US Treasury Secretary Scott Bessent will press G20 countries to join in isolating Iran's economy during the group's finance gathering this week.
With the Iran war having passed the six-month mark, US President Donald Trump’s administration is opening a new front in its pressure campaign to force Iran to reopen the Strait of Hormuz.
The latest message from Washington is that countries stuck in the middle must choose a side: Iran or the US. To continue to do business with Iran risks being cut off from the US dollar-based system, Mr Bessent said on Monday when unveiling “Operation Economic Outcast”.
When Mr Bessent touches down in Asheville, North Carolina for the G20 ministerial meeting, he is expected to make that case directly to the group's members.
“I expect that this will come up in every single bilateral meeting that the secretary is hosting with our G20 counterparties over the coming days,” a senior Treasury official said.
“We will continue to have these conversations within the G20 as well as beyond to ensure that there's complete solidarity across the world, in ensuring that the financial crimes and the financial criminal network of Iran is cut off at its knees.”
The pitch cements a bid by Mr Trump to force Iran to the negotiating table through sustained economic pressure rather than by military action, after a framework agreement between the two countries expired.
“What we're seeing is the inverse of what you generally have when we think about strategic escalation,” said Jonathan Panikoff, director of the Scowcroft Middle East Security Initiative at the Atlantic Council’s Middle East Programme.
The campaign is meant to put greater strain on the Iranian economy, where oil exports have dried up, the rial has sunk to new lows against the dollar, and where inflation remains above 80 per cent.
It remains to be determined how successful Mr Bessent will be in his efforts to gather support among a group that includes member countries with strong economic ties to Iran including China, India, Russia and Turkey.
“It's highly unlikely that the G20 as a group is going to endorse this effort,” said Rachel Ziemba, founder of geoanalytical risk consultancy Ziemba Insights.
Efforts to deliver the knockout blow are expected to depend on whether China will join the effort. Beijing remains a major trading partner for Iran, taking in about 90 per cent of the country's crude oil exports.
While the US has imposed sanctions on China's independent “teapot” refineries, which purchase heavily discounted Iranian crude, it has so far resisted singling out major Chinese banks. Such a move could inflame tension and endanger a trade truce before President Xi Jinping's visit to the White House next month.
Instead, last week, the Treasury placed sanctions on Hong Kong and China-based companies linked to illicit Iranian oil transfers and supporting the regime's missile development programme.
Lin Jian, spokesman for China's Foreign Ministry, said Beijing would “take all necessary measures to firmly safeguard its own rights and interests”.
Washington's efforts to sever Tehran’s economy received a recent boost when the UAE announced it was suspending trade and financial transactions with Iran after two missile strikes were directed at the Emirates. Iran has fired hundreds of missiles and drones at the UAE and other Gulf states in retaliation for co-ordinated US-Israeli air strikes on February 28.
Gulf states are pouring billions into building new pipelines to bypass the Strait of Hormuz and deliver their energy supplies to global markets.
Meanwhile, the Iran war is putting increasing strain on the global economy. The effects remain asymmetric across the G20, where economic activity expanded at a 0.8 per cent pace in the first quarter of this year.
Oil prices also remain elevated after the Strait of Hormuz briefly reopened in June. Brent crude futures closed at $89.31 a barrel on Friday, well below their peak of $119 a barrel in March but still more than 20 per cent higher than their prewar levels.
Oil-market volatility is feeding into inflationary fears, forcing central banks in advanced economies this year to halt their easing cycles. Policymakers are now considering whether to raise interest rates. Some, such as the European Central Bank, already have.
Bond markets are taking notice. The 30-year Treasury yield closed at 5.27 per cent on July 31, its highest level since 2007, with the yield on the benchmark 10-year Treasury also recently hitting a near-two-decade high.
“What do some of the Gulf states do when it comes to their own decision making about whether or not they're going to continue to buy US Treasuries and what that's going to look like? And I think it's increasing the risk across the board,” Mr Panikoff said.
The Treasury moved to steady bond markets last week by announcing it will at least double the size of its bond buyback programme for $2 billion to $4 billion, with the change effective from September 9 until November 4.
