The Treasury Department’s opener for Operation Economic Outcast, launched Monday to cut Iran’s remaining income, suggests Washington sees Dubai, Istanbul and Baghdad — not Beijing — as the critical channels for Tehran’s money.
The regime needs hard currency to defend the rial, pay its military and security forces, and keep salaries, pensions, and subsidies flowing. Reports from across the country already describe wages months in arrears, delayed pension payments, and near-daily protests by workers and retirees.
It also needs imports that can physically arrive in the country. China provides neither, with its overland rail corridor being marginal next to the seaborne trade the blockade cut off.
When the Islamic Republic sells oil to China it is paid in yuan, which it already had more than it could spend before the blockade was in place.
The lifeline that China provides to the Iranian regime has proven to be not as helpful in a crisis. While China buys almost all of Iran’s oil, is the largest supplier of the consumer goods Iran imports, and supplies the components that built the regime’s weapons systems, those transactions are entirely on China’s terms.
The relationship is structured around what China wants: the Islamic Republic isn’t paid in currency it can readily deploy. Its main revenue source is largely stuck in China in yuan and can only be swapped for imports that are blocked by the blockade.
China’s private sector is so connected to the rest of the world that it is susceptible to de-risking under pressure.
While Beijing gives cheap cover by condemning American sanctions and ordering its companies to ignore them, its real support has not escalated with the conflict, with the exception of a deniable shoulder-fired missile deal that may not have made it through.
The bank in Dubai
On Friday morning, Treasury named the bank Secretary Bessent had been promising all week, and as I predicted, it was not Chinese.
The Financial Crimes Enforcement Network proposed a rule to cut the UAE branches of Banque Misr, Egypt’s second-largest bank, off from the international financial system, saying they had processed roughly 1.8 billion dollars for 103 companies tied to Iranian shadow banking networks.
The proposal is subject to a 30-day comment period and, if finalized, would cut Banque Misr’s UAE branches off from US correspondent banking.
The choice of a UAE bank reflects that the Emirates is where the regime gets what it needs most. The hard currency comes back through Dubai, where front companies and brokers deal with the world on Iran’s behalf and exchange houses convert the proceeds into currency the regime can spend at home. Dubai functions for Iran the way Hong Kong functions for China.
The same traders supply the imports Iran cannot buy directly, Western machinery, electronics, and parts, purchased in their own name and re-exported across the Gulf. The Emirates also moved Iranian fuel oil, which it sold into the regional ship-fuel market through Fujairah, one of the world’s largest bunkering hubs, where blending stripped its Iranian identity. The blockade now cuts off the Iranian supply.
Even the oil money parked in China depends on this channel. What the regime manages to repatriate from those accounts moves through the Emirates, which is why a trade halt announced in Abu Dhabi reaches revenue earned in Shandong.
The pressure is landing on a country that has already turned against the Iranian regime. The Islamic Republic has fired missiles at the Emirates, and on August 19th, Abu Dhabi announced that all trade and financial transactions with Iran were halted.
American officials had pressed Abu Dhabi for years over the exchange houses and trading companies serving Iran, but the attacks aligned incentives between the U.S. and UAE as a shared security concern. The halt has no precedent in a country that has served as Iran’s commercial gateway for decades, and its value will be decided by enforcement.
The land border
What is of importance in Turkey is the remaining cross-border trade. Petrochemicals and metals earn less than oil, but the proceeds are in currency the regime can spend. The goods are also easier to sell, since petrochemicals and metals don’t carry the same fingerprint as Iranian crude, and can disappear across the border into Turkish plants to be resold.
Washington has designated small and mid-sized Turkish buyers of these commodities for years without meaningfully slowing the trade. The larger importers that have so far gone untouched are most susceptible to the renewed pressure campaign.
The UAE’s suspension leaves Turkey as one of the few channels the Islamic Republic has left, a major hub it can reach by land. Turkish banks are unlikely to handle displaced Iran business, especially after Halkbank’s decade-long criminal case ended this year with a deal barring Iran business that touches the U.S., after its deputy general manager went to American prison. Turkey’s banks avoid the regime’s business rather than process Iran-linked payments. After United Nations sanctions snapped back, Ankara froze the assets of dozens of Iranian entities, including Bank Sepah.
If the pressure on buyers is effective, what remains of the regime’s business in Turkey is what has always run outside the system, cash collected in Turkey and carried across the border.
Iraq’s oil and dollars
The Iran-Iraq border provides an accessible path through the blockade for the Islamic Republic to get its oil out. Iranian crude and fuel oil are blended with Iraqi cargoes, onshore and in ship-to-ship transfers at sea, and sold as Iraqi product. The smuggling earns the regime and its proxies at least a billion dollars a year. The regime collects its share of earnings from the U.S. dollars in Iraq’s own banking system.
The pressure on Iraq’s dollar system is already built and can tighten. Iraq sells its oil for dollars that are held at the Federal Reserve Bank of New York, and for years its banks drew those dollars through a central bank auction that Iranian networks used to buy hard currency. The Treasury Department and the New York Fed barred roughly two dozen Iraqi banks from that window, and at the end of 2024 the auction was shut and replaced with correspondent channels open only to vetted banks. In April, Washington reportedly blocked a shipment of nearly 500 million dollars in banknotes to Baghdad. Electronic transfers continued, and physical deliveries resumed months later.
Pressure here will take the form of policing the correspondent channel, monitoring the vetted banks and cutting off any that move money for the regime, with continued outreach to Baghdad. Iran-backed militias, which hold seats in parliament and units in Iraq’s security forces, run the oil trade across the border, a problem that has confounded policymakers for years due to the Islamic Republic’s meddling in Iraq.
But if the regime cannot turn the proceeds into dollars, the fact that oil crosses the border is less important and turns into the same problem the regime has in China.
What the Islamic Republic needs from its neighbors is what China cannot give it, money it can spend and imports that can arrive. That is why the campaign started in the Emirates rather than Beijing, and why the pressure everywhere aims at the point where the regime’s earnings become usable.
Stopping the trade at the source is not required. If the proceeds cannot be converted, the oil and goods crossing Iran’s borders earn the regime what its oil sales to China earn — money it cannot readily deploy.
The Islamic Republic has made the work easier, firing missiles at its neighbors’ cities and critical infrastructure and mining and attacking the strait its neighbors’ economies depend on. The countries that carried Iran’s business for years now have their own reasons to end it.
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