US weighs harsher Iran squeeze despite economic blowback

Washington is preparing another escalation of economic pressure on Iran, with Treasury Secretary Scott Bessent promising measures without precedent even as the options left to exploit carry growing risks for energy markets, China relations and the US economy.

Bessent has said new steps will be announced next week and described the strategy as combining extreme financial isolation with the continuing blockade of Iranian ports. The administration has disclosed few details, leaving attention focused on the channels through which Tehran still earns, transfers and stores money despite years of sanctions.

One of the clearest targets is the network of foreign banks, refiners, traders and intermediaries that remains willing to handle Iranian business. Washington has already warned that foreign financial institutions facilitating prohibited transactions could face secondary sanctions, potentially restricting their access to the US financial system. China-based independent oil refiners are a particular focus because they have absorbed much of Iran’s sanctioned crude.

Treasury has steadily expanded its campaign against those buyers. It sanctioned China-based Hengli Petrochemical’s Dalian refinery in April and targeted about 40 shipping firms and vessels involved in moving Iranian petroleum. More than 1,000 Iran-related people, vessels and aircraft had been sanctioned under the maximum-pressure campaign since February 2025 by that point.

The next stage could extend deeper into the financial infrastructure behind those transactions. Front companies, correspondent banking relationships, payment intermediaries and financial institutions processing funds linked to sanctioned trade offer potential pressure points. Treasury has explicitly warned banks to conduct enhanced scrutiny of transactions involving independent refiners, particularly those operating in China’s Shandong province.

Digital assets have also become an important enforcement front. Treasury says its actions have contributed to the freezing of nearly half a billion dollars in cryptocurrency connected to Tehran-linked activity, alongside moves against shadow banking networks used to repatriate oil proceeds. That suggests tougher restrictions could increasingly target exchanges, wallets, brokers and companies helping Iran move funds outside conventional banking channels.

Another vulnerability is Iran’s network of overseas commercial fronts linked to the Islamic Revolutionary Guard Corps. Treasury has been targeting shell companies and intermediaries that arrange oil sales, collect payments abroad and obscure the ultimate beneficiaries. Iraqi facilitators and entities associated with Iran-backed armed groups have also faced sanctions as Washington widens scrutiny beyond Iran’s borders.

Yet the economic room for escalation is narrowing. Iranian oil loadings have already fallen sharply from about 1.8 million barrels a day before the war to below 500,000 barrels a day over the past month. Iran’s annual inflation rate has been reported at 88.6%, while the International Monetary Fund expects its economy to contract 5.4%.

Those figures raise questions over how much additional pressure sanctions alone can produce quickly. Iran has survived decades of financial restrictions by developing informal trading systems, using intermediaries and accepting steep discounts for oil. Economic coercion can deepen shortages and constrain government revenue without necessarily producing an immediate change in strategic policy.

Washington therefore faces a difficult trade-off if it targets the remaining channels more aggressively. Penalising major foreign financial institutions or large Chinese energy companies could sharpen tensions with Beijing and disrupt commercial relationships far beyond Iran. Measures that remove additional Iranian crude from the market could also lift global energy prices at a time when disruption in the Strait of Hormuz is already restricting supply.

Traffic through the strait has collapsed from roughly 130 to 140 vessels before the war to only a fraction of that level on some days. About one-fifth of global oil and liquefied natural gas shipments used the waterway before the conflict, making further disruption a threat to fuel prices and global growth.

The International Energy Agency now expects global oil supply to fall by 4.3 million barrels a day this year, an outlook that intensifies the domestic political risks facing President Donald Trump. Higher petrol prices and elevated inflation have already complicated the administration’s argument that greater economic pressure can weaken Tehran without inflicting substantial costs on US consumers.