Trump’s ‘economic D-Day’ tests Iran’s trading ties across the region

Trump’s ‘economic D-Day’ tests Iran’s trading ties across the region The US threat to sever Iran’s economic lifeline with a raft of new sanctions, coupled with Tehran’s warnings of military retaliation and further restrictions on oil exports, has raised the stakes across the region. The new sanctions come a week after a 60-day window to negotiate a US-Iran peace deal and reopen the Strait of Hormuz expired. US Treasury Secretary Scott Bessent on Monday unveiled measures intended to isolate Iran's economy, with the US having struggled to solve the conflict with Tehran militarily. However, he held back from imposing the most punitive sanctions, warning that countries that continue to trade with Iran risked being cut off from the dollar-based financial system. Bessent did not outline the penalties or provide a timeline for countries and businesses to comply with these measures. The US Treasury Department sanctioned 60 entities, individuals and vessels and suspended several general licences, including those allowing certain remittance payments to Iran. It is also working with partners to disrupt networks, facilitators and financial channels generating "illicit revenue". New MEE newsletter: Jerusalem Dispatch Sign up to get the latest insights and analysis on Israel-Palestine, alongside Turkey Unpacked and other MEE newsletters Iran, meanwhile, struck a confident tone that its trading partners would resist the US pressure campaign, though it remains to be seen how regional states will respond. China, Iraq, Pakistan, Turkey and some Gulf states have over the years maintained some commercial ties with Tehran, despite the US imposing Iran-related sanctions on more than 1,000 people, vessels and aircraft since President Donald Trump began his second term in 2025. According to 2025 data from analytics firm Kpler, China bought more than 80 percent of Iran’s shipped oil. However, the measures introduced on Monday did not target any of the Chinese financial institutions suspected of facilitating Iran’s oil trade. When asked about this, Bessent declined to say whether the US plans to do so. Even as Iranian Economy Minister Ali Madanizadeh said that trading partners would resist US pressure and that Iran was "fully prepared" for the punitive measures, Iranians are likely to feel the bite of the sanctions. Iran’s Central Bank governor said last Wednesday that Iranian oil exports had fallen to zero amid the US naval blockade of Iranian ports, worsening the country’s already dire economic crisis. The question now is whether the economic squeeze will force Tehran to compromise or instead push it towards greater confrontation with Washington and its neighbours. Withstanding economic pressure In anticipation of the US announcement, Mohsen Rezaei, the new secretary of Iran’s Supreme National Security Council, on Saturday threatened that Tehran could target US "oil and economic companies around Iran and elsewhere" in retaliation. He also warned Gulf neighbours against joining the US "economic war", saying that if they did, "not a single drop of oil will leave the Persian Gulf and the Strait of Hormuz". Iran, he added, could also target other oil export routes in the region. While Washington appears to be betting that economic pressure will weaken the Islamic Republic, force it back to the negotiating table and perhaps erode its leverage over the Strait of Hormuz, Tehran appears prepared to resume direct military confrontation with the US and its Gulf allies rather than concede to such pressure. "This creates a dangerous dynamic in which the US tries to regionalise Iran’s economic isolation while Iran tries to further regionalise the costs of that same isolation," Sina Toossi, a senior fellow at the Centre for International Policy, told MEE. Still, in recent days, Iranian officials have said that military strength alone cannot guarantee the survival of the Islamic Republic. Last week, amid reports that oil exports have come to a halt, Iran’s Speaker of Parliament Mohammad Bagher Ghalibaf said: "No matter how much military power we possess, if the people are hungry and we lack financial turnover, economic growth, and national production, we will not survive." Iran's Energy Optimisation Organisation, a state body, said the country is facing a 15 million-litre gap between petrol supply and daily demand, which totals 135 million litres. "For ordinary Iranians, this is no longer merely a question of declining living standards or rising poverty, but a daily struggle to afford food, medicine, housing and other basic necessities," Mehran Haghirian, executive director of research and programmes at Bourse and Bazaar, a UK-based think tank, told Middle East Eye. For Iran’s new leadership, the challenge is to strike a balance between strategic concessions and sanctions relief that allows the country to pursue its security objectives without further crippling the economy. UAE halts trade with Iran Just days before the US sanctions, the United Arab Emirates, one of Iran’s largest trading partners and a key re-export hub, announced the suspension of "all activities, commercial exchanges, and financial transactions" with Tehran until further notice. With UAE-Iran bilateral trade estimated at $20bn annually, it is unclear what exactly prompted the move, The Emirati foreign ministry only said it was in response to "regional escalation". 'This creates a dangerous dynamic in which the US tries to regionalise Iran’s economic isolation while Iran tries to regionalise the costs of that isolation' - Sina Toossi, Centre for International Policy A few hours earlier, the Emirati defence ministry had reported that Iran launched two ballistic missiles towards the UAE, an allegation Tehran denied. One day after the UAE announcement, on 18 August, Trump warned of further economic measures against Iran. The timing may suggest that, while Abu Dhabi is signalling its alignment with Washington, it is also independently distancing itself from Tehran as the US steps up sanctions. The UAE accounts for 30.6 percent of Iranian imports in 2024, according to the World Trade Organization. It was also Iran’s third-largest export market, accounting for 12 percent of Iranian exports, valued at more than $7bn. "It’s hard to know precisely what sparked this decision, although repeated strikes on Abu Dhabi National Oil Company (ADNOC) tankers in the Strait of Hormuz were likely a factor," Justin Alexander, director of Khalij Economics, told MEE. "Abu Dhabi has tried to persuade Iran to behave better through a mixture of carrots and sticks. So, implementation will likely be phased and possibly reversed if Iran permits UAE shipping to flow." Still, the move could signal a more lasting Emirati pivot away from the Islamic Republic. "Whether the UAE wishes to continue such a policy after the war largely depends on the nature of any agreement reached between Iran and the United States," Javad Heiran Nia, director of Persian Gulf Studies at Shahid Beheshti University, told MEE. When the US and Israel first launched their war on Iran in February, the UAE was heavily targeted in retaliation, reporting more than 2,700 Iranian ballistic missile and drone attacks. And while tensions between Tehran and Abu Dhabi have eased since the April ceasefire, the UAE has continued to strengthen its ties with Israel and the United States. Abu Dhabi’s emerging posture towards Iran may ultimately be shaped not only by how the war ends, but also by the security architecture that takes shape in its aftermath. "The UAE may intend to adopt a highly aggressive approach towards Iran in the future," Heiran Nia said. "In such a scenario, the UAE will try to position itself within a security buffer beyond the reach of Iran and its affiliated armed groups in the region, while quietly advancing its cooperation with Israel regarding Iran," he added. Middle East Eye delivers independent and unrivalled coverage and analysis of the Middle East, North Africa and beyond. 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