Introduction
On August 19, 2026, President Trump announced the launch of the most crushing economic operation taken against the enemy and threatened Iran with an “Economic D-Day.” Following the announcement, US Treasury Secretary Scott Bessent announced Operation Economic Outcast against Iran to isolate it economically. Iran has proved to be a strange enemy of the United States, as many American presidents faced the political repercussions of their failed strategies against Iran.
President Carter faced a hostage crisis in 1979, which ultimately resulted in his failure to get reelected as president. Similarly, President Obama’s nuclear deal was criticized by Congress, and Benjamin Netanyahu was invited by Congress to argue against the Joint Comprehensive Plan of Action (JCPOA). In the same manner, President Trump boasted before launching a war against Tehran that the American military might be an overmatch for Iran and Washington would crush Iran’s military prowess in no time.
However, the sixth month of the Iran-US war is about to end, and there is no foreseeable end of war except for a disrupted world economy and another military setback for the most powerful army in the world. After the failure of the military campaign against Iran, the new economic war launched by Washington would also fail because it is more of a threat to the credibility of America rather than Iran, as it will fall short of bringing desired political outcomes in Iran.
From Military Campaign to Economic Warfare
The war between Iran and the US-Israel axis was started with the aim of regime change in Tehran and to prevent Iran from acquiring nuclear weapons. After weeks of fighting, Pakistan and other Muslim countries, including Turkey and Egypt, brokered a ceasefire between the warring parties. In June, the diplomatic efforts by Pakistan resulted in the “Islamabad MOU,” which was seen as the end of the war by the world.
However, due to key unresolved issues such as the future of the Strait of Hormuz, Israel’s war in Lebanon, and Iran’s nuclear program, the talks could not result in the end of the war. To increase pressure on Iran to accept the American terms for ending the war, Washington has changed its strategy from relying solely on military might to focusing on economic warfare and a naval blockade to cripple the Iranian economy and isolate it.
Current Economic Realities of Iran Under Naval Blockade
The current maximum economic pressure by the Trump administration started against the backdrop of an announcement by Abdolnaser Hemmati, the governor of Iran’s Central Bank. He wrote a letter to the Supreme Leader of Iran and informed him about the current situation of the Iranian economy. According to Hemmati, the oil exports of Iran have almost stopped due to a naval blockade by America, and the economic situation is worse than in 2018 when Donald Trump started economic sanctions against Tehran.
For example, in June 2026, Iranian oil exports dropped to their lowest in six years. According to reports from the intelligence firm Kepler, Iranian oil exports were around 2 million barrels per day before the naval blockade, which has been reduced to 300,000 barrels. Tehran was earning around $6 billion from oil exports, which has decreased to less than $800 million.
Economic Warfare as Driver for Further Military Crisis
Operation Economic Outcast is beneficial for Washington, but Tehran considers it a threat, and because of this, Iran would escalate the war to compel America back to a military campaign. By focusing on economic sanctions, America saves the cost of missiles and munitions. For example, one Shahed drone used by Tehran costs $20,000, while one Patriot interceptor missile of America costs $4 million.
Moreover, it will reduce risks to American forces, as the US has already lost 13 servicemen, and Washington will not be required to send ground troops to Tehran. However, for Iranian strategic calculations, it leads to a cost disparity, as Iranian missiles and drone attacks have proven costly for America and its allies. For these reasons, Tehran would be more willing to escalate militarily to counter American economic pressure.
Iran has learned from the war that it can outlast American military might, and it retains enough capacity to retaliate using drones and missiles. Therefore, military escalation by Iran can create a compulsion for Washington to resort to a military campaign, which is now the last thing the Trump administration wants because an increasing number of the American people are now questioning the rationale for the current war.
The Limits of Economic Coercion
Additionally, the economic pressure on Iran is aimed at enabling key policy changes conducive to an end to the war. President Masoud Pezeshkian has accepted the economic woes, but the collapse of the Iranian economy as predicted by the Trump administration is not imminent. There are two ways by which Washington can use economic warfare to bring about policy changes in Tehran.
Firstly, there must be an economic incentive along with economic pressure to compel the Iranian government to change its course, as was the case in the JCPOA. Another way to bring about desired changes in Iran’s political calculus is to break the Iranian capacity to bear the shocks of maximum economic pressure imposed by Washington, which would convert economic pain into political pressure. The current American strategy is focused on the second option, but this would not bring fruitful results because Iran has converted its economy into a survival economy.
A national economy collapses if people stop using the national currency, monthly inflation hits 40-50%, and at least 30 percent of the population has zero access to food. However, the Iranian economy is nowhere close to these figures. According to Hadi Kahalzadeh, an economic expert on Iran, the currency devaluation in Iran has a monthly inflation rate of around 5-6 percent, and it is unlikely that inflation will reach the threshold of 40 percent. Similarly, around 10 percent of people in Iran are in extreme poverty, which is not close to the 30 percent figure set by the World Food Program. Based on these estimates, the economic pressure by Washington will certainly make economic matters worse for Iran, but it will fail to bring desired policy outcomes.
The Missing Link in American Strategy
Another drawback of the economic warfare strategy of the Trump administration against Iran is the exclusion of Iran’s lifeline, China, from Operation Economic Outcast. Beijing is the major buyer of Iranian oil exports and buys 80% of Iranian oil exports. According to Kepler, Beijing bought 500,000 barrels of oil per day in August 2026 from Iran. Iran has developed a system where sanctioned tankers from Tehran transfer oil to unsanctioned tankers, which transfer it to Beijing.
Additionally, the Trump administration wants good relations with Beijing, and it is uncertain whether Washington would sanction Chinese banks, which are engaged in trade with Tehran. The Chinese government denounced the current economic operation and termed it “unreasonable and illegal.” Moreover, Tehran is using the Chinese yuan as an alternative to the US dollar, which is a major hurdle to the effectiveness of US sanctions in isolating Iran.
Lessons From History
Overall, America must learn from its past failed strategies that economic pressure will only result in economic suffering for ordinary Iranian people without changing the political landscape of Iran. The last 47 years of economic pressure have resulted in a costly war rather than any outcome that Washington wanted, such as a complete halt to the Iranian nuclear program or regime change in Tehran. The JCPOA was successful, as Iran was given economic incentives as well, but it was derailed by the first Trump administration.
The Iranian regime wants a say in the future regional order and political dynamics of Tehran, without which any imposed changes would lead to failed outcomes. To make the economic operation a success, America must give Iran some economic incentives and guarantees regarding its regional role and the security of the current regime. This will compel Iranians to negotiate with Washington on issues like the nuclear program and the future of the Strait of Hormuz.
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The views and opinions expressed in this article/paper are the author’s own and do not necessarily reflect the editorial position of Paradigm Shift.
Aresha Fatima Bukhari is a student of international relations at National Defense University.
