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Welcome to The Geopolity’s What We’re Watching (3W), our daily look at the interconnected worlds of Geopolitics, Economics and Energy. Curated from the world’s leading sources of information, our analysis and commentary is designed to help you make sense of the events driving the major developments in the world.
A little over a week ago, at 3W we argued that the US is clutching at straws to defeat Iran. We based our assessment on the facts that Iran has established decisive control over the Strait of Hormuz, without the US military being able to do much about it, due to weapons shortages and a growing issue with moral among the ranks. In addition, we said, the US sanctions weapon has run out of ammunition, leaving it without leverage in any negotiations.
Over the weekend, US treasury secretary Bessent announced that the US would do something about this. Something BIG! Writing for The Financial Times, Bessent said the US had prepared “an economic D-Day” for Iran. Iran would be attacked economically with the same “resolve” that had enabled the Allies to defeat Nazi Germany, Bessent said, in what is to be “the single greatest financial offensive ever marshalled against an adversary”. The US military campaigns had prepared the ground, now the economic attack overseen by Bessent would hit the final nail in the coffin and finally defeat “the regime in Tehran”.
On Monday, Bessent then announced what exactly the US economic warfare will look like. Under “Operation Economic Outcast”, the US will expand secondary sanctions, writes Axios. “An economic engagement of any kind with this murderous regime will expose those responsible to the full reach of American power”, Bessent said.
The Financial Times writes, however, that Bessent offered no details about what consequences there would be for countries trading with Iran nor defined a deadline for the countries currently trading with Iran. In addition, FT, writes, Bessent refrained from naming the countries with whom Iran does most of its international trade: China, Iraq, Turkey, Russia, Pakistan or India. Only the United Arab Emirates were mentioned, as they formally broke off economic relations with Iran last week.
The current return to sanctions is therefore more indicative of a lack of viable options, than of strength
When 3W looked at the prospect of new US sanctions on Iran earlier this week, we said “we truly struggle to imagine how sanctions could deliver the US a decisive victory.” China and Russia and unlikely to be impressed by Bessent’s threats. Furthermore, Iran is not an island that can (relatively easily) be cut off from the world via naval blockade. And the fact that the US undertakes this measure now, after fighting a hot war, indicates desperation rather than conviction. (3W wrote on Sunday, “Is it not the normal course of action in geopolitics, that one tries to achieve by economic means what one cannot achieve via diplomatic means? And that one resorts to military means, considering the costs involved, only if one cannot achieve its aims via diplomatic or economic means?”) Based on these considerations, at 3W we said we are most likely dealing with another US effort to “control the narrative”, rather than anything substantial.
Following Bessent’s public appearances, analysts from around the world have echoed the same sentiment.
For example, The Financial Times in its analysis said “Iran has endured decades of US and western sanctions and developed circuitous trade routes and other methods to evade the measures”. FT also noted that already during his first term, Trump adopted what he then described as a “maximum pressure” campaign against Iran after he abandoned the 2015 nuclear deal Tehran signed with the US and other world powers. In other words, we have been here before. FT concluded that since Iran is not a little island and that it is very difficult to impose a hermetic seal around it, most likely what we are dealing with is “psychological warfare” rather than anything substantive.
What didn’t work then is unlikely to work now, says Trita Parsi, interviewed by Time. “We really need to keep in mind here that Iran has been under US sanctions for the last 40 years, and we’ve had several moments in which we have done some sort of a major escalation,” he said. “And each time, it has failed to translate into a policy change from Iran.” Parsi added, “What we know of the pattern in the past is that the Iranians will not capitulate—they will escalate. This is the same miscalculation Trump made when he thought that the threat of war would cause them to surrender, and instead they prepared themselves for war, and they fought back. And six months later, we’re here.”
The New York Times in its analysis also notes there is nothing new in trying to make Iran an economic outcast. The first serious efforts to impose sanctions on Iran for its nuclear program date back to the George W. Bush administration. When the Obama administration was trying to push Iran into negotiations in 2009, the secretary of state at the time, Hillary Clinton, promised “crippling sanctions” unless the country entered negotiations. Speaking in 2018 Trump’s then secretary of state Mike Pompeo also expressed the belief that “crippiling sanction” would bring Iran to its knees. “The Trump administration is pursuing a ‘maximum pressure’ campaign designed to choke off revenues that the regime — and particularly the Islamic Revolutionary Guard Corps, part of Iran’s military that is directly beholden to the Supreme Leader — uses to fund violence,” Pompeo said then. NYT further notes that normally, economic sanctions precede military action, as the latter is only deployed when sanctions don’t do the job. Trump’s decision in February to forgo the kind of sanctions announced on Monday, and to move right to military force, was in some ways an acknowledgment that economic sanctions move slowly, and that history suggests they often fail to work, NYT writes. The current return to sanctions is therefore more indicative of a lack of viable options, than of strength, NYT concludes.
