President Donald Trump's administration is signalling the US is ready to push Iran’s economy to its limits, cementing a pivot to impose financial pressure and a naval blockade to force Tehran to reopen the Strait of Hormuz.
Mr Trump told Fox News on Friday the US is prepared to hit Iran hard economically to break the deadlock in the six-month conflict, following a similar line of messaging from top officials in his cabinet.
Treasury Secretary Scott Bessent told Newsmax on Thursday the US was preparing to announce new measures amounting to a "combination of economic isolation like the world has never seen before". US energy chief Chris Wright said Iran’s strategy would ultimately lead to the collapse of its government as its economy was “strangled”.
Mr Wright told Fox News that Iran had “one card” left in the Strait of Hormuz “and it’s shrinking in size”. He also said the ability of the US to escort products through the waterway was growing.
The renewed emphasis on economic pain marks a US shift towards squeezing Tehran financially after nearly six months of war, rather than immediately escalating its military campaign.
Limited options
However, the remaining levers at Mr Trump's disposal each carry a set of risks.
Iran remains the second-most sanctioned country on the planet. More than 6,000 sanctions have been issued against its financial, energy and petrochemical, aviation and cryptocurrency sectors. This is in addition to a secondary sanctions framework that the US has used to discourage third countries from engaging in trade with Tehran.
Leading economic indicators in Iran are flashing red: figures from the central bank showed inflation accelerated at a 53.9 per cent pace from April 20 to May 20, compared to 36.8 per cent over the same time last year. The International Monetary Fund expects a contraction of 6 per cent this year, and the rial recently sank to an all-time low against the dollar.
Iran, which has weathered numerous sanctions since 1979, remains defiant.
“Iran has demonstrated over decades that it will not be strangled by these exhausted refrains,” Foreign Ministry spokesman Esmaeil Baghaei wrote on X on Monday.
As negotiations on a durable ceasefire remain stalled, and with the Iranian leadership facing an existential crisis, the question is which economic lever Mr Trump pulls, and at what cost.
“The economic levers that it [the US] has got left that are viable – there's not a lot,” said Ryan Bohl, a senior Middle East and North Africa analyst at the Rane Network.
Due to its isolation from the global financial network, Iran relies on a shadow banking system to evade sanctions. This network consists of Iran-based exchange houses and foreign companies to sell oil and other products abroad and launder the money, which it uses to support its proxy groups and fund its military and weapons programmes.
The US Treasury clamped down on this system last week, taking aim at Iran's crypto exchanges and clandestine currency networks. The latter was the Treasury's eighth action this year targeting Iran's shadow banking structure.
“I think we could see more of that. As Iran finds new alternate channels, we could see US sanctions in that way,” said Rachel Ziemba, founder of geopolitical risk firm Ziemba Insights.
Considering the regime's ability to circumvent sanctions, Ms Ziemba questioned whether new designations would have a meaningful effect on Iran's economy.
“They'll probably be more about closing loopholes rather than additional components,” she said.
There are additional measures the US can use under Section 311 of the Patriot Act, which authorises the Treasury Secretary to designate foreign financial jurisdictions, citing money-laundering concerns.
The Lindsey Graham Act, passed by the Senate last week, would give Mr Trump another tool by imposing secondary sanctions and tariffs on countries that continue to buy oil from Iran and Russia.
“The issue is it would probably cause energy prices to go up, which Trump doesn't want to see,” Mr Bohl said.
Blockade brings new squeeze
The biggest change in US policy came with the implementation of the naval blockade aimed at preventing Iran from exporting its oil.
By pairing military enforcement with leverage over financial institutions, the blockade introduced a new, physical dimension to US sanctions architecture.
Iran’s oil exports quickly dried up. Its seaborne crude exports fell from 2.7 million bpd in February, when Tehran was in a rush to get its crude to markets, to 502,000 bpd in May after the US first imposed a maritime blockade on Iranian ports, according to data from energy intelligence firm Kpler. Iranian crude exports averaged 1.18 million bpd in July, well below the 2017 peak of roughly 2.5 million bpd reached under the Iran nuclear deal.
The Treasury Department said average loadings of Iranian oil have declined from prewar levels of 1.8 million bpd to less than 500,000 over the past month. The blockade has cost Iran $435 million in economic activity each day, according to research from the Foundation for Defence of Democracies.
“That’s been a game-changer in terms of further economic effect,” Ms Ziemba said.
It also cut off a key purchaser in China, which takes in about 90 per cent of Iran's oil exports. China is one of the few countries willing to take on the sanctions risk and bypass the measures through so-called teapot refineries.
TankerTrackers said it estimated Iran exported more than 50 million barrels of crude oil during the brief window in which the blockade was lifted.
“Because so much of it was off transponders, it's hard to tell where all of it went, but it flooded out to India, to China, to countries that basically had a backlog and were taking that opportunity to get as cheap of oil as they could,” Mr Bohl said.
Friends and foes
Secondary sanctions and further measures could also alienate key partners, while inflaming tension with China, the US's chief economic rival.
“It's absolutely intertwined with the broader bilateral relationship between the US and China,” said Alex Zerden, a former Treasury official and founder of Capitol Peak Strategies.
Mr Trump appeared to recognise the balance he needs to strike in his approach towards China. He warned Russia and China last month that supporting Iran “would be very bad for them”, before acknowledging that while the two countries may have provided support to Iran, the impact was minimal.
The US President is due to host Chinese President Xi Jinping next month in a high-stakes summit, with tensions already simmering over trade and Beijing’s ties with Tehran.
The meeting will offer the leaders an opportunity to extend a trade truce agreed last year, even as Washington’s pressure on Iran risks adding another point of friction to the relationship.
“The question is to the degree and how provocative or escalatory the US might be in the lead-up to the next summit or subsequent summits,” Mr Zerden said.
