President Trump is threatening sanctions again as the war against Iran drags on. He wants more economic pressure. He wants to cut off Tehran’s economic lifelines. He is threatening sanctions against any country—friend of foe—that extends those economic lifelines to Iran.
Let’s remember that the international community has been imposing sanctions, trade embargoes, and asset freezes against Iran for decades for its nuclear activities, human rights violations, and support and exploitation of proxy terrorist groups to wage war against its enemies.
Since the second Trump administration came into office, OFAC has imposed more than 1000 designations against Iran, including individuals, vessels, and aircraft.
The most recent salvo came yesterday, with the US Treasury department sanctioning 10 individuals who OFAC says are part of a network responsible for transferring cash to Hizballah—Iran’s most powerful terrorist ally.
The network utilizes couriers travelling on commercial airline flights between Lebanon, Turkiye, the UAE, and Iran to move up to hundreds of millions of dollars between jurisdictions, providing an avenue outside the formal financial system for Hizballah to obtain foreign currency and evade sanctions. OFAC is also re-designating Hizballah for service to the Iranian regime under the command of Iran’s Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF).
“Re-designating.”
Hizballah is already designated a Specially Designated Global Terrorist (SDGT) pursuant to E.O. 13224 by the US State Department. State in 1997 also designated Hizballah as a Foreign Terrorist Organization (FTO).
IRGC-QF is also sanctioned as an SDGT pursuant to EO 13224 for providing material support to multiple terrorist organizations, including Hizballah and is designated as an FTO.
So now, these are extra strong designations?
Does Hizballah evade sanctions? Almost certainly. It uses assets in third countries to move money, smuggle oil and other commodities, and uses couriers to move cash through countries such as Lebanon, Türkiye, and the UAE.
Does it work closely with FTOs such as IRGC-QF and HAMAS, including taking military action to message its support for its allies? Yes.
Does it funnel weapons and other resources to terrorist allies? Also yes.
I am, however, at a loss to explain what “re-designation” will do.
But OK, so what about Iran itself? Will additional sanctions be merely messaging or will they be more effective at putting economic pressure on Tehran?
What options for new Iran sanctions?
Given that Iran is under an embargo by the United States, including trade bans and financial restrictions, are additional sanctions going to do anything to increase pressure on Tehran, especially since Iran has been pretty adroit at evading sanctions?
(I will note here that Russia continues to help Iran procure military equipment to bolster its capabilities against the United States without sanctions consequences, and China doesn’t appear to care. Any smaller financial institution that would be sanctioned under this latest threat likely has limited or no exposure to the US financial system, so these smaller firms will just continue doing what they do to help Iran as long as China benefits.)
According to Paul Musgrave, an associate professor of government at Georgetown University in Qatar, imposing additional sanctions effectively on Iran will also be challenging for Trump acting unilaterally.
“Trump is trying to unilaterally assert the kind of coordinated sanctions that traditionally has taken multilateral coordination, and that means getting on board China, Russia, the P5 of the UN Security Council,” Musgrave said, referring to the five permanent members of the UNSC.
I’ve said this before: sanctions are much more effective when undertaken in concert with allies.
So what options does Trump have?
I’ve always said that secondary sanctions are an effective threat, promising to cut malign actors off from the US financial system regardless of whether a US nexus is present in the transactions.
Either do business with sanctioned entities—in this case Iran—or have access to US customers and markets; not both.
After the Biden administration assessed that Russia had pivoted fully to a wartime economy, all the designations under EO 14024 became a secondary sanctions risk. The result was that at least two state-owned banks in China started to reexamine their relationships with Russian entities in an effort to retain their access to the US dollar. The threat of secondary sanctions clearly worked.
But Beijing at the time allowed smaller banks in the border region to continue transacting with Russian entities. These became known as “burner banks” similar to “burner phones” that could be chucked out easily should they become objects of interest to authorities.
Their mode of operation is such that once the banks are designated as entities of interest under U.S. sanctions, they can simply shut down their operations and have their clients move to another bank.
A burner bank can be an existing institution or one created specifically to evade sanctions. One thing they all have in common is limited interaction and connection to the larger international financial system. The catch for Mr. Xi is that even if these burner banks do not seem to be engaged in international business with countries other than Russia, they generally still maintain close ties with the big Chinese banks that rely on global trade.
Would secondary sanctions against entities transacting with Iran be effective in this case? That’s debatable.
Reuters reports that China buys more than 80 percent of Iran's shipped oil, and Chinese independent refineries, known as "teapots," account for a quarter of Chinese refinery capacity, operating with narrow and sometimes negative profit margins. These entities have negligible exposure to the US dollar. Would they care?
Probably not.
What about Chinese banks? Trump has already threatened bigger Chinese financial institutions that they could face secondary sanctions if Iranian funds were found moving through their systems. Have they been designated? Nope. And I would wager that the need for China’s minerals that are critical for tech production will prevent that threat from becoming reality.
Sure, Treasury has been imposing additional sanctions consistently on individuals and entities helping Iran evade sanctions, but when I worked at Treasury, we would call this “playing whack-a-mole.” We used the phrase a lot in the Russia context, in which illicit Russian actors would quickly adjust to the changing sanctions environment and use new and evolving sanctions evasion techniques to gain access to restricted goods and technologies, as well as to the financial system writ large.
Do we honestly believe that Russia wouldn’t share these methodologies with Iran?
In November 2022, Politico reported that Iran was sharing its sanctions-evasion tactics with Russia, teaching Moscow how to use an underground financial system to move assets and evade sanctions. Are we really to believe that Russia wouldn’t share its latest sophisticated methodologies to evade sanctions with Tehran?
Iran will continue to rely on its usual sanctions evasion methodologies:
Turning off or spoofing Automatic Identification System (AIS) transponders to move its oil.
Flag hopping (aka switching flags and registrations to jurisdictions with lax controls—is a common sanctions evasion methodology.)
Tangled ownership and control structures, making identifying the owners of shadow fleet vessels difficult.
Shell companies, front companies, fraudulent trade and shipment documents.
I don’t need to go on.
Illicit actors share their sanctions-evasion techniques with one another, so sanctioning these smaller pop-up entities may not be an efficient way to exert pressure on Tehran.
But what about the tariffs?
The US Senate a couple of weeks ago passed a sweeping Russia sanctions bill which also included the authorization for the President to impose tariffs. As I wrote previously, this is a problem for numerous legislators, who are hesitant to give Trump this broad authority.
Will Trump impose massive tariffs on China, especially given our need for critical minerals? I have my doubts.
The US trade with Iran is negligible, so tariffs in that respect are pointless.
What about Türkiye or the UAE?
The UAE, according to Reuters, had already suspended all transactions with Iran until further notice, citing a military escalation by Tehran.
Türkiye maintains significant trade with Iran, but I haven’t seen any indication that it’s willing to change.
India had already sharply curtailed trade with Iran in 2020.
Armenia? When I was in Yerevan a couple of years ago, speaking on Russian sanctions evasion, several Armenian officials flagged the fact that it was either Russia or Iran for them. They couldn’t just cut off trade, given their location. Are tariffs or secondary sanctions going to alter that calculus?
Oman? Muscat has always had a peaceful, steady relationship with Tehran. It’s even taken on mediation roles between the United States and Iran. However, Trump has now decided that Oman is the enemy and threatened to bomb the country, likely because of Oman’s possible deal with Iran over the Strait of Hormuz.
So what economic “D-Day” is Trump promising?
You figure it out!
I think this is more messaging than anything else.