Experts react: Will Trump’s Operation Economic Outcast isolate Iran?

Atlantic Council  |  Daniel Fried, Maia Nikoladze, Andrew L. Peek, Nate Swanson, Lesley Chavkin, Dexter Tiff Roberts, Khalid Azim, Jonathan Panikoff, Thomas S. Warrick

US Treasury Secretary Scott Bessent announced Operation Economic Outcast on August 24, 2026, launching sanctions against sixty entities in Hong Kong, China, Malaysia, Singapore, and the United Arab Emirates to sever economic lifelines sustaining Tehran. The initiative targets shadow fleet tankers and illicit financial networks laundering Iranian oil sales, while threatening secondary sanctions against major international financial institutions to enforce compliance.

These actions build upon earlier Treasury measures under Operation Economic Fury aimed at dismantling Iranian shadow banking infrastructure amidst ongoing conflict in the Middle East. Sanctions enforcement hinges on third-party compliance. With Chinese refineries purchasing nearly 90 percent of Iranian crude, Beijing’s response remains critical ahead of an upcoming bilateral summit with Washington. Atlantic Council analysts note that while secondary sanctions create significant pressure, they risk economic retaliation, regional escalation against Gulf energy infrastructure, and diplomatic strain without guaranteeing structural policy changes in Iran.

Comment

The economic viability of secondary sanctions under Operation Economic Outcast depends on targeting clearing banks rather than front companies. Secondary enforcement by the US Department of the Treasury's Office of Foreign Assets Control creates structural disincentives for international commercial banks handling Iranian oil clearing operations. Foreign financial institutions operating in Dubai or Singapore face complete exclusion from Fedwire settlement channels if designated.

This clearing asymmetry forces sanctioned trade into illiquid, non-dollar currency swaps and bilateral ledger balancing. Chinese teapot refineries in Shandong process Iranian heavy crude through local financial institutions like Bank of Kunlun, which remain insulated from US dollar clearing systems. Consequently, the Office of Foreign Assets Control faces structural limits when trade settlement migrates to Bank of Kunlun and non-dollar clearing systems.

Strategic Question for Discussion

Which carries greater weight in constraining third-country compliance with Operation Economic Outcast — the threat of Fedwire exclusion or the willingness of state-backed institutions like Bank of Kunlun to absorb secondary sanctions?

The historical record of secondary enforcement suggests that the threat of Fedwire exclusion deters commercial institutions in major financial hubs like Dubai and Singapore. However, state-insulated entities such as Bank of Kunlun demonstrate that sovereign backstops can absorb secondary sanctions when bilateral energy trade remains a strategic priority. Consequently, secondary economic pressure degrades commercial financial channels without fully severing state-sanctioned energy clearing mechanisms.

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