Trump escalates economic war on Iran: Can sanctions and oil blockade force Tehran to cave in?

Dubai: After nearly six months of war, Donald Trump is trying another way to force Iran to bend: Squeeze its economy until Tehran can no longer afford to resist.

The US president has announced what he calls the “MOST CRUSHING ECONOMIC OPERATION EVER TAKEN AGAINST ANY COUNTRY”, threatening not only Iran but countries, banks and businesses that help keep its economy alive.

The strategy represents an important shift. Washington is effectively betting that economic pressure can achieve what military action and attempts at diplomacy have so far failed to deliver — force Iran into an agreement on US terms.

So what exactly is Trump planning, how vulnerable is Iran — and which side can withstand the pain longer?

At its heart, the strategy is about isolating Iran from the global economy.

Trump has warned that countries allowing their financial institutions, businesses, airports or government entities to provide Iran with an economic lifeline could themselves face US punishment.

He specifically identified oil smuggling, swap lines, cash transfers, exchange houses, ship registries and front companies — many of the mechanisms Tehran has developed over years to circumvent Western sanctions.

Iranian Foreign Minister Abbas Araghchi dismissed Trump’s plan as a continuation of “failed policies”, warning that doubling down on them would bring Washington “further defeat”. He also accused the US of using “economic terrorism” that threatens the global economy and national sovereignty, AFP reported.

The US is simultaneously trying to choke Iran’s most important source of revenue: oil.

A blockade of Iranian ports has already sharply reduced loadings onto Iranian tankers. According to Kpler data cited by CNN, shipments have fallen to a fraction of their levels between February and April.

But making the strategy truly effective would require Washington to go much further.

It would have to disrupt the complex international network of banks, shipping companies, intermediaries and trading routes that Iran has built to survive decades of sanctions.

The biggest test could be China.

Beijing remains a major purchaser of Iranian oil, meaning Washington may ultimately have to threaten Chinese financial institutions involved in processing Iranian transactions.

That would confront Trump with an awkward choice.

Chinese President Xi Jinping is due for a state visit to the United States in September. Taking punitive action against major Chinese banks shortly beforehand could create a new confrontation with Beijing.

Without pressure on Iran’s biggest remaining economic lifelines, however, Trump’s promise of unprecedented isolation could prove difficult to enforce.

The UAE’s decision to suspend trade and financial transactions with Iran has already closed another important channel for Tehran, adding significant pressure to Washington’s campaign.

Very badly.

The International Monetary Fund expects Iran’s economy to shrink by more than 5% this year — its worst contraction in almost four decades. Inflation is near 80%, while the rial has fallen to record lows against the dollar, leaving many Iranians struggling even to pay for basic necessities.

The oil squeeze could make matters considerably worse.

Iran still has about 80 million barrels of oil outside the blockade, most of it committed to China. At current prices, that could generate roughly $1.5 billion a month.

But at a discharge rate of about 650,000 barrels a day, that stockpile represents only around four months of export revenue.

Homayoun Falakshahi, head of crude oil analysis at Kpler, described what Iran faces as “a slow death rather than falling off a cliff”.

That is the central weakness in Trump’s calculation.

Iran has spent decades learning how to survive sanctions, economic isolation and domestic hardship. Despite the latest deterioration, there have so far been no widespread demonstrations capable of threatening the regime.

“For Iran, the leadership is prepared to absorb a lot more economic pain,” Gregory Brew, a senior analyst at Eurasia Group, told CNN, noting that Tehran has endured years of sanctions and months of war without backing down.

Daniel Citrinowicz, a former head of the Iran branch in Israeli military intelligence’s research division, is similarly sceptical.

“Those who think that Iran will collapse under the pressure, I think they are mistaken,” he said, arguing that even severe economic pressure may not fundamentally change Tehran’s calculations.

Iran has already dismissed Trump’s new strategy. Foreign Minister Abbas Araghchi called it another iteration of failed US policies and warned that American economic pressure threatens the wider global economy.

That may ultimately decide whether the strategy works.

Destroying Iran’s economy sufficiently to change Tehran’s behaviour could take months — possibly years.

And time creates problems for Trump too.

US gasoline prices have climbed above $4 a gallon on average, while November’s midterm elections are approaching. Iran therefore has an incentive to hold out and keep pressure on global energy markets rather than give Trump a quick victory.

Tehran can also retaliate through the Strait of Hormuz. Renewed attacks on shipping could push oil prices higher, increasing the economic cost for American consumers and forcing Trump into another dilemma: escalate militarily or absorb the political damage at home.

Trump’s new strategy therefore amounts to a contest of endurance.

Iran’s economy is far more vulnerable than America’s. But Tehran may believe its political system can tolerate economic suffering longer than Trump can tolerate high oil prices, an unpopular war and mounting voter frustration.

The question is no longer simply whether Washington can inflict enough economic pain on Iran.

It is which side blinks first.