Let's unpack what Trump could actually do to increase economic warfare against Iran:

1. Iran has been sanctioned for decades, and relatively intensively since 2010, aside from the JCPOA nuclear deal period. As a result of the sanctions, Iran's economic ties have become heavily concentrated on China, its primary export market, and on regional neighbors (UAE, Iraq, Pakistan, Turkey, etc.).

2. Trump has already taken the most important step he can take against Iranian *revenues*, which is to impose and maintain the naval blockade of Iran's oil ports. Last year, prior to the war and despite sanctions, Iran was exporting approximately 2 million barrels per day, mostly to China. Trump couldn't use sanctions to dry up those oil revenues without blowing up his trade detente with China (since the Chinese would see sanctions on big oil companies or banks as provocative). But the blockade means that recent Iranian exports have been 500,000 barrels per day or less.

3. China has also, in recent years, been the biggest buyer of Iran's non-oil exports and Iran's second-largest supplier of imports. That trade will presumably be disrupted by the blockade as well.

4. As of last month, Kpler estimated that there were 100+ million barrels of Iranian crude in ships already east of Hormuz, beyond the blockade. Trump could deny Iran the short-term revenue by making sure China doesn't buy that crude, or by seizing the ships (diplomacy with China and legal issues permitting).

5. The UAE last year accounted for about 30% of Iran's *imports*, and also served as a financial clearinghouse for covert Iranian financial activity. Helping the UAE enforce its recently announced cutoff of economic ties with Iran would be a useful step.

6. Trump could also try to sanction Iranian-Iraqi ties--there is a lively cross-border trade (Iraq takes about 18% of Iran's non-oil exports), and Iraqi exchange houses have repeatedly helped Iran evade financial sanctions--but that is going to be a continual game of whack-a-mole sanctions enforcement rather than a magic bullet against the Iranian economy. Addressing Iran's cross-border trade with Turkey is going to be similar.

7. Trump needs to keep an eye on Pakistan. Last month Iran announced that it was going to expand bilateral overland trade with Pakistan, which would involve ships unloading Iran-bound cargo at Gwadar (90 minutes by road from Iran) and other Pakistani ports for onward movement by road. Treasury engagement with the Pakistani port operators would seem valuable.

8. Even with the best pressure strategy possible, there is a question about what it can achieve and whether that will force Iran to capitulate. Iran's GDP fell by more than 30% between 2012 and 2015, which got Iran to agree to the somewhat limited JCPOA deal, but not more than that. It rebounded during the JCPOA era but then fell by nearly 50% between 2017 and 2020, under the combined weight of Trump Term 1 sanctions and COVID. But that fall neither caused the regime to collapse nor forced it to cave to U.S. demands. Other authoritarian regimes (Venezuela, Syria) have also weathered 50%+ declines in GDP while maintaining stability for years. It will be interesting to see Iran's economic pain tolerance over the next year or two, and also, if Iran manages to keep Persian Gulf oil transits low, what U.S. tolerance will be for higher-for-longer (albeit not historically extreme) energy prices.

Let's unpack what Trump could actually do to increase economic warfare against Iran:

1. Iran has been sanctioned for decades, and relatively intensively since 2010, aside from the JCPOA nuclear deal period. As a result of the sanctions, Iran's economic ties have become heavily concentrated on China, its primary export market, and on regional neighbors (UAE, Iraq, Pakistan, Turkey, etc.).

2. Trump has already taken the most important step he can take against Iranian *revenues*, which is to impose and maintain the naval blockade of Iran's oil ports. Last year, prior to the war and despite sanctions, Iran was exporting approximately 2 million barrels per day, mostly to China. Trump couldn't use sanctions to dry up those oil revenues without blowing up his trade detente with China (since the Chinese would see sanctions on big oil companies or banks as provocative). But the blockade means that recent Iranian exports have been 500,000 barrels per day or less.

3. China has also, in recent years, been the biggest buyer of Iran's non-oil exports and Iran's second-largest supplier of imports. That trade will presumably be disrupted by the blockade as well.

4. As of last month, Kpler estimated that there were 100+ million barrels of Iranian crude in ships already east of Hormuz, beyond the blockade. Trump could deny Iran the short-term revenue by making sure China doesn't buy that crude, or by seizing the ships (diplomacy with China and legal issues permitting).

5. The UAE last year accounted for about 30% of Iran's *imports*, and also served as a financial clearinghouse for covert Iranian financial activity. Helping the UAE enforce its recently announced cutoff of economic ties with Iran would be a useful step.

6. Trump could also try to sanction Iranian-Iraqi ties--there is a lively cross-border trade (Iraq takes about 18% of Iran's non-oil exports), and Iraqi exchange houses have repeatedly helped Iran evade financial sanctions--but that is going to be a continual game of whack-a-mole sanctions enforcement rather than a magic bullet against the Iranian economy. Addressing Iran's cross-border trade with Turkey is going to be similar.

7. Trump needs to keep an eye on Pakistan. Last month Iran announced that it was going to expand bilateral overland trade with Pakistan, which would involve ships unloading Iran-bound cargo at Gwadar (90 minutes by road from Iran) and other Pakistani ports for onward movement by road. Treasury engagement with the Pakistani port operators would seem valuable.

8. Even with the best pressure strategy possible, there is a question about what it can achieve and whether that will force Iran to capitulate. Iran's GDP fell by more than 30% between 2012 and 2015, which got Iran to agree to the somewhat limited JCPOA deal, but not more than that. It rebounded during the JCPOA era but then fell by nearly 50% between 2017 and 2020, under the combined weight of Trump Term 1 sanctions and COVID. But that fall neither caused the regime to collapse nor forced it to cave to U.S. demands. Other authoritarian regimes (Venezuela, Syria) have also weathered 50%+ declines in GDP while maintaining stability for years. It will be interesting to see Iran's economic pain tolerance over the next year or two, and also, if Iran manages to keep Persian Gulf oil transits low, what U.S. tolerance will be for higher-for-longer (albeit not historically extreme) energy prices.

Source:https://twitter.com/laurnorman/status/2090467096182354186