Trump turns from bombs to economic war as Iran refuses to bend

US President Donald Trump, it seems, has reluctantly concluded that the Pentagon has not delivered what he wanted in Iran, and that it cannot deliver even if large-scale bombing resumes. He has now activated the Treasury by declaring economic war on Iran. Whether the Treasury can deliver remains to be seen. It is, however, possible to identify a few likely scenarios.

On 19 August, Trump promised “economic warfare and isolation on an unprecedented scale” against Iran. Five days later, Treasury Secretary Scott Bessent unveiled Operation Economic Outcast.

The operation seeks to isolate Iran financially through expanded sectoral sanctions and the designation of nearly 60 entities, individuals and vessels. It covers digital assets, technology, gold, aviation and shipping, while widening the risk of secondary sanctions for foreign entities that continue to do business with Tehran.

The Treasury Department has also said that countries will receive defined timelines to end identified Iran-related activities. Those that fail to comply risk further action. The initial announcement widened the scope for sanctions, although it stopped short of immediately penalizing every country or company trading with Iran.

“Under his leadership, America is no longer managing the Iranian threat. We are ending it,” Bessent said.

What exactly is the threat that Washington believes this operation will end?

Bessent has not clarified. Treasury cited Iran’s nuclear and missile procurement, cyber operations, oil revenue and support for armed groups. Trump has repeatedly focused on the possibility of Iran developing a nuclear weapon.

If that was the principal danger, why did the US participate in the Israeli strikes that killed Ayatollah Ali Khamenei, who had issued a fatwa against Iran making a bomb?

It is also worth recalling the Joint Comprehensive Plan of Action, or JCPOA, concluded in 2015. Iran accepted extensive International Atomic Energy Agency (IAEA) monitoring and remained a party to the Nuclear Non-Proliferation Treaty, which it ratified in 1970.

Trump withdrew the US from the JCPOA in 2018. Iran subsequently reduced its commitments and, by 2021, had stopped implementing the Additional Protocol and other JCPOA monitoring provisions. The IAEA has said that this seriously impaired its ability to verify Iran’s nuclear activities.

Will Operation Economic Outcast succeed? Even if it does, how long will it take to compel Iran to return to the negotiating table and accept Washington’s terms?

The United Arab Emirates suspended all trade, commercial exchanges and financial transactions with Iran on 18 August, one day before Trump announced his economic campaign.

The UAE said its defenses had detected two ballistic missiles launched from Iran. Both fell into the sea. Tehran denied responsibility and suggested that the incident was a false flag operation, but offered no evidence for that claim.

Did Washington ask the UAE to cut off relations with Iran?

Yes.

The New York Times account is curious:

“It is unclear if the United States played a role in the Emirates’ decision to halt trade with Iran. The announcement came hours after a call from President Trump to the Emirati leader, Sheikh Mohammed bin Zayed.”

The Times report continues:

And in a separate call on Tuesday, Secretary of State Marco Rubio and Sheikh Tahnoon bin Zayed, the Emirati national security adviser, discussed efforts to hold Iran accountable for ongoing attacks, according to a State Department spokesman, Tommy Pigott.

Then did Israel send the missiles?

It may be noted that though Iran did attack the UAE in the beginning of the war in March, it had stopped it since May even when Bahrain continued to be targeted.

The UAE action is a severe blow to Iran’s economy. The UAE supplied about 30% of Iran’s imports in 2024, worth about $21 billion, while receiving about $7 billion of Iranian exports, according to World Trade Organization figures.

For decades, traders and small vessels operating between Dubai and Iran have carried food, agricultural products, electronics, machinery and other goods. More importantly, Iranian residents and businesses in the UAE had access to an international financial center through which some transactions could be conducted despite sanctions.

Whether Abu Dhabi can fully enforce the suspension is another matter. The UAE hosts an estimated half a million Iranians and thousands of Iranian businesses, many with Emirati partners. Estimates of Iranian investment in the UAE vary widely, with some regional reports putting it above $200 billion.

These commercial relationships cannot be dismantled overnight without hurting Emirati businesses as well. Enforcement may therefore test the UAE’s willingness to absorb domestic economic costs in support of Washington’s campaign.

It is understood that authorities in the UAE are implementing the decision in a phased manner, partly because some rather influential local merchant families are involved.

Iran’s other major economic partner is China, which received more than 80% of Iran’s shipped oil before the war. Chinese refiners bought about 1.38 million barrels a day of Iranian oil in 2025, usually at a discount and through trading arrangements designed to limit exposure to US sanctions.

China and Iran signed a 25-year comprehensive strategic partnership in 2021. The agreement was widely reported as contemplating up to $400 billion in Chinese investment, although relatively little of that investment appears to have materialized.

