BEIRUT — Already grappling with crippling hyperinflation, decades of sweeping Western sanctions, and a war that has eviscerated its critical oil export revenue, Iran’s fragile economy is bracing for a new wave of destabilization as the Trump administration ramps up pressure on the global community to sever all financial and commercial ties with the Islamic Republic. The Trump administration’s latest campaign to force Tehran into compliance gained momentum last week, when the United Arab Emirates announced it would suspend all formal trade relations with Iran — a move that leaves Iran with far fewer economic lifelines at a moment when its foreign commerce was already concentrated among a tiny handful of partner nations. The outcome of the U.S. strategy will largely depend on the stance of China, Iran’s top trading partner and the largest buyer of its crude oil, while Russia — Tehran’s longstanding ally and a fellow target of broad U.S. sanctions — is mired in its own military conflict and economic turmoil, leaving it with limited capacity to provide meaningful financial support to Iran. Regional actors including Turkey, Pakistan and Iraq maintain deep economic and political ties with both Washington and Tehran, leaving them wary of triggering the harsh secondary sanctions that Treasury Secretary Scott Bessent has warned will be imposed on any nation that refuses to cut economic ties with Iran. “Those who stand with the United States will reap the rewards of our partnership,” Bessent told reporters Monday while unveiling the administration’s new initiative, dubbed “Operation Economic Outcast.” “Those who tether themselves to the Iranian regime should expect to share in the isolation.” For Iran, replacing the UAE as a key trade and financial gateway will be no quick or easy task. According to data from Trade Data Monitor, a private industry analytics firm, Iran conducted $125 billion in total global goods trade in 2024, despite decades of Western restrictions. Not a member of the World Trade Organization, Iran’s official trade is overwhelmingly concentrated among just a handful of partners: the UAE, China and Turkey account for nearly three-quarters of all Iran’s merchandise imports, while four nations — China, Iraq, the UAE and Turkey — handle more than two-thirds of its non-oil exports. Beyond direct trade, the UAE has long served an irreplaceable role as a logistical and financial intermediary for Iran, keeping the country connected to global markets even amid sweeping sanctions. As a leading global re-export hub, the UAE processed shipments from international suppliers that refused to conduct direct business with Iranian customers, while also providing access to cross-border payment channels that allowed Iranian businesses to send and receive international funds. “From Iran’s perspective, the UAE can be replaced, but the Iranians are openly saying it’s not going to happen overnight,” explained Alex Vatanka, a senior fellow at the Washington-based Middle East Institute. While China maintains deep-rooted economic ties with Iran, Beijing is far less dependent on the relationship than Tehran is. China’s economic interests across the Persian Gulf extend well beyond Iran, and Beijing has so far avoided being drawn into the conflict initiated by the U.S. and Israel. Currently, China purchases the overwhelming majority of Iran’s crude oil via opaque trading networks that bypass existing U.S. sanctions. Unlike smaller regional partners, China’s massive manufacturing sector and its control over global supplies of critical minerals give it far more leverage to resist U.S. pressure, according to David Lubin, a senior research fellow at London-based think tank Chatham House. He notes that aggressive U.S. action against major Chinese banks and corporations that do business with Iran would reignite bilateral trade tensions at a sensitive moment, just as Chinese leader Xi Jinping prepares for a high-stakes meeting with President Trump in Washington next month. “I don’t see China playing ball by any means,” Lubin said. Data from the WTO and United Nations confirms that China is both Iran’s largest documented export market and a top supplier of critical industrial components and consumer goods. Daniel Fried, an Atlantic Council fellow and former U.S. ambassador to Poland, recalled that during the Obama administration, Beijing agreed to cut its energy imports from Iran as part of a broader nuclear agreement. “We will want the Chinese to go a lot farther than they have gone in the past,” Fried said. “But it’s a lot harder now.” China has a long track record of helping sanctioned allies weather international pressure: for decades, it has served as North Korea’s primary