When President Donald Trump got tired of trading offers with Iran at the beginning of the year, he decided to ditch talks in pursuit of a full-blown war. When the war produced consequences that were entirely predictable and predicted — Iran shutting down the Strait of Hormuz, becoming more belligerent with its Gulf Arab neighbors and rallying around an even more hard-line leadership — he switched to diplomacy again, hoping the June memorandum of understanding would nip escalation in the bud before it got any worse. And when that agreement fell apart weeks later, Trump changed tack and went back to airstrikes.
Now, seemingly out of options, the Trump administration appears ready to take a full swing. In his first term, Trump relied on maximum-pressure sanctions to compel the Iranians to give up their nuclear aspirations. Years later, that same maximum-pressure strategy is again at the forefront.
On Monday, Treasury Secretary Scott Bessent unrolled “Operation Economic Outcast,” a new initiative meant to cut off all revenue streams to Tehran and squeeze the regime into submission. The message: Any country that dallies with Iran in any capacity is at risk of being shut out of the U.S. financial system. “We are level-setting with every country to tell them our expectations,” Bessent said during the news conference. “We know who they are. They know who they are.”
The Iranians, of course, can’t assume the Trump administration is bluffing. Tehran warned Washington’s Arab partners to refrain from participating in the scheme, blacklisted dozens of ships from transiting the strait and disabled yet another tanker near the coast of Oman hours after Bessent’s speech.
Trump, however, should think long and hard before pulling the trigger on a full-bore economic war. Such a course of action not only is destined to instigate even more Iranian retaliation — up to and including a return of missile and drone attacks against the Gulf states — but also risks soiling other key components of his foreign policy. This caution is all the more important as Americans increasingly chafe at higher costs for everything from groceries to gasoline, and as the global economy continues to suffer hemorrhages due to a war of Trump’s creation.
The mechanics of strangling the Iranian economy aren’t the problem. The U.S. Treasury Department has plenty of experience enforcing U.S. secondary sanctions around the world. Imposing export bans, seizing accounts and prohibiting a country from using U.S. dollars have long been favorite tools for the United States to penalize adversaries for any number of perceived offenses.
The issue, rather, is prioritization. There’s no doubt that Trump is intent on coercing Iran into meeting his policy demands: bringing shipping traffic through the strait back to normal levels and handing over its stockpile of enriched uranium.
If Trump is genuinely serious about driving Iran’s economy into a ditch, he will have to go after China, which before the war purchased approximately 90% of Iran’s crude, netting the Iranian government billions of dollars it wouldn’t otherwise have had due to U.S. sanctions on its oil industry.
But Iran isn’t the be-all and end-all. Trump also has other foreign policy goals that go above and beyond the war, including maintaining a workable strategic relationship with China at a time of economic upheaval and improving ties with India, the South Asian giant that some officials inside the U.S. national security establishment view as a critical bulwark against Chinese power. Unfortunately, with the advent of Trump’s self-proclaimed economic D-Day, all these priorities are now set to clash.
The relationship with China is arguably the most significant part of this discussion. There was a time not so long ago when U.S.-China relations were in a tailspin, with both slapping tariffs and export controls on each other in a mutually escalating trade war that practically halted the passage of goods between the world’s two largest economies. (At one point, Trump’s tariffs on China reached 145%.) China’s decision last October to restrict the export of rare earth minerals and processing equipment, taken in response to Washington’s technology controls over advanced chips to Beijing, eventually forced Trump to back down and negotiate a temporary truce. That deal required China to suspend the new controls over rare earths in exchange for Trump pausing the addition of additional Chinese firms to a U.S. blacklist. The U.S. also agreed to reduce its tariff rates on Chinese goods if Beijing took stronger action within its borders on chemicals used to make fentanyl, a drug that kills tens of thousands of Americans every year. The truce has been useful for both countries and was extended when Trump and President Xi Jinping met in May.
Why is this important? Because if Trump is genuinely serious about driving Iran’s economy into a ditch, he will have to go after China, which before the war purchased approximately 90% of Iran’s crude, netting the Iranian government billions of dollars it wouldn’t otherwise have had due to U.S. sanctions on its oil industry. China is Tehran’s top trading partner and a critical diplomatic supporter to this day. Granting Chinese oil importers and financial institutions carve-outs to the new U.S. economic pressure scheme would gut the entire enterprise before the ink was dry.
Yet treating Chinese banks, particularly the larger ones, as ripe targets for U.S. sanctions would mean potentially upending the very trade truce Trump would like to sustain leading up to his meeting with Xi next month. Although Beijing could easily look for alternatives to Iranian oil, it’s highly unlikely Xi would swallow his pride if Chinese entities were besieged. Chinese retaliation is almost a sure thing. “China will take all necessary measures to firmly safeguard its own rights and interests,” the Chinese Foreign Ministry stated a day after Bessent’s remarks.
For the United States, the risks of hitting India economically are lower than they are with China, but they can’t be brushed under the rug.
While India’s overall trade with Iran has decreased by about 90% since Trump’s first term, New Delhi still exports rice and other agricultural products to the Iranians. Presumably, preventing Iran from importing is just as vital to Trump’s economic D-Day strategy as stopping Iranian exports like oil and natural gas. If so, India would find itself under the thumb of U.S. economic pressure yet again, only months after Trump and Prime Minister Narendra Modi sought to reset the relationship; an interim trade accord was designed to increase momentum toward a comprehensive agreement later in the year. How this scenario aids the Pentagon’s efforts to enlist India in its bid to balance China’s influence in Asia is difficult to see.
Nearly six months after the first U.S. bombs were dropped, Trump is now so laser-focused on the Iran war that he’s apparently willing to upend his entire foreign policy and jeopardize his other goals along the way.
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