Washington believes unprecedented sanctions can achieve what nearly six months of war and diplomacy have failed to deliver. But the campaign depends upon Chinese compliance, while Iran retains the power to spread the economic damage far beyond its borders.
President Donald Trump has announced an “economic D Day” against Iran: a campaign of sanctions, seizures and financial isolation intended not merely to weaken the country but to collapse its government. It is a formidable threat. It may also rest on a misunderstanding of where American power ends.
The United States can obstruct Iranian oil exports, blacklist intermediaries, seize assets and threaten foreign banks. What it cannot easily determine is the political result.
Iran has endured American sanctions for decades. Its economy is vulnerable, but its state has become experienced in surviving isolation. Washington may again be confusing its ability to inflict suffering with an ability to compel surrender.
The sanctions dilemma
Treasury Secretary Scott Bessent has promised the toughest sanctions ever imposed on a country. American officials say they will pursue banks, cryptocurrency accounts, oil traders, ship registries and the tankers used to disguise Iranian exports.
This is an intensification of an established strategy. Since Washington withdrew from the nuclear agreement in 2018, it has tried to drive Iranian oil exports towards zero.
Iranian living standards have suffered. The currency has depreciated, imported goods have become more expensive and investment has been constrained. Yet maximum pressure did not produce maximum compliance. Iran expanded its nuclear programme and developed new methods of trading beyond conventional Western channels.
The central distinction
Iranian resilience does not mean economic health. The state may survive while its population becomes poorer, its industries deteriorate and its dependence on China increases. Regime survival and national prosperity are not the same thing.
The campaign leads to China
China is the indispensable external element in Iran’s survival. Chinese buyers take most of Iran’s exported crude, much of it through independent companies known as teapot refineries. Payments can pass through restricted accounts and arrangements outside the dollar system.
The US Treasury has already sanctioned Chinese refineries, terminals and shipping companies. But sanctioning another tanker or Iranian intermediary will not end the trade. To achieve the isolation promised by Trump and Bessent, Washington must confront the companies buying the oil and the institutions processing their payments.
The campaign would then become an attempt to compel the world’s second largest economy to enforce American policy.
China has rejected that demand. Beijing says sanctions will not end the conflict and insists that its trade with Iran is not subject to American approval. Chinese statements advance Beijing’s interests, just as Treasury statements advance Washington’s. The collision between them is nevertheless real.
China can resist but its companies still calculate
A small Chinese refinery with little exposure to Western markets may continue purchasing discounted Iranian oil. A major bank requiring access to dollar clearing may be more cautious.
China can reject American sanctions politically while some Chinese businesses quietly reduce their exposure. Washington does not need to stop every barrel to hurt Tehran. Larger discounts and higher transport costs reduce the revenue Iran receives.
But action against major Chinese banks could invite retaliation through critical minerals, industrial supply chains or restrictions on American companies.
Washington therefore faces a difficult choice. Measures limited enough to avoid confrontation with China may be insufficient to collapse Iran. Measures severe enough to threaten Iran’s survival may provoke a wider economic conflict.
Iran cannot be completely sealed
Iran borders Iraq, Turkey, Armenia, Azerbaijan, Turkmenistan, Afghanistan and Pakistan. It also has access to the Caspian Sea and transport connections towards Russia, Central Asia and China.
These corridors make complete isolation almost impossible. Goods, components and limited quantities of petroleum can continue moving when maritime trade is restricted.
Yet roads and railways cannot replace unrestricted tanker exports. Overland trade has limited capacity and brings greater costs, delays and political risks. The corridors can keep Iran functioning. They cannot make a blockade harmless.
Who controls the Strait of Hormuz?
Washington says the US military has created a protected route near Oman and restored substantial oil flows. Tehran insists that it decides which vessels may pass. Neither possesses exclusive control.
Kpler estimates that about 374 million barrels left the Gulf during the sixty day memorandum between Washington and Tehran. That amounted to roughly 6.1 million barrels a day, compared with about 15 million barrels a day in 2025.
The agreement cleared part of the accumulated backlog. It did not restore normal commerce.
Hormuz in figures
About 6.1 million barrels a day left the Gulf during the memorandum. That was only around forty per cent of the normal 2025 flow. Hormuz is neither freely open nor completely closed.
Iran has authorised selected Iraqi vessels and promised favourable treatment for Russian and Chinese shipping. This resembles selective passage rather than complete closure.
Iran does not need to sink every tanker. It needs only to create enough danger that owners, crews and insurers hesitate. A channel can remain physically navigable while becoming commercially unattractive.
If Iran cannot export will anyone export?
Iran’s likely response to greater economic pressure is progressive escalation rather than an immediate attack inviting overwhelming retaliation.
Tehran could restrict passage, threaten shipping or target the ports, pipelines and energy installations of American allies. The logic is simple. If Iran is prevented from selling oil, it will make it harder for rival Gulf producers to sell theirs.
Iran also faces constraints. China, India, Japan, South Korea and Southeast Asian economies depend upon imported energy. Their opposition to American sanctions does not mean they will tolerate indefinite disruption.
Iran must impose enough pressure to increase Washington’s costs without turning its principal Asian partners against it.
America is not immune
The confrontation is unfolding while American government debt and borrowing costs are rising. Prolonged disruption in the Gulf can keep energy prices high, worsen inflation and increase government, mortgage and corporate financing costs.
The dollar remains the dominant international currency. But central banks have accumulated gold, while some governments are reducing their exposure to assets that Washington can freeze or seize.
The sanctions paradox
The dollar gives Washington extraordinary coercive power. Every expansive use of that power gives other states another reason to trade and hold reserves outside the American system.
Economic warfare is still warfare
Not every financial sanction is legally an act of war. A campaign explicitly intended to collapse a government is nevertheless not peaceful merely because its principal instruments are financial.
Its effects include shortages, unemployment, deteriorating services and civilian suffering. Iran may not distinguish between military and economic attack when deciding how to respond. Washington itself is using the language of war.
A system of reciprocal vulnerability
The United States can reduce Iranian revenue, frighten intermediaries and make international trade more expensive. Iran’s alternative routes cannot fully replace maritime commerce, and its population is already under severe pressure.
Iran nevertheless retains enough oil, geography, military capability and external support to make rapid collapse unlikely. China will not willingly implement American policy. Russia, India, Pakistan and the Gulf states will pursue their own interests.
Hormuz remains contested. America can force some passages. Iran can keep commerce uncertain. Washington can damage the Iranian economy. Tehran can transmit part of that damage into oil prices, insurance costs and Gulf infrastructure.
Neither side possesses decisive leverage. Both can impose serious costs.
The most crushing sanctions campaign in history may crush a great deal without producing victory.