Can Trump’s economic war against Iran really work?

LONDON: Much has changed since Persian merchants settled in Dubai in the late 19th century, keen to further develop a trading relationship between the two shores of the Gulf which dated back hundreds of years.

For one thing, Al-Bastakiya, the district on the west bank of the Creek where they built their homes, naming it after the southern Iranian town of Bastak, is now known as Al-Fahidi Historical Neighborhood.

For another, although Iran has continued to be the destination for many of the boats that put out from the creek, loaded with everything from cars to fridges, for decades now the main flow of goods to Iran has shifted from the historic wharves of Khor Dubai to the UAE's large, modern ports, such as Jebel Ali.

But if the volume of trade between Iran and Dubai Creek is now little more than symbolic, the fact that in the past week it has dried up completely is a sign that the UAE, the single biggest source of Iranian imports, is trying to be seen to be complying with US President Donald Trump’s latest attempt to cripple the Iranian economy.

Analysts say that whether or not Trump’s Operation Economic Outcast succeeds in its stated aim of isolating Iran on “an unprecedented scale” depends largely on the reaction of two players — the UAE and China.

The UAE, a key US regional ally, is in a particular bind.

Following the outbreak of the war in February, it found itself on the receiving end of Iranian drones and missiles.

On Monday, after the US attacked missile launchers on Iran’s Larak Island, UAE forces intercepted a drone “over the country’s territorial waters, approaching from Iran.”

Now, as one of Iran’s two biggest trading partners, it finds itself obliged to suffer economic harm in the cause of President Trump’s latest attempt to bring Iran to its knees.

Meanwhile, China, America’s great geopolitical rival, which has been absorbing most of Iran’s crude oil for processing in its refineries, has made it clear that it has no plans to go along with Operation Economic Outcast.

“The biggest question now is Beijing’s response,” said Maia Nikoladze, a deputy director at the Atlantic Council’s Economic Statecraft Initiative within the GeoEconomics Center.

“China also has economic leverage that it can use against the US and its allies,” she told Arab News.

“So, I think this is where things are going to end up in a sort of stalemate. If the US escalates economic pressure on China, China can respond with their own measures in the critical minerals space, which is where China has the upper hand.”

It was, she said, interesting timing that Chinese President Xi Jinping, Russian President Vladimir Putin and other leaders of the states that are members of the Shanghai Cooperation Organization, an economic bloc that includes Iran, were meeting in Kyrgyzstan.

“In terms of the optics, it is clear who’s supporting who economically,” she said.

At a press conference on Aug. 25, a spokesman for China’s Foreign Ministry said China had “made clear on many occasions its firm opposition to illicit unilateral sanctions that have no basis in international law or the authorization of the UN Security Council.”

Economic warfare and maximum pressure, he added, “provide no solution.”

“On the contrary,” he said, “they only serve to fuel tensions and lead to risk spillover, which will disrupt the global economic and financial order, and harm the legitimate rights and interests of other countries.”

The “pressing task,” he added, was to “facilitate the deescalation of the situation and return to dialogue and negotiation as soon as possible.”

Then came the warning: “China will do everything necessary to firmly safeguard its rights and interests.”

In the case of Iran, those interests are apparent in the most recent figures for Iran published by the World Trade Organization.

In 2024, China was responsible for more than a quarter of all Iranian imports and was also Iran’s biggest market for exports — 26 percent of the total in both cases.

The UAE also has much to lose by shutting down trade with Iran. Banking and other targeted financial ties aside, in 2024 the UAE was the source of 30.6 percent of all Iranian imports, trade worth about $21 billion, and the recipient of 12.8 percent of Iranian exports.

Iraq, too, has considerable skin in the game. As the market for 20.9 percent of Iranian exports, it is only just behind China.

Noticeably, when US Treasury Secretary Scott Bessent unveiled details of Trump’s “most crushing operation ever taken against any country” on Aug. 24, he tiptoed around what this might mean for China.