economic lifeline and top diplomatic backer, and experts widely assess that Beijing has avoided fully enforcing UN sanctions on Pyongyang, providing clandestine aid to keep the impoverished regime stable. Even if Iran succeeds in shifting more trade to regional partners, the move would create new frictions for Tehran’s neighbors. The day the UAE announced its trade suspension, Iranian Parliament Speaker Mohammad Bagher Qalibaf — who has led Tehran’s negotiations with regional actors over the past six months — was on an official visit to Iraq. Qalibaf framed the trip as focused on “speeding up efforts to expand joint cooperation among all countries in the region, without foreign interference.” Still, the U.S. dollar’s central role in global trade and finance means no country is willing to antagonize Washington lightly, Vatanka noted. “We’re still at a point where if the U.S. wants to hurt you, it will matter,” he said. The risk of U.S. retaliation is already shaping regional policy: in July, Turkey resolved a yearslong U.S. dispute over a state-owned bank’s role in helping Iran evade sanctions via an oil-for-gold scheme. In exchange, Trump lifted crippling sanctions on the NATO member that were imposed over Turkey’s purchase of a sophisticated Russian air defense system. “I really don’t think Turkey would like to become the next country helping Iran to evade sanctions right now,” said Riccardo Gasco, an analyst at Istanbul-based think tank IstanPol. For Iraq, Iran is a critical import supplier and retains major political influence via allied Iraqi political factions and armed groups, but Baghdad has sought closer economic and security ties with Washington in recent years. Since the 2003 U.S. invasion, Washington retains significant control over Iraq’s foreign currency reserves, which are held at the Federal Reserve Bank of New York, leaving Baghdad with little room to defy U.S. pressure. Oman, which has long served as a neutral intermediary between Washington and Tehran, has found its delicate balancing act increasingly precarious. Last week, Trump issued a public threat against Oman over its ongoing negotiations with Iran regarding the future management of the Strait of Hormuz, one of the world’s most critical oil chokepoints. One potential workaround for sanctions could be rerouting trade through Pakistani ports near the Persian Gulf such as Gwadar, said Peter Harrell, a visiting scholar at Georgetown University. “Ship an intermodal container of drone parts to one of the ports in western Pakistan and unload it onto a truck and have it driven across the border into Iran,” Harrell explained. While Pakistan — a key regional ally and economic partner of China — has expressed interest in expanding bilateral trade with Iran, it faces competing geopolitical pressures: it currently serves as a neutral mediator between Tehran and Washington, and maintains deep security ties with Saudi Arabia, Iran’s longstanding regional rival. Alternative trade routes through the Caspian Sea are unlikely to expand fast enough to offset the loss of UAE trade, analysts say. With the Strait of Hormuz largely blockaded and Russia’s war in Ukraine disrupting commercial shipping in the Black Sea, Iran has pushed to develop what it calls a “road of life” through the Caspian, according to Nikita Smagin, an independent analyst and former Russian state news correspondent based in Tehran. This year, Russia has reportedly supplied drones to Iran, repaying Tehran for its early support of Moscow’s full-scale invasion of Ukraine. Russia has also rerouted a portion of its exports to Iran via Caspian ports such as Astrakhan. Currently, 80% of official trade between Russia and Iran consists of agricultural products. “Both economies are exporting natural resources and have little to offer each other,” Smagin said. The other Caspian-bordering nations — Azerbaijan, Turkmenistan and Kazakhstan — are unlikely to rush to open new trade routes with Iran, said Umud Shokri, a fellow at George Mason University. Still, Russia and Iran have operated for years as an “axis of the sanctioned,” noted Mark Galeotti, executive director of intelligence firm Mayak Intelligence. The two countries have collaborated for decades to evade trade restrictions, and Galeotti said an expansion of bilateral trade in strategic goods and contraband — including military technology, microchips and luxury counterfeit goods — could be the next step. “Pomegranates and tomatoes only go so far,” he said. This report was contributed to by Associated Press writers McNeil in Brussels, Amir Vahdat in Tehran, and Dasha Litvinova in Tallinn, Estonia.
Iran scrambles to sustain trade as US threatens to sanction countries that refuse to break ties
