Politics

August 25: The United States is expanding economic pressure on Iran as Washington increasingly uses financial and commercial restrictions alongside military pressure. The latest sanctions campaign targets Iran-linked entities, individuals and vessels while warning businesses and countries continuing commercial ties with Tehran of potential secondary sanctions.

The strategy reflects a broader use of the US financial system as a tool of foreign policy. Rather than targeting only Iranian companies, secondary sanctions can affect third-country businesses that maintain commercial relationships with Iran. Companies dependent on dollar transactions, international banking, insurance or access to Western markets may therefore face a choice between maintaining Iranian business and limiting their exposure to US restrictions.

This gives Washington’s sanctions policy considerable reach. The objective is to increase the economic cost of dealing with Iran and restrict the networks through which Tehran conducts international trade.

However, the effectiveness of the strategy will depend heavily on how major trading partners respond.

China is a key test

China is particularly important because it remains a major buyer of Iranian crude. According to 2025 data cited by Reuters in the source material, Chinese buyers accounted for more than 80% of Iran’s shipped oil, with independent refineries playing a significant role.

Washington has previously sanctioned smaller Chinese and Hong Kong entities linked to Iranian oil transactions. Expanding sanctions to major Chinese financial institutions would carry substantially greater consequences because of the importance of US-China economic relations and the potential impact on global trade and financial markets.

This creates a strategic calculation for Washington. Stronger enforcement could increase pressure on Iran, but excessive pressure on Chinese institutions could widen the dispute into a broader US-China confrontation.

India faces a separate strategic calculation

India’s position is different. New Delhi has deepening relations with Washington while also maintaining important economic and strategic ties with Russia, Iran and the Gulf.

Iran’s significance for India extends beyond energy and trade. The Chabahar port provides India with an important potential connectivity route toward Afghanistan and Central Asia that bypasses Pakistan.

India can diversify its energy supplies more readily than it can replace the geographic advantages offered by Iran. Any expansion of US secondary sanctions could therefore require New Delhi to balance its relationship with Washington against longer-term connectivity and regional strategic interests.

Gulf and Iraq face economic pressures

The impact of sanctions can also extend to countries neighbouring Iran.

The UAE has historically served as an important commercial gateway for Iranian trade, while Iraq has significant economic links with Tehran. Iraq’s dependence on Iranian energy makes the situation particularly sensitive. According to the source material, Iraq pays Iran billions of dollars annually for natural gas.

Washington’s ability to influence access to the dollar-based financial system can therefore create difficult choices for institutions and governments whose economies remain connected to Iran.

This illustrates one of the central challenges of sanctions policy: economic networks rarely stop at national borders.

Energy markets add another risk

The Strait of Hormuz remains a critical variable for global energy markets. Any major disruption to shipping through the waterway could reduce available oil supplies and push international crude prices higher.

That creates a potential contradiction for Washington. Efforts to reduce Iran’s oil revenues could simultaneously contribute to higher global oil prices if Iranian exports or regional shipping are significantly disrupted.

Higher crude prices would affect major importers including India, China and European economies, potentially increasing inflation and transportation costs well beyond the Middle East.

Sanctions can also encourage financial diversification

The continued use of financial sanctions could encourage countries and companies to develop alternative channels for international trade.

These may include greater use of local currencies, alternative payment systems and non-Western financial institutions. Such developments do not indicate an immediate threat to the dollar’s global dominance, but they could contribute to gradual financial fragmentation.

The long-term consequence could be an international financial system in which the dollar remains central while countries simultaneously seek greater protection from sanctions-related risks.

Economic pressure does not guarantee political concessions

The ultimate effectiveness of the strategy will depend on whether economic pressure produces the political outcome Washington seeks.

Sanctions can reduce government revenues, restrict investment, increase transaction costs and weaken economic activity. However, economic hardship does not automatically translate into political concessions.

Iran has operated under extensive US sanctions for decades and has developed networks and mechanisms designed to reduce their impact.

The central question is therefore whether the latest campaign can create sufficient economic pressure to bring Tehran back to negotiations without generating wider geopolitical and economic consequences.

For Washington, the immediate objective remains Iran. But the broader implications extend to the international financial system, global energy markets and relationships with China, India and other major trading partners.

The outcome will depend on the strength of enforcement, the response of major buyers of Iranian commodities, the availability of alternative financial channels and developments in regional energy markets.

The sanctions campaign is therefore not only a test of pressure on Iran. It is also a test of how much influence the United States can continue to exercise through the global financial system without accelerating efforts by other countries to reduce their exposure to it.