Iran prepares to keep economy alive as US threatens further sanctions

Amid trade embargoes, asset freezes and attacks on ships as part of a naval blockade, Washington has announced a plan to enact a new wave of restrictions on Iran, targeting its economy.

Treasury Secretary Scott Bessent said last Thursday that the United States was planning to inflict more economic damage on Tehran as early as this week. The US would apply measures that have “never been seen in the history of economic isolation on a country”, Bessent said.

Recommended Stories

list of 3 items- list 1 of 3Iran signals readiness for ‘US ground operations’ as strategy shifts gear

- list 2 of 3Trump hails Mecca pact: Can it replace the region’s US security umbrella?

- list 3 of 3Can China’s new Arctic sea route to Europe replace Middle East chokepoints?

A day later on Friday, President Donald Trump echoed Bessent and said that Iran would be hit hard economically.

As the memorandum of understanding (MoU) expired on Monday, Trump called on Tehran to hold up the “white flag of surrender” but insisted that he was in no rush to end the war.

Since February 2025, following the start of Trump’s second term in office, Washington has sanctioned “more than 1,000 Iran-related persons, vessels, and aircraft”, the Treasury’s Office of Foreign Assets Control (OFAC) said in May.

Remaining defiant, Iran’s authorities have said they could shift to offensive operations, and are simultaneously prepared to counter a potential ground invasion.

According to Mohammad Reza Farzanegan, professor of economics of the Middle East at Philipps-Universitat Marburg in Germany, the naval blockade creates a new situation in which traditional sanctions packages are combined with the use of military force to generate a physical shortage of goods in the Iranian economy.

“This is an additional burden that raises new questions for policymakers in Tehran: Should they choose a deal whose terms are dictated by the Trump administration, or should they continue the armed conflict to break the blockade of the ports? It currently seems that Iran is leaning toward the second option,” he told Al Jazeera.

Farzanegan said that for the US to achieve its goals, namely changing the behaviour of the Iranian government, it should also “open a diplomatic exit and offer it as an option”.

If armed conflict does fully resume, he said “the costs will not be confined to the target of sanctions; the global economy will also pay a price” through continued disruptions in the Strait of Hormuz and attacks across the region.

Iran emphasises MoU commitments

Meanwhile, talks have stalled in finding a way out of the war, although Iran’s negotiations have been ongoing with Oman and other mediators over a potential temporary arrangement in the Strait of Hormuz, where one-fifth of the global oil and natural gas used to flow before the war.

Iran’s parliament speaker and top negotiator, Mohammad Bagher Ghalibaf, told state media on Tuesday that the Strait of Hormuz would remain closed until the US meets the conditions of the now-expired MoU.

“Let me state clearly: Until the commitments made by the United States in the memorandum of understanding, including the lifting of the blockade, the release of frozen assets, the lifting of oil sanctions, the end of threats and military operations on all fronts, and other conditions to which America agreed in the memorandum, are implemented, the strait will not be opened,” Ghalibaf said.

With tensions soaring before the war, Iran’s government delegated some authorities to border provinces to import essential goods and build up inventories.

To survive the blockade over recent months, Iran has also focused more on rerouting imports of food, consumer goods and industrial inputs through land borders with Pakistan, Turkiye and others, as well as through the Caspian Sea with Russia and Central Asia.

During the brief ceasefire period established under the MoU, the blockade was lifted for several weeks in late June and early July, enabling the rapid export of oil stored on board supertankers and giving the military time to regroup.

But Iran’s oil exports have stopped once again since the breakdown of the deal, and US and Israeli authorities have discussed disrupting Iran’s inland imports to ramp up the pressure.

The mounting pressure has only exacerbated Iran’s structural economic issues, rooted in decades of domestic corruption and mismanagement, as well as sanctions and international isolation.

For the country’s roughly 90 million people, the consequences include persistent inflation, insecure and poorly paid work, declining purchasing power and growing uncertainty about the future.

Against this backdrop, President Masoud Pezeshkian’s administration this week named stabilising markets, protecting livelihoods and strengthening national resilience as its priorities for the next two years.

However, Mahdi Ghodsi, a senior economist at the Vienna Institute for International Economic Studies, said Iran’s prolonged stagnation over most of the past 15 years suggested that government policy had not been aligned with those objectives.

He told Al Jazeera that to guarantee sustainable economic growth, the Islamic Republic would have to reduce confrontation with the US, the West and Israel while pursuing meaningful domestic reforms that would involve moving away from coercive social controls to restore some public trust.

“Without both external de-escalation and domestic political reform, the government may be able to slow the deterioration in living standards and market conditions, but it is unlikely to deliver durable stability, stronger livelihoods or genuine national resilience,” Ghodsi said.

Energy in the crosshairs

US media outlets have reported that Washington’s forthcoming measures against Iran could include sanctioning additional independent Chinese refineries – known as “teapots” – that buy or process Iranian crude.

OFAC has already imposed secondary sanctions on smaller China- and Hong Kong-based entities processing Iranian oil money, but it could go a major step further by following through on its threat of designating larger Chinese banks if they touch Iran-linked funds.

That move risks prompting a response from China, at a time when Washington is concerned about curtailed exports of critical minerals.

Economist Ghodsi said energy remained the most powerful source of US leverage over Iran, particularly after US and Israeli attacks damaged the country’s infrastructure.

“If the blockade persists into autumn and winter, the country risks severe supply shortages. Iran was already struggling with electricity, gas and water imbalances before this shock; further constraints would mean deeper rationing and temporary shutdowns in industry to preserve household supply,” he said.

The government has also reduced some subsidised petrol quotas for personal vehicles and has been considering raising fuel costs – after an earlier increase last December. Necessary but costly fuel imports amounting to several billion dollars per year have stopped as a result of the war and blockade.

Ghodsi said that is why the US would likely target Iran’s external energy trade, involving maritime transport, shipping services, insurance, payments and the foreign buyers and intermediaries that keep those flows operating.

“In practice, that means tighter enforcement against entities in China and elsewhere that facilitate sanctioned energy transactions, together with closer scrutiny of trans-shipment and payment routes through neighbouring countries and other trade partners,” he said.

Reporting originally appeared via Al Jazeera. Read the full source for additional context.