China has opposed Operation Economic Outcast. Foreign ministry spokesman Lin Jian said Beijing was firmly opposed to “illegal unilateral sanctions” and would take “all necessary measures” to protect its interests.

Trump is due to host Chinese President Xi Jinping on 24 September. Will Washington risk that meeting by targeting major Chinese banks and companies?

When asked on Thursday whether he would sanction Chinese banks for doing business with Iran, Trump replied, “Who said I’m not?” He offered no details.

This raises a broader question about decision-making under Trump. Did he announce the economic campaign on 19 August after the Treasury and State departments had completed a study of its costs and consequences? That appears doubtful.

Trump’s style is often to announce a decision on Truth Social or to the media, leaving government departments to develop and implement the policy afterward.

Iran, meanwhile, remains defiant. Mohsen Rezaei, secretary of Iran’s Supreme National Security Council, warned of an “earthquake-like” response if Washington proceeded with its campaign.

“If the countries surrounding Iran join the Americans in their economic war, not a drop of oil will leave the Persian Gulf,” Rezaei said.

In plain English, Iran is warning that it may retaliate against Gulf countries cooperating with the US and target oil export routes both through the Strait of Hormuz and around it.

Iran has also warned Bulgaria after its parliament authorized the deployment of US Air Force refueling aircraft at Bezmer Air Base to support operations in the Middle East. Tehran said countries allowing their territory to be used for attacks on Iran could face consequences.

Russia and China are likely to remain in close contact with Tehran over Operation Economic Outcast.

CIA director John Ratcliffe visited Moscow this week. Reports said he pressed Russian officials to reduce support for Iran and raised the reopening of the Strait of Hormuz. Moscow did not oblige.

The CIA did not disclose the purpose of the visit, however, and Trump said it was not related to Iran.

India, still trying to conclude an interim trade agreement with Washington, has avoided a public response.

The US has designated four India-based companies, Portease Partners, Sadashiva Overseas, PP Softtech and Prakrutees Infra Impex, over alleged transactions involving Iranian petroleum and petrochemical products. Three Indian nationals were also designated.

The State Department said the transactions attributed to three of the companies were worth about $119 million. Portease Partners was accused of facilitating Iranian petrochemical shipments as a customs broker.

The action will sharpen scrutiny by Indian banks and exporters seeking to protect payment channels and shipping arrangements from secondary sanctions. This is especially important for India’s rice, tea and pharmaceutical exports to Iran.

India exported $383.11 million of rice to Iran during the first half of 2026. Much of the trade relied on payments and logistics routed through the UAE. Indian exporters now fear higher freight, insurance and transaction costs even if food and medicine remain exempt from sanctions.

India must also decide what to do about the Shahid Beheshti terminal at Chabahar port. New Delhi signed a 10-year operating agreement with Iran in 2024, but the conditional US sanctions waiver for the project expired on 26 April. The Indian government has said it remains in contact with the parties concerned.

Let us now consider the probable scenarios.

First, Trump has said he is in no hurry to bring Iran back to the negotiating table and that he will do what is good for the US without worrying about the November midterm elections. His calculation appears to be that sustained damage to Iran’s economy will eventually compel its leadership to accept Washington’s terms.

Second, given his ability to change his mind, Trump could resume bombing for a day or two and then declare victory. He might argue that continued bombing would prevent the Iranian people from rising against their government and then turn his attention to Cuba.

Third, the Iranian people will suffer more as sanctions tighten. An embattled government is also likely to become more suspicious of foreign influence and impose further restrictions on civil liberties.

Authorities have closed cafés and other businesses, often citing compulsory hijab rules. Parliament has also advanced legislation that would criminalize unauthorized contact with foreign media and require approval for some interactions with foreign organizations.

Under such conditions, it is unlikely that the Iranian people will be able to rise against the government.

It is also possible that Iran, without formally withdrawing from the Nuclear Non-Proliferation Treaty, will attempt to build a nuclear weapon and disclose it only after succeeding. It could instead follow Israel’s policy of nuclear ambiguity.

The global economy and the Gulf states will continue to suffer as long as shipping remains disrupted and the threat of renewed attacks hangs over regional oil and gas infrastructure.

The best solution would be a cooperative security framework for the whole of the Middle East, encompassing the Gulf Cooperation Council states, Iran, Iraq, Yemen and Israel. Washington should take the lead in building it. The effort might become easier if Prime Minister Benjamin Netanyahu leaves office after Israel’s election in October.

But is the best solution automatically the least likely one?

Does history not teach us that human beings seldom learn from history?