The U.S.–Iran conflict may be moving toward some form of negotiation, but the situation has taken another sharp turn. On Wednesday, August 19, Trump warned that Iran had missed its opportunity to make a deal and said the United States was preparing what he described as the most crushing economic operation against Iran. For now, this suggests that Washington may be moving away from further military action and toward intensifying economic pressure. Trump also warned that countries continuing to do business with Iran could face serious consequences.
Iran, however, has dismissed these threats. Iranian media has described Trump’s claims as delusional and argued that the United States has repeatedly predicted Iran’s economic collapse in the past without succeeding in bringing down the Iranian government. Despite the aggressive rhetoric from both sides, the United States and Iran are not officially sitting at the negotiating table. Trump has also sent mixed signals about whether any communication is taking place. At one point, he said there were no talks underway and none scheduled, but a day earlier he said his administration had established a backchannel with Iran’s Islamic Revolutionary Guard Corps. This raises the possibility that both sides may still be maintaining informal communication even while publicly insisting that diplomacy has stalled.
The uncertainty is spreading across the region, particularly around the Strait of Hormuz, one of the world’s most important oil transportation routes. Trump has claimed that the U.S. naval blockade has been highly effective, while several regional countries are becoming increasingly involved in the crisis. The UAE, one of Iran’s major commercial partners, has announced a suspension of trade after accusing Iran of missile-related threats. Oman, which has traditionally played the role of a mediator between Iran and the West, has also come under pressure from Washington, with Trump warning it against interfering with U.S. operations in the Strait of Hormuz. Meanwhile, the Houthis in Yemen have said they targeted Saudi oil tankers as part of their own maritime campaign.
As a result, what began primarily as a confrontation between the United States and Iran is becoming a much wider regional problem involving Israel, the UAE, Oman, Saudi Arabia, Yemen and several important shipping routes. Oil markets are closely watching these developments because instability in the Strait of Hormuz can have global consequences. A major disruption in the area could push oil prices higher and eventually affect petrol prices in countries such as India as well as inflation in Europe and the United States.
The bigger question is how much more economic pressure the United States can realistically impose on Iran. Iran is already one of the most heavily sanctioned countries in the world. Thousands of Iranian individuals and entities have been sanctioned, while its oil industry, banks, companies and shipping networks have faced restrictions for years. This means the United States now has to consider more aggressive forms of economic pressure if it wants sanctions to have a significantly greater impact.
One of the strongest tools available to Washington is secondary sanctions. Instead of only targeting Iranian companies and institutions, the United States can also punish foreign companies, banks, oil traders and shipping firms that continue doing business with Iran. The basic message is simple: companies may have to choose between maintaining access to Iran or maintaining access to the American financial system. Because the U.S. financial system remains extremely important to international trade, this can create significant pressure on companies and governments around the world.
Another option is to tighten restrictions on Iran’s oil exports by targeting tankers, buyers, intermediaries and financial networks involved in moving Iranian oil and money. However, Iran has spent years developing methods to work around sanctions. Oil can be transferred between ships at sea, vessel identities can be changed or obscured, ownership structures can be rearranged, and intermediaries can be replaced when they are sanctioned. Large networks of vessels operating in regulatory gray areas have made it increasingly difficult to completely shut down Iran’s oil exports. When one route is blocked, Iran often finds another.
The United States could also impose tougher aviation and trade restrictions, although more extreme measures, such as trying to restrict Iran’s land trade, would be much more difficult. Iran shares borders with Pakistan, Turkey, Iraq and several other countries, meaning any serious attempt to isolate Iran through land routes would require cooperation from its neighbors. That cooperation would likely come at a political or economic cost. Pakistan could ask for financial or strategic concessions, while Turkey could use issues such as defense cooperation or access to U.S. military technology as bargaining leverage.
China, however, remains the most important factor in the effectiveness of any U.S. economic campaign against Iran. China is one of Iran’s largest economic lifelines and a major buyer of Iranian oil. Even if Western countries sanction Iranian banks, shipping companies and oil exporters, completely isolating Iran becomes much harder as long as Chinese companies continue purchasing Iranian oil and maintaining economic ties with Tehran.
This creates a difficult decision for the Trump administration. The United States could impose harsher sanctions on Chinese companies, banks and oil traders dealing with Iran, but doing so could create consequences far beyond the U.S.–Iran conflict. It could affect global supply chains, international trade, inflation and relations between Washington and Beijing. A major confrontation with Chinese companies over Iranian oil could therefore create economic costs for the United States as well.
Iran’s confidence in responding to U.S. threats partly comes from this reality. Iranian leaders know that although Western sanctions have significantly damaged their economy, Iran is not completely isolated from the international system. China and other countries continue to provide economic opportunities that allow Tehran to survive despite American pressure.
Trump is therefore promising an unprecedented economic campaign against Iran, but the remaining options are increasingly complicated. Iran has already lived under sanctions for decades, and the measures that remain available to Washington could create wider geopolitical consequences. Increasing pressure on Iran could also create tensions with countries such as the UAE, Oman, Saudi Arabia, Pakistan, Turkey and especially China.
For now, diplomacy appears to be stalled, while another major military escalation does not appear to be Trump’s preferred option. The United States instead seems to be betting that stronger economic pressure can force Iran back to negotiations. However, sanctions do not always produce political surrender. They can weaken economies, restrict trade and create enormous financial pressure, but governments can also respond by developing alternative trade networks and building closer relationships with countries willing to ignore or challenge U.S. sanctions.
The next stage of the U.S.–Iran conflict may therefore be driven less by direct military action and more by economic measures. It could involve freezing bank accounts, sanctioning oil tankers, targeting Chinese companies or forcing other countries to choose between access to the American economy and continued trade with Iran. How those countries respond could ultimately determine whether the crisis moves toward negotiations or expands into a much larger regional confrontation.
Power and Pelf 