Experts react: Will Trump’s Operation Economic Outcast isolate Iran?

It’s not nothing, but it’s no D-Day

The new Iran sanctions that Bessent rolled out Monday afternoon were, in Bessent’s own words, “a warning shot,” not an economic death blow. The sanctions announced are to target Iranian, Chinese, and other countries’ firms, as well as ghost-fleet tankers and other legitimate targets. But none of the moves was a game changer. The rhetoric was ferocious, but the punch less so, though Bessent promised more was coming (including sanctions on a “major financial institution” later this week). 

Dealing a crippling blow to Iran’s economy would probably require taking on major Chinese firms and banks, and no such steps were taken today. One interesting “tell”: Asked why his announcement today was more warning than action, Bessent responded that he didn’t want to “blow up the global financial system.” That’s revealing: the United States is threatening action against third countries that don’t break economic ties with Iran, but doing so involves costs and risks that Bessent suggested he isn’t eager to bear. 

While it’s easy to dismiss today’s announcements as mere bluster, it appears that some in the administration are aware that a quick, big win over Iran using force isn’t likely and are trying to move back to something sustainable and longer term. That’s a rational call. Iran’s weaknesses will grow over time. But such a walk back will not be easy to maintain, especially for an administration known for impatience and volatility. 

Beijing is the biggest question

On August 24, a day dubbed an “economic D-Day” against the Iranian regime, the Treasury Department designated about sixty entities based in Hong Kong, China, Malaysia, the United Arab Emirates (UAE), Singapore, and other third countries for facilitating Iran-related sanctions evasion. These entities are believed to have helped sanctioned Iranian companies launder proceeds from oil sales, procure sensitive technologies, and facilitate the operations of Iran’s shadow fleet. The designations follow earlier sanctions this year targeting Iran’s shadow banking networks by the Treasury as part of Operation Economic Fury.  

In terms of their potential effects, these sanctions target the usual suspects—front and shell companies in jurisdictions well known to serve as evasion and transshipment hubs. Perhaps the more consequential action is yet to come, given Bessent’s warning that sanctions could target a major financial institution. 

The rising diplomatic pressure ahead of today’s announcement may have already prompted a response. Last week, the UAE said that it will halt trade and financial transactions with Iran. The UAE had previously announced crackdowns on Iran’s evasion networks, so the extent of its follow-through will be an early test.  

The biggest question is Beijing’s response, since Chinese refineries have been absorbing nearly 90 percent of Iranian oil. The Trump-Xi meeting is just weeks away. It’s unclear whether the financial institution Bessent suggested could be sanctioned by the end of the week will be Chinese. However, with the one-year US-China truce that paused US tariffs on China and Chinese bans on critical minerals set to expire this fall, any perceived economic escalation by the United States could prompt Chinese countermeasures, particularly in critical minerals. 

Trump’s deterrence gives sanctions their bite

Trump’s sanctions on Iran have been historically effective because of his perceived willingness to prioritize economic pressure over anything else in bilateral relationships.  The main economic pressure tool available is secondary sanctions—sanctions on foreign entities that engage with an Iranian entity. The laws governing these sanctions were the same under both Trump and President Barack Obama, and Obama had a global coalition and the United Nations behind him. Trump did not, yet he still forced oil exports from Iran to a historic low. 

The reason was that his implementation was much different. Those entities—including state-owned companies in China, Europe, India, and elsewhere—genuinely believed that Trump would sanction them regardless of the diplomatic consequences. This is still true. It may be even more true today than it was eighteen months ago. The president engenders a tremendous amount of deterrence. 

Bessent and the rest of the Trump administration are thus starting with a very strong hand. The task now is implementation. It is a challenging diplomatic assignment. In Iraq, the Gulf, China, and elsewhere, entities that deal with Iran have been navigating secondary sanctions for thirty years. They are hedged and do not scare easily. Trump’s envoys thus need to engage the remaining sanctions holdouts and deliver a cease-and-desist message without allowing that deterrent effect to get lost in diplomatic niceties. And there will probably need to be an example. 

Lastly, as I argued on Friday, Iran’s leaders will shoot back before they starve. Iran will escalate militarily against its neighbors in the face of this sanctions pressure to prevent them from complying fully. Iran will try to force Iraq and the Gulf states to hedge and allow money to keep flowing. The effects will be limited, since Iran is not exporting oil by ship, but Tehran will try to scrounge enough dollars from its neighbors to survive and outlast this effort. 

The war has entered a race to the bottom

So far, economic D-day has not amounted to much. A new slogan, fairly routine designations, and a threat to issue future sanctions. This was a normal Tuesday under the first Trump administration. But let’s assume—whether real or not—that there is a plan behind Bessent’s pledge. If so, the administration’s actions will move it one step closer to achieving a Pyrrhic victory over Iran. If fully implemented, the Trump administration is probably correct that a one-two punch of the blockade and sanctions targeting Iran’s trade partners would eventually become existential for the regime. But the two questions to ask are: At what cost? And even if the economic pressure campaign succeeds, what will it accomplish?

China is easily Iran’s most important trading partner and if those trade ties were severed, the Islamic Republic would have no replacement. But China has also skirted American sanctions for years and has given little indication that it will stop now. Is President Donald Trump really willing to risk the trade détente with China to take the necessary actions against Chinese banks, refiners, and ports to curtail trade with Iran? Is the US economy prepared for retaliation from China? These would be very difficult steps to take—especially right before Chinese President Xi Jinping is scheduled to visit. Furthermore, look at the impossible predicament of a country like the United Arab Emirates (UAE). It is true that the UAE is a crucial trading and sanctions evasion partner for Iran. But, if the UAE adheres to the administration’s requests, Iran is likely to lash out and restart attacks against the UAE and other regional energy infrastructure. If the UAE doesn’t comply, it could face US sanctions. In short, a properly implemented pressure campaign will hurt Iran, but it will also hurt the US economy, and, most of all, countries in the Gulf. 

