant commercial ties with Tehran. Trump has already floated a version of this approach, threatening 25 per cent tariffs on countries conducting business with Iran. So far he has not followed through. The US could go beyond freezing Iranian government assets and try to confiscate assets already under US jurisdiction, drawing on a step the Bush administration took after the 2003 invasion of Iraq. However, the pool of Iranian state assets actually within US reach may be limited. And confiscating them would be legally and diplomatically more complicated than simply freezing them. Much of Iran’s overseas wealth is held in third countries and Washington would need cooperation from foreign governments to seize it. While a US naval blockade has reduced traffic to Iran’s ports, the US may consider a more comprehensive effort. That could target not just individual vessels, but also the companies, terminals and other infrastructure that enables those shipments. The US has already sanctioned vessels and some entities involved in this so-called shadow fleet.

How the US could squeeze Iran with economic isolation – and the risks involved

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}The Treasury Department is exploring targeting Chinese banks, shadow fleets and exchange houses, but secondary sanctions risk economic blowback

The Treasury Department is exploring targeting Chinese banks, shadow fleets and exchange houses, but secondary sanctions risk economic blowback