Success of ‘Operation Economic Outcast’ will hinge on China’s cooperation

The Trump administration is now targeting Iran economically in addition to its ongoing military actions against the country. This strategy, dubbed "Operation Economic Outcast," aims to pressure companies and financial institutions worldwide that engage in business with Iran. Treasury Secretary Scott Bessent declared the operation at the Treasury building in Washington, promising to target the intermediaries and financial networks Iran uses for oil smuggling and sanctions evasion.

The Treasury has expanded its secondary sanctions to five sectors, including digital assets, technology, gold, aviation and shipping. This move is aimed at severing all economic ties that support the Iranian regime until Tehran stands alone. The US has not yet sanctioned major Chinese banks and companies, which are the largest buyers of Iranian crude oil.

China, the world's largest buyer of Iran's crude oil, purchases an estimated 80%-90% of its exports. If the US sanctions a major Chinese bank, it could lose access to US financial markets, face disruptions to its dollar-clearing operations, and potentially be shut out of the global financial system. The sanctions could also lead to a cascading effect, prompting financial institutions and companies in other countries to cut ties with the sanctioned bank.

This new economic warfare approach reflects the rising costs of military operations and the lack of a clear exit strategy for the US. However, the success of this strategy hinges on China's cooperation, making it a critical wildcard in the ongoing conflict with Iran.