Trump and Bessent promise to make Iran an economic pariah

Whilst the trade offensive against Canada is becoming bogged down in Ottawa’s retaliation – which announced in September tariffs of up to 50 per cent on around 700 American products, worth 27.6 billion Canadian dollars – Donald Trump is pressing ahead on another front in his economic war: completely isolating Iran. Through Operation Economic Outcast, the aim is to turn Iran into an ‘economic pariah’ via ‘zero leakage’ – that is, to seal off every financial escape route without exception, forcing every ship, bank or currency exchange that helps convert Iranian crude oil into cash to choose: either Tehran and the Pasdaran, or the United States and access to the global financial system. (Mattone continues in insert III)

The White House has thus imposed sanctions on some sixty targets believed to be helping Iran sell crude oil, acquire nuclear and missile technology, and carry out cyber operations: the oil tankers in the ‘shadow fleet’ and the shell companies that pay for them; the networks moving money between Hong Kong, the UAE, South-East Asia and Europe; and so on. Furthermore, it has stipulated that anyone in the world who does business with Tehran in five sectors – ranging from gold to cryptocurrencies and aviation – risks facing the same fate. The Treasury insists it has “mapped every node” and has set a deadline by which each identified activity must be shut down. Bessent has warned that those who fail to comply will face secondary sanctions and thus risk losing access to the US financial system.

The supply chain that the US Treasury wishes to disrupt begins at sea. Iran receives its oil revenues mainly in yuan, as China is its largest buyer – despite the fact that Beijing has significantly reduced its purchases due to the US embargo. However, in order to use those revenues outside the Chinese system, Tehran must convert at least part of them into more freely usable currencies. In fact, the renminbi is not ‘freely convertible’, as the People’s Bank of China manages the exchange rate within a daily band, whilst also imposing limits on the maximum amount of capital that can be converted – all of which, combined with the Chinese currency’s small share of global reserves (around 2 per cent compared with 20 per cent for the euro and 57 per cent for the dollar), makes the yuan of limited use internationally. If not converted, that money can only be held in Chinese banks or used to buy goods from Beijing. This is where the money-changing houses and front companies identified in the Emirates – which should theoretically be out of the picture, after the state reportedly severed financial ties with Iran last week – as well as in Turkey and Hong Kong, come into play: front men who open new accounts, and currency exchange firms that settle Iranian receivables (from oil, for example) and liabilities, thereby bypassing traceable international channels. When the noose tightens, however, the covert financial network turns to gold, cryptocurrencies or cash itself (here, according to the Treasury, Turkish couriers – some of whom are linked to Hezbollah and who were sanctioned on 20 August – play a crucial role).

The measures approved by Congress in 2012 and which came into force in February 2013 demonstrate just how damaging the sanctions can be; they obliged countries that continued to purchase Iranian oil to leave the proceeds in blocked accounts, which could essentially only be used for bilateral trade. Exports did indeed fall from around 2.5 million barrels per day at the start of 2012 to 1.1 million at the start of 2015. Since then, however, alternative channels have grown, as has the ability of sanctioned countries to adapt.

The case of Russia, in fact, highlights the limits of the American promise. Following the large-scale invasion of Ukraine in 2022, sanctioned Russian banks set up clearing systems that bypass banking messaging systems such as SWIFT and do not go through Western accounts. At their peak, fees on Moscow’s alternative payment circuits reached 12 per cent, before falling in some cases. Alternatively, with regard to crude oil exports, the Kyiv School of Economics counted 122 Russian oil tankers that simply changed their flag, name or management company. These flows, therefore, have not disappeared. They have become more expensive, illegal or dependent on a handful of intermediaries operating in the shadows. But even if Iran finds a way to quickly replace every financial firm blacklisted by sanctions – whilst also circumventing secondary sanctions – Operation Economic Outcast could end up amounting to nothing more than imposing ‘a tax on evasion’.

Every financial squeeze, however, also hurts those living under the regime. On paper, humanitarian exemptions are supposed to protect essential goods such as food and medicines. But when currency is in short supply, the exchange rate plummets, prices rise and imports grind to a halt. And the Pasdaran plunder whatever resources remain.