The American and Israeli failure to dislodge the regime in Tehran has proved the bankruptcy of decades of sanctions and violence
Iran itself appears unimpressed. Iran’s Foreign Ministry said on Monday that Tehran would not bow to the escalating pressure, writes The New York Times. Esmaeil Baghaei, the ministry spokesman, said the Trump administration was merely “repeating methods that have proven unsuccessful.” He further added that “Iran will certainly use all multilateral capacities to counter economic sanctions.” Earlier, Mohsen Rezaei, who leads Iran’s powerful Supreme National Security Council, threatened retaliation. “Iran will regard any country’s participation in or support for America’s economic war against the Iranian people as an act of war,”
Iran’s deputy foreign minister Kazem Gharibabadi said the “narrative does not add up”, writes The National Turning to economic pressure, despite claiming to have annihilated Iran’s military, “Is this a victory or an admission of America’s failure?” Mr Gharibabadi wrote on X.
And Iran appears to be acting upon its promised response. Following the announcement of “economic D-Day” by the US, Iran’s Persian Gulf Strait Authority said on X that 46 ships had violated “Iranian protocols” for transiting the waterway, writes The Financial Times. It added the vessels, which included ships owned by Abu Dhabi National Oil Company and Sinokor, would “face restrictions on future passages, including fines, detention or confiscation”. FT notes that currently only about 16 transits per day in the past week, down from more than 130 before the conflict broke out in late February.
Following the Iranian warning, an oil tanker was struck as it tried to exit the Strait of Hormuz, writes The National. A further tanker was hit as it tried to pass through the Bab el Mandab, writes The National separately.
The agreement between Iran and Oman regarding the Strait of Hormuz, announced on Tuesday, will not fundamentally change the situation, writes The National. Deputy Foreign Minister Kazem Gharibabadi said in a televised interview that the arrangement provides for a temporary transit corridor, with the two countries coordinating navigation, mine clearance, information exchange and maritime security while working towards a permanent system. Gharibabadi said ships entering the Gulf would use Iranian waters, while outbound vessels would use Omani territorial waters. He described the corridor as a “two-way highway” about 11km wide. He also said that a real reopening of the Strait of Hormuz “will only take place in exchange for an end to the war on all fronts, lifting the blockade and determining the status of Yemen”.
Meanwhile, China has indicated it has no intention of joining the US’s economic warfare against Iran. Already ahead of the US announcement on Monday, China vowed to protect its “legitimate interests” and called for “reason and restraint on the Iran situation”, writes The South China Morning Post. “China will closely watch the developments and do what is necessary to protect its legitimate rights and interests,” Chinese Foreign Ministry spokesperson Lin Jian said. Speaking on Tuesday at a regular press briefing in Beijing, Chinese foreign ministry spokesperson Lin Jian gave China’s first official reaction to measures announced by Washington, saying it opposes unilateral sanctions and warning they risk worsening conflicts, writes The Japan Times. The most urgent task is to de-escalate tensions and return to negotiations, he further said. When asked about Beijing’s response to the steps taken by the US against Iran and threats made against its trading partners, Lin reiterated that China would act to protect itself. “China’s cooperation with Iran has always been conducted within the international framework and should not be interfered with or undermined,” he said. “China is closely monitoring relevant developments and will take all necessary measures to firmly safeguard its own interests.”
Beyond China, Qatar also described US sanctions on Iran as unilateral and said it supports mediation efforts to resolve the dispute between Washington and Tehran, writes The National.
In the 3W view, this makes clear that Bessent’s “Operation Economic Outcast” has already failed to drive a wedge between Iran and its most important ally, China. Is there anything the US can do to make China change its mind? In our 3W view, one should remember how Trump’s trade war with China worked out for the US. China refused to accept or negotiate, announced counter-measures, and then Trump had to pull back. China had and has economic leverage over the US, namely, in particular via its control over the rare earth minerals (needed to restock the US military’s arsenal of advanced weaponry), as well as its critical role in the supply chain of a wide variety of other products including pharmaceuticals. Most likely, “Operation Economic Outcast” will therefore reach a similar ending.
Where will this leave the US? 3W notes that after prominent neoconservative Robert Kagan wrote “Checkmate in Iran” in The Atlantic, in which he argued that the US has suffered an irreparable defeat in its War on Iran, another prominent American geopolitical thinker, Marc Lynch, has written an article entitled “The End of the American Middle East” for Foreign Affairs. Lynch says, “The American Middle East is finished. The regional order that has prevailed since 1991 has been one of the many casualties of the US-Israeli war with Iran. The American and Israeli failure to dislodge the regime in Tehran has proved the bankruptcy of decades of sanctions and violence. The inability of the United States to protect its Gulf allies from Iranian attacks or to keep the Strait of Hormuz open has fatally undermined the core security bargain that justified its network of military bases in the region. And Israel’s increasingly threatening posture and abandonment of any pretence of interest in reaching an accommodation with the Palestinians have ended Washington’s decades-long mission of bringing its Arab allies and Israel together into an enduring security partnership.” As to what will now happen next, Lynch says that “the full effects of the US disaster in Iran will similarly take time to materialize. In the short term, the American-led regional order is not going anywhere… But Washington cannot stave off a transition to a new regional order… Arab allies that have lost faith in the United States will increasingly exercise their autonomy… ”
In the 3W view, this trend was already inevitable before Trump’s “economic D-Day” announcement. Now, by forcing countries that already have credible doubts regarding their partnership with Iran, based on a policy doomed to fail, the US will likely only accelerate the demise of its Middle East Empire.