An equally important question is what this campaign is trying to achieve. Bessent implied regime change. Vice President JD Vance spoke of a return to talks. Six months into this war of choice, the administration still doesn’t know what it wants. But there is a bigger issue at play here. Forty-seven years of (mostly) unyielding pressure have not led to the collapse of the Islamic Republic nor seriously altered Iranian decision-making. Yes, there are a few exceptions in which pressure contributed to changes in behavior, such as the Iran nuclear deal. But for the most part, the regime remains relatively stable, and pressure has not compelled it to alter its behavior or strategic calculations. 

Earlier in the war, I wrote that the United States and Iran were encountering a battle of wills and that Iran believed time was on its side. Now I believe that the war has evolved into a race to the bottom. Rather than admit defeat or make concessions, both sides seem content to impose pain and build leverage without either translating into strategic gains. Economic D-Day is just the latest example. 

Effectiveness should be measured against objective

Operation Economic Outcast will create some incremental financial pressure on the Iranian government and further complicate its ability to transact with global counterparties. 

I suspect, however, that the economic consequences will be more marginal than the administration’s rhetoric suggests. Iran has considerable experience adapting to sanctions by rerouting transactions and shifting activity through alternative financial and commercial channels. 

There is also an important lag between the announcement of sanctions and their effective implementation. Iran can use that time to adapt. In that sense, sanctions enforcement becomes a game of “whack-a-mole”: as one entity or financial channel is shut down, activity migrates to another, often less conventional, mechanism. 

Perhaps most importantly, as others have highlighted, the absence of major Chinese and other Asian entities from today’s action raises questions about its ultimate effectiveness. If the United States is unwilling to impose meaningful costs on the principal foreign counterparties that facilitate Iranian trade and financial flows, then I suspect Operation Economic Outcast will have a more limited economic impact. 

Ultimately, the effectiveness of these sanctions should be measured against their objective. If the goal is simply to raise Iran’s transaction costs and make it more difficult and expensive to operate within the global financial system, this initiative might succeed to some degree. If the goal is to materially constrain Iran’s ability to finance the war, that is a much bigger challenge. 

Maximum pressure still needs staying power

Bessent’s press conference today left critical questions unanswered, including how much time countries will have to take meaningful steps to further isolate Iran economically, and what those actions are going to be. But what we know is that, in some ways, this policy harkens back to Trump’s first-term maximum pressure campaign. 

Unlike then, such an effort could work, but it will take years of consistent US policy to isolate Iran, probably extending beyond the end of the Trump administration. The critical challenge is that, unlike a decade ago, the Gulf states are no longer leading the charge to isolate Iran. Convincing Gulf powers—especially Saudi Arabia, at a time when it is leaning into diplomacy and rapprochement with Iran—to economically isolate Iran will be a challenge, one that would take significant commitment and strategic planning by the United States. Washington does have leverage. For example, it’s worth remembering that all Gulf Cooperation Council (GCC) states except Kuwait peg their national currencies to the dollar. And the early pressure was almost certainly instrumental in the United Arab Emirates’ decision last week to cut financial ties with Iran—a meaningful step given how much Tehran has relied on Dubai for its financing. 

But this effort requires global buy-in at a time when US standing with traditional allies is diminished, and getting US adversaries on board will be even harder. It is hard to envision this policy succeeding without China coming meaningfully on board, whether it agrees to pressure Iran voluntarily (which is unlikely) or it is cajoled through significant targeted sanctions against consequential entities. Gulf states, meanwhile, may move closer to Beijing as they face increasing US pressure.  

The challenge for the administration is compounded by doubts in the region about whether Trump will be consistent about this policy. Their skepticism is warranted given that only months ago Trump signed a memorandum of understanding that would have largely done the opposite, releasing significant funds to Iran and bringing it further into the regional and global economy. If Trump reverts in the coming months to seeking a negotiated off-ramp from the current impasse with Iran, sanctions relief will be the minimum required by Tehran. That solution could bring détente and lower energy prices, but it would further undercut the administration’s credibility with allies across Europe, Asia, and beyond at a time when many of those states are already skeptical that the United States is a reliable security and political partner.   

Bessent said that today’s announcement was a “warning shot.” Whether it will be followed by live fire, and the consequences that will result, remains to be seen. 

Economic D-Day needs an Eisenhower

Calling today’s Iran sanctions “D-Day” teaches a different lesson from the one Trump and Bessent likely have in mind. What the United States had on D-Day in 1944—and what it needs today—are committed allies.  

In addition to Presidents Franklin Roosevelt and Prime Minister Winston Churchill partnering closely on wartime strategy while resolving their differences behind closed doors, General Dwight Eisenhower built relationships among Allied commanders, getting towering egos to work together. The real triumph was not just D-Day; it was the march from Normandy into Germany in less than a year.  

Today, instead of building alliances, Trump just launched a tariff war against Canada. Britain and Europe are bruised by Trump’s tariffs, his cutting of direct support to Ukraine, and his repeated threats to take over Greenland. Middle Eastern leaders are increasingly frustrated, too, and Trump’s recent threat to bomb Oman did not help. 

D-Day would not have succeeded in 1944 as an entirely American effort. Trump needs to find his Eisenhower to bring allies on board.