This is a delicate issue for both Trump and for Bessent, who is involved in finalizing details of a planned trip to Washington next month by President Xi Jinping.

In an interview with CNBC, asked if China would be targeted, Bessent said: “We want to make clear here today that no one is above the reach of US sanctions.”

He added that if Chinese banks “facilitate transactions and are part of the ecosystem that turns Iranian oil into money, into repression, they will be targeted.”

Before the latest initiative was announced, the US had already sanctioned Chinese shipping lines and oil refiners, including Hengli, China’s second-largest independent, or “teapot,” refinery. In April, the US Treasury said Hengli had bought billions of dollars’ worth of crude oil from Iran and was “one of Tehran’s most valued customers.”

But, while Iran's Bank Melli is high on the list of more than 60 entities, individuals and vessels targeted by Operation Economic Outcast, many analysts have noted the conspicuous absence of Chinese banks.

“A sanctions order that names Chinese shipping brokers but not Chinese banks was not comprehensive on August 19,” wrote Imran Khalid, a geopolitical analyst, in a bulletin for Modern Diplomacy on Monday.

“Eight days, one formal unveiling and a (Chinese) Foreign Ministry rebuke later, it still isn’t.”

In short, he concluded, “Trump’s economic D-Day threatens everyone but China.”

Last week, the US Treasury hinted that action was coming against a major bank, but once again it turns out that no Chinese institution is in the frame.

Instead, the UAE’s feathers were ruffled once more.

On Friday, the US Treasury’s Financial Crimes Enforcement Network (FinCEN) proposed a rule that would revoke the UAE branch of Egypt’s Banque Misr’s correspondent banking access to US financial institutions.

“Treasury promised to sever every economic lifeline Tehran has left and finally end the threat of the Iranian regime,” said Bessent.

“We also warned that Iran’s enablers cannot continue to enjoy access to the US dollar and the global financial system.

"Banque Misr UAE decided to find out the hard way, and today, we are taking the first step in holding it accountable for its continued, egregious support of the Iranian regime.”

Banque Misr UAE, the Treasury added, “is a critical node for the Iranian regime’s access to US dollars.”

The Treasury estimates that between January 2024 and June 2026, Banque Misr UAE processed approximately $1.8 billion for 103 companies “that are potentially part of Iranian shadow banking networks.”

At the same time, the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Reza Mohammad Taeedi, the manager of Iran-linked Bank Melli’s Dubai branch.

In a statement on Saturday, the bank said it was reviewing the US Treasury notice and “dealing with these measures and the data and estimates they contain with the utmost seriousness and attention, and is studying them thoroughly.”

The UAE Central Bank said it expected banks licensed in the UAE “not to expose the UAE’s financial system to reputational risks,” and that it was conducting “a special and urgent examination that includes a forensic/in-depth lookback covering the period referred to in the statement issued by the US authorities.”

Neil Quilliam, associated fellow of the Middle East & North Africa Program at Chatham House, told Arab News that “for Gulf Arab states, Operation Economic Outcast is likely to be welcomed insofar as it further constrains Iran’s economic capacity.

“However, regional policymakers have seen successive rounds of sanctions over many years and are likely to reserve judgement.

“They understand that Iran’s ability to adapt, and Washington’s willingness to enforce secondary sanctions against third parties, will be more important than the headline measures announced this week.”

The effectiveness of the initiative, Quilliam added, “will depend less on measures directed at Iran itself than on the willingness of the Trump administration to target those countries, financial institutions and commercial actors that continue to facilitate Iranian trade.”

This, he said, “brings the focus squarely onto China, which remains Iran’s most important economic partner, but also onto a wider network of businesses and intermediaries operating across Asia and elsewhere.

“If enforcement proves selective, Iran will continue to find channels through which it can access markets and generate revenue.”

There is, Quilliam said, “also a broader geopolitical challenge. Washington can increase pressure on Tehran, but doing so requires imposing costs on actors whose cooperation the US may need in other areas.”