Bessent’s Gambit: A Risky Game of Economic Pressure

Treasury Secretary Scott Bessent has promised to apply “unprecedented economic pressure” on Iran. Critics argue that this is unnecessary, given that the country is already under naval blockade and subject to thousands of sanctions. Despite this seeming redundancy, the US appears determined to explore new avenues for exerting its influence over Tehran.

One potential target is China’s dominant role in buying Iranian oil exports. Sanctions on Chinese entities facilitating these purchases could significantly reduce Tehran’s revenue stream. However, this approach carries a significant risk: further straining already-tense relations with Beijing ahead of a planned meeting between President Donald Trump and Chinese leader Xi Jinping. The economic implications are equally concerning, as curbing Iranian oil sales would remove discounted crude from the global market, potentially driving up already-elevated oil prices.

The administration’s consideration of exchange houses in countries like the UAE also raises questions about the effectiveness of this strategy. Sanctioning individual exchange houses may push transactions towards new intermediaries, currencies, or digital assets, rendering it an exercise in pushing a problem rather than solving it. Iran has spent years building alternative channels to move money outside the formal financial system, making it difficult for the US to effectively cut off these flows.

The US could also threaten secondary sanctions on entities doing business with Iran, similar to its approach towards North Korea in 2017. This would force foreign companies and banks to choose between maintaining access to the US financial system or continuing their commercial ties with Tehran. However, this strategy carries a high risk of blowback, particularly for countries around Iran’s borders, including US partners like Turkey.

Another option on the table is confiscating Iranian assets already under US jurisdiction. This approach would be more complicated and legally fraught than simply freezing these assets. Much of Iran’s overseas wealth is held in third countries, requiring cooperation from foreign governments to seize it.

The real concern here is not just what the US can do to pressure Iran but also the potential consequences for its own economy. Targeting remaining options risks driving up global oil prices, exacerbating existing tensions with China and potentially leading to unintended blowback on the US economy. The administration’s approach raises questions about whether this strategy is driven by a genuine desire to alter Iran’s calculus or simply a desire to demonstrate toughness ahead of an election.

The US has a history of overestimating its leverage in situations like these. North Korea’s Kim Jong-un, for example, has consistently shown himself to be more resilient and adaptable than expected, navigating sanctions with relative ease. Similarly, Iran’s leaders have demonstrated their ability to adapt to economic pressure by building alternative channels to move money outside the formal financial system.

As the US contemplates its next moves in this complex game of economic pressure, it must consider the risks and unintended consequences of its actions. The challenge is not just to squeeze Iran but also to avoid exacerbating existing tensions with other key players or driving up global oil prices. The administration’s approach will be closely watched by markets and observers around the world – and could have far-reaching implications for the global economy.

The stakes are high, and the risks are real. In a game of economic pressure where there are no winners only losers, the ultimate prize may be a pyrrhic victory at best.