Operation Economic Outcast: Will New Sanctions on Iran Work?

Image generated by AI using ChatGPT

A military operation that was supposed to be resolved in six weeks has predictably become a global event that has now entered its sixth month of fighting. The ripple effects are incalculable as energy prices have fluctuated wildly due to destruction of energy infrastructure in the Middle East and the foreseeable closure of the Strait of Hormuz when the crisis began. Despite a recent interview with Axios where Trump claims "That sucker is open. The Iranian response is very mild. They don't want us to go back at them. That's the whole ball game. The rest doesn't matter," many experts believe that the risk for tankers to move through the chokepoint is still highly precarious. At this point of the conflict, the MOU that was meant to change the relationship between Iran and the United States has become dormant and the economic relief that Iran would have seen has disappeared with the U.S. Treasury Secretary Scott Bessent’s announcement of Operation Economic Outcast.

Before delving into the recent announcement, it is important to understand that economic sanctions require a significant amount of time for their effects to bear fruit. In the last ten years, there has been significant upheaval when it comes to Iran’s economic relations with western countries, but Iran has been subjected to international sanctions for decades. In 2015, a multinational agreement called the Joint Comprehensive Plan of Action (JCPOA) was meant to bring some relief for Iranians. Under the terms of this agreement, Iran agreed to “to dismantle much of its nuclear program and open its facilities to more extensive international inspections in exchange for billions of dollars’ worth of sanctions relief.” Under the Trump Administration in 2018, the U.S. decided that it was better to return to sanctioning Iran into submission. The Department of the Treasury’s Office of Foreign Assets Control (OFAC) was tasked to 

“reimpose sanctions affecting the government of Iran’s ability to purchase or acquire U.S. dollars; trade in gold, precious metals, graphite, raw or semi-finished metals, including aluminum and steel, coal, and software; trade in or purchase of the rial; maintenance of accounts outside of Iran denominated in rial; trade in Iran’s sovereign debt; and trade in Iran’s automotive sector.” 

Several months after designating these sanctions, OFAC was then appointed to 

“reimpose sanctions relating to ports, shipping, shipbuilding; petroleum- and petrochemical-related transactions; transactions between foreign financial institutions and the Central Bank of Iran (CBI) or other Iranian financial institutions; certain specialized financial messaging services; underwriting services, insurance or reinsurance; and Iran’s energy sector.”

The goal here is to isolate Iran from conducting any economic transactions outside of its borders. In a globalised world, that leaves few business options when the majority of the world uses the U.S. dollar to facilitate the transactions listed above. There are some nation states that are willing to work around the U.S.-imposed sanctions as they are in similar circumstances. 

In searching for economic allies, Iran needed to strengthen ties with countries that are willing to challenge the United States. Russia and China are keen to keep good relations with Iran as they recognise the implications of being isolated from the western financial system. Russia mainly sees Iran as a partner in defiance of U.S. hegemony but China is mostly interested in keeping good relations for cheap energy supplies. While not overtly bringing themselves into the conflict, the two countries are suspected to be keeping the Iranian economy going through the shadow network of tankers and procurement of sensitive technology. This is where “Operation Economic Outcast” becomes an important factor. In the announcement of this campaign, Secretary Bessent stated that “an unprecedented campaign against the Islamic Republic of Iran and its enablers… We are launching an economic onslaught against Iran’s financial connections around the globe.” Secondary sanctions on countries who conduct business and trade are the ones who are targeted this time around, which was highlighted in the editorial that Bessent wrote for the Financial Times: “The regime’s final refuge now lies in the self-deception of fearful nations that still believe accommodating aggression can secure a durable peace.” A few pieces of information stood out that were missing from the announcement. First, there was a lack of details explaining how this will happen, but this administration is known to be light on details. It is unclear how and where these sanctions will be implemented. Second, countries that do conduct business with Iran were not mentioned, but the Economist pointed out the following: 

“China had been buying Iranian oil at $7-12 below the market price for a barrel, sidestepping the existing American embargo. Last year it scooped up about 90% of Iranian crude exports, which, America reckons, provided the regime with nearly half its budget. The United Arab Emirates (UAE) sells more to Iran than any other country. It provided some 30% of Iran’s total imports in 2024. It also hosts shadow banks that the regime uses to evade sanctions.”

Lastly, what is going to happen if the countries do not comply with secondary sanctions? Is the United States going to take economic action on China? This is an awkward conversation that the U.S. will have when Chinese President Xi Jinping in the next couple of weeks. There may also be smaller countries watching China’s response to see if they will follow China’s example. This is the kind of geopolitical influence that is shifting how the world sees the U.S. and its ability to shape geoeconomic decisions. With so much grey area that is devastating the world economy, it may change how other countries view their reliance on the United States to maintain their economies.