Iran has survived harsh U.S. sanctions since 1979. It is betting it can endure even more.
In the 47 years since the Islamic Revolution, the United States has taken step after step to isolate the country with only a brief reprieve after the 2015 Iran nuclear deal, which President Trump excoriated and abandoned in 2018.
Mr. Trump promised “maximum pressure” then, and now, with limited military options, threatens even more. Treasury Secretary Scott Bessent warned last week of “never before seen” measures — perhaps, analysts suggest, secondary sanctions on countries like China that buy Iranian oil, or further penalties on financial transactions.
Iran is more likely to step up attacks on American allies in the Persian Gulf than to surrender its hold on the Strait of Hormuz, analysts said. “Iran’s economy is in serious trouble, but it is not collapsing,” said Danny Citrinowicz, an Israeli expert on Iran. “More importantly, the regime is likely to escalate before it capitulates.”
U.S. and international sanctions and economic pressure did help lead to the 2015 nuclear deal, when the supreme leader then, Ayatollah Ali Khamenei, authorized negotiations to limit Iran’s nuclear program in return for frozen assets and sanction relief.
Since Mr. Trump withdrew from the deal and imposed more sanctions, Iran has adjusted to a high level of economic disruption, developing sophisticated smuggling routes and new markets, particularly for oil. For now, Iran insists on maintaining effective control of the strait while the American Navy continues to blockade it. A few ships are slipping through, but traffic is down more than 90 percent from before the war.
Iran’s economy is badly damaged, hurting ordinary people, but its leaders have shown, through brutal crackdowns on protest and dissent, that they are relatively unconcerned with public opinion.
Having survived what it once feared — an Israeli-American war against it — a more military-minded and authoritarian Islamic Republic has itself doubled down. Esmail Baghaei, the spokesman for the foreign ministry, said on Monday that new measures would have “no effect on Iran’s position.”
Economic pressure will only succeed if “our resilience is greater than that of the Iranian regime, and it’s not clear that’s a good bet,” said Suzanne Maloney, an Iran expert and director of foreign policy at the Brookings Institution. “Iran’s economy has been shaped by U.S. economic pressure.”
The Oil Economy
Iran’s economy is suffering, without question, but gradually, while the regime keeps a stranglehold on any popular protest.
Since the war began in earnest in February, the Iranian economy and its industrial sector have been contracting in tandem for the first time in eight years, said Esfandyar Batmanghelidj, chief executive of the Bourse & Bazaar Foundation, a research organization based in London.
Iran will face more challenges, from higher inflation to weakness in the job market, he said. “But it won’t lead to a different political outcome.”
Some Iranian leaders, to be sure, are deeply concerned with the economic disaster and support a more rapid diplomatic deal with Washington. But the leadership appears united in retaining effective control over the strait as its best leverage and deterrent against another war.
Iran has adapted to American and international sanctions by increasing its ties to Russia and China. It sells most of its oil at a discount to China, which has ignored international sanctions against the purchase of Iranian oil. It also uses small, independent Chinese refineries, known as “teapots,” that are less exposed to American sanctions.
Iran has developed smuggling networks and a “shadow fleet,” transferring its oil to other ships that can easily disguise its origin. And it has built up its industrial sector and cut back sharply on imports and its use of the dollar, using foreign banks and bartering oil for goods.
Since the war and the American blockade, Iran has been storing oil onshore and in a variety of older tankers, while shipping some of it by road and rail and reducing output on some wells. When the memorandum of understanding with the United States was signed in June and the American blockade was temporarily lifted, Iran used the period of calm assiduously.
Iran had oil already outside the strait to sell before the blockade, and at the outset of the agreement it exported another 80 million barrels before Washington reimposed sanctions and the blockade, easing the pressure on storage, said Brett Erickson of Obsidian Risk Advisors.
Before the war, Iran was exporting about 1.8 million barrels a day. Now, given the increase in the oil price because of the conflict, Iran is ahead of what it budgeted for oil sales for this year, he said.
The exchange rate for the Iranian rial against the dollar is bad, but the speed of depreciation is slowing, as is inflation. If Washington is relying on economic pressure, “you wouldn’t want slower inflation and a lower rial exchange rate than before the war,” Mr. Erickson said.
For the policy to succeed, “we need to push them down quickly, not wait nine more years to collapse them,” he added. “A dagger hurts but doesn’t lop off the head of the enemy.”
A Battle of Economic Wills
Iran is gambling that the closure of the strait will put more pressure on Mr. Trump to blink first and negotiate a deal that Iran can accept. Tehran is counting on increasing economic anxiety from America’s allies to push Mr. Trump back to the table.
The global economy is missing millions of barrels of oil a day and strategic stockpiles, including in Europe and the United States, are badly diminished. Ukraine continues to damage Russia’s refineries, further cutting the amount of oil on the market.
Regionally, key energy producers like Qatar, Bahrain, Iraq and Kuwait are badly hurt by the closure of the strait, and Saudi Arabia, Qatar and Oman have argued in Washington against further military escalation, given Iran’s ability to strike their energy infrastructure.
“In a battle of economic wills it’s very uncertain the West will win,” Ms. Maloney of the Brookings Institution said.
Mr. Trump defends the war as necessary to ensure that Iran can never build a nuclear weapon. But after he abandoned the 2015 nuclear deal, Iran tried to pressure the world with enhanced enrichment that brought it to the edge of being a nuclear-capable military power, even as it denied ever seeking a bomb.
That assurance died with the former supreme leader. His son and successor, Ayatollah Mojtaba Khamenei, appears ready for open-ended confrontation with America and is considered by U.S. intelligence to be more flexible about creating a nuclear weapon. In Iran, said Vali Nasr, an Iran expert and professor at the Johns Hopkins School of Advanced International Studies, trust in Mr. Trump is minimal and the 2015 deal is considered “a four-letter word.”
Now, Mr. Trump is offering Iran very little in exchange for opening the Strait of Hormuz, with no U.S. commitment to unfreeze its assets or lift sanctions. “There is no reasonable deal for Iran on the table,” Mr. Nasr said.
“The choice is between total surrender and fighting it out,” he added. “And they have bet that the only way to get a better deal is to accept costs now and hold the global economy’s and Trump’s feet to the fire.”