Iran Tensions Rise as US Widens Sanctions but Spares Chinese Banks

Iran tensions have escalated following the US Treasury's announcement of expanded sanctions targeting Iran, as the measures seek to cut off the country's economic lifeline while issuing warnings to trading partners. The US Treasury announced expanded sanctions on Iran targeting 60 individuals, entities and vessels while warning trading partners to sever ties or face secondary penalties that could exclude them from the dollar-based financial system. [1] [5]

US Announces Expanded Sanctions

US Treasury Secretary Scott Bessent unveiled the measures on Monday but stopped short of the most punishing sanctions, saying countries that continued trading with Iran risked being forced out of the dollar-based financial system. [1] The Treasury Department did announce new sanctions on 60 individuals, entities and vessels, but the list did not include any of the Chinese financial institutions suspected of facilitating Iran's oil trade. [1] [5] According to US officials, the new sanctions will target five vital sectors: digital assets, technology, gold, aviation and shipping, alongside oil revenue and 60 entities, vessels and individuals accused of enabling the regime. [2] Bessent declined to identify the countries that would be targeted or reveal when those penalties would take effect, saying he would instead provide them time to comply with the new directive. [1] Bessent said the US was launching an “economic onslaught” against Iran’s financial connections around the globe. [5] He previewed a “major announcement” of sanctions on a financial institution by the end of the week. [5] Bessent singled out Iran’s Bank Melli, which continues to operate branches in Europe, the Middle East and Asia, stating “Every branch of Bank Melli must be shuttered and dark.” [5]

Iran Promises Retaliation

Iran promised to retaliate against expanded US economic sanctions that the Americans said would cut off Iran's economic lifeline, with Tehran expressing confidence that major trading partners would resist Washington's pressure campaign. [1] Before the announcement, Iran threatened both a possible military response and further reduction in oil exports from the Gulf in response to any US economic measures. [1] Afterwards, Iranian Economy Minister Ali Madanizadeh said, "We are fully prepared for the US sanctions." [1] "Naturally, the enemies intend to launch an economic terrorist attack on us, but we also have our own tools and know how to play the game. Our defence is no longer so defensive; the enemies should wait for an attack," Madanizadeh told state television. [1] He also said neither China nor Russia had "accepted" the US measures, and predicted other countries would resist them. [1] Brigadier General Hossein Mohebbi, a spokesperson for Iran's Islamic Revolutionary Guard Corps, vowed heavy blows to US vital interests and energy chokepoints if Iran's infrastructure is threatened. [1]

China Spared Immediate Penalties

The Treasury Department announced new sanctions on 60 individuals, entities and vessels, but that list did not include any of the Chinese financial institutions suspected of facilitating Iran’s oil trade. [1] [5] Asked why he stopped short of actually imposing penalties on Iran and declined to identify the countries that would be targeted, Bessent responded, "Why would I want to blow up the global financial system?" [1] He said he wanted to give countries and companies time to sever ties. [1] Bessent previously urged cooperation from China, the biggest buyer of Iranian oil for several years, although the US blockade of Iran's ports, renewed in mid-July, has already cut Iranian oil flows to China. [1] Experts say Washington is wary of Chinese retaliation for any sanctions on its banks ahead of expected talks next month between US President Donald Trump and Chinese President Xi Jinping. [1] Asked about Chinese banks on Monday, Bessent said, "We want to make clear here today that no one is above the reach of US sanctions." [1] He added that if they facilitate transactions and are part of the ecosystem that turns Iranian oil into money, into repression, they will be targeted. [5]

Context of Six-Month War

Struggling to resolve an unpopular war that has pushed energy prices higher, the administration of President Donald Trump appears to be counting on further economic pressure even though Iran has spent decades under layers of US and international sanctions that have battered its economy but have not deterred its leadership. [1] Almost six months have passed since the US and Israel launched strikes on Iran. [1] While the war has degraded much of Iran's conventional military capacity, inflicted economic pain and killed then-Supreme Leader Ayatollah Ali Khamenei, Iran has preserved enough missile and drone capability to attack its Gulf neighbours and threaten oil tankers in the Strait of Hormuz. [1] The exact state of Iran's nuclear program, which the Americans and Israelis aim to wipe out, remains unknown. [1] As the war with Iran nears its six-month mark, US Treasury Secretary Scott Bessent says the US is launching an 'economic onslaught' against Iran's financial connections around the globe. [5] Trump’s war with Iran, which has pushed energy prices higher worldwide, is about to hit its six-month mark. [5] While heavy fighting has subsided, diplomatic efforts to end the war have stalled and oil and raw material shipping through the Strait of Hormuz remains blocked, keeping energy prices elevated. [5]

Reactions and Mediation Efforts

The Chinese Foreign Ministry said sanctions and pressure tactics do not help and Beijing would do what was necessary to protect China's interests. [1] Amid the sabre-rattling, Pakistani army chief Asim Munir visited Iranian President Masoud Pezeshkian in Tehran on Monday in a peace mission that came after Munir spoke with Trump last week, according to three Pakistani sources. [1] "The United States must correct its tone and approach in interacting with Iran, because relying on coercion and bullying will only complicate the processes," Iranian state media quoted Pezeshkian as telling Munir. [1] Pakistan's earlier mediation efforts between the US and Iran resulted in an interim peace agreement signed in June, but the Islamabad Memorandum quickly faltered. [1]

Market and Long-term Outlook

Despite Monday's announcement, oil prices fell more than US$2 a barrel on Monday, though investors braced for the prospect of further supply disruptions from the Middle East. [1] The US has maintained sanctions against Iran for decades, most of which have been aimed at curtailing the country’s oil revenues, acquisition of weapons components and cutting off funding for business enterprises controlled by the Islamic Revolutionary Guard Corps. [5] The sanctions bar designated entities from the dollar-based financial system, but Iran has been successful in quickly standing up new front companies, other entities and vessel registrations to evade the sanctions. [5] The treasury department has also recently sanctioned independent Chinese “teapot” refineries for buying Iranian oil, and expanded sanctions on the “shadow fleet” of tankers transporting Iranian oil. [5] Daniel Fried, a former US State Department sanctions coordinator who is now with the Atlantic Council, said that the announcement “did not live up to the hype,” but economic pressure is better than restarting military conflict. [5] The pressure campaign on Iran will take time to work and patience and possibly require some concessions on the part of the Trump administration to secure cooperation, he said. [5]

What to watch next includes expected talks next month between US President Donald Trump and Chinese President Xi Jinping, along with any curbs on China's exports of critical minerals that could prove especially sensitive.