US Threatens to Sanction Iran's Trade Partners: How Does the Secondary Sanctions Mechanism Work?

The U.S. administration has rolled out a fresh round of economic sanctions targeting Iran and has warned of punitive measures against nations still engaging in trade with Tehran, as the months-long conflict shows no signs of cooling. At least 60 entities across the Middle East, Asia, and Europe appear on the latest sanctions list — part of an economic pressure campaign that could further disrupt energy markets and rattle the global economy.

The U.S.-Iran conflict, which began on February 28, has driven oil prices sharply upward and disrupted global supply chains after the Strait of Hormuz — a chokepoint that once handled one-fifth of the world's seaborne oil — was effectively blockaded.

What exactly is the U.S. threatening Iran's trading partners with?

The Trump administration has been running an economic pressure campaign against Iran dubbed "Operation Economic Fury" since the war broke out in February. But Washington has now escalated its approach with a new campaign — "Operation Economic Outcast" — that directly targets countries trading with Iran.

U.S. Treasury Secretary Scott Bessent said Monday that America will target every source of Iranian revenue, including oil, to stop other nations and companies from doing business with Tehran. "Globally, our goal is to sever every economic lifeline that sustains this oppressive regime until Tehran stands alone," Bessent said.

Bessent stressed that nations around the world must choose between the United States and Iran, warning that the new campaign exposes Tehran's trading partners to secondary sanctions. "If countries and entities facilitate these transactions and are part of an ecosystem that turns oil into money, into tools of repression, they will be sanctioned," the U.S. official said.

Explaining why Washington is threatening Iran's business partners rather than imposing direct sanctions, Bessent said: "We are giving people an opportunity to correct their bad behavior. Why would I want to destroy the global financial system?"

Bessent's remarks followed President Trump's August 19 Truth Social post unveiling what he called the "most severe economic campaign" against Iran. "ANY country that allows its financial institutions, businesses, airports, or government entities to provide any support to Iran will face DIRE ECONOMIC CONSEQUENCES," Trump wrote.

What are secondary sanctions?

The United States has long used the threat of secondary sanctions — measures applied to countries that trade with a sanctioned nation. For example, secondary sanctions currently apply to purchases of Iranian oil or heavy military equipment from Russia: any country, company, or individual involved in such deals faces the risk of U.S. penalties.

How does the mechanism work?

Washington's main leverage lies in access to U.S. markets and the dollar-based financial system. For instance, even if an Indian bank has no direct dealings with Iran, it could still face secondary sanctions if it processes payments for an Indian company trading with Tehran — particularly if the bank has branches in the United States, handles dollar transactions, or serves American clients.

That risk makes financial institutions extremely cautious, prompting them to steer clear of any transaction with Iranian ties out of fear of being swept into U.S. sanctions. The U.S. secondary sanctions threat is also why most global banks and financial institutions no longer engage in trade with Russia or Iran — they are unwilling to gamble on losing their access to the American market.

How have secondary sanctions been used before?

In 2017, President Trump's first administration enacted the Countering America's Adversaries Through Sanctions Act (CAATSA), targeting Iran, Russia, and North Korea. Under CAATSA, the U.S. imposed secondary sanctions on specific countries. In 2018, Washington sanctioned China's Equipment Development Department (EDD) for purchasing Russian Su-35 fighter jets and S-400 missile systems.

In 2020, the U.S. used CAATSA sanctions to target Turkey's Presidency of Defense Industries (SSB) — the country's military procurement agency — along with several related officials. That move came a year after the U.S. excluded Turkey from the F-35 fighter jet program. Ankara was hit with sanctions for buying Russia's S-400 air defense system in 2019. Trump's argument was that the S-400 was incompatible with NATO equipment and could threaten allied security.

These sanctions made Turkey more cautious in future procurement deals. By July 2026, Trump announced he would lift sanctions on Turkey and soon decide on resuming F-35 sales. However, any move to bring Turkey back into the F-35 program would also need to overcome a 2020 law requiring the administration to certify that Ankara no longer possesses or operates the Russian system.

Who are Iran's main trading partners?

According to official customs data, Iran exported about $56 billion worth of goods to at least 112 countries and territories in 2024. That same year, Iran imported approximately $68.5 billion in goods from at least 87 countries and territories.

Iran's top export partners are China, Iraq, the UAE, Turkey, and Afghanistan. Its main import partners are the UAE, China, Turkey, EU members, and India.

Washington's leverage over Iran's trading partners depends on how much they rely on the U.S. financial system. For some sectors in China and Russia, that reliance is minimal. Analysts therefore believe Trump's leverage over China and Russia is limited.

According to data from the analytics firm Kpler, China purchased 80% of Iran's shipped oil in 2025. Paul Musgrave, associate professor of government at Georgetown University in Qatar, told Al Jazeera last week that it would be "very difficult" for Trump to execute the pressure campaign effectively. Analysts also suggest China could retaliate if Washington sanctions its banks for handling Iranian funds.