US Treasury Says Sanctions on Iran's Bankers Are Coming Soon

Treasury would like to put an end to the financial networks that enable Iran's oil shipping network, which relies on aging vessels like the Pablo, above (MMEA file image)

Six months after the start of the U.S.-Israeli conflict with Iran, the U.S. Treasury has issued a "warning shot" for an impending sanctions campaign targeting Iran's financial enablers around the globe. Treasury Secretary Scott Bessent signaled that the Trump administration will use hard-hitting secondary sanctions to penalize foreign banks if they continue to work with five key Iranian sectors, including shipping.

Treasury has declared an "economic D-Day" for financiers who engage in Iranian commerce, but is allowing a "cure period" for self-correction. The administration will give every nation a "defined timeline" to end identified "Iran-related activity" before penalties begin. Once the timeline is up, new sanctions language will allow OFAC's staff to expand their scope and better target Iran's digital assets, technology, gold, aviation and shipping sectors.

The "warning shot" sanctions announced Monday were familiar target types: entities that help Iran obtain ballistic missile parts; Iranian hacking groups; and covert energy brokers and shipping facilitators around the world. The major players in Iranian export trade - Chinese refiners and financiers - were not on the list.

To further increase the pressure, Treasury has also suspended a general license that allowed Iranian expatriates to send money home to their families, and it ended sanctions exemptions for educational and sports activities.

For shipping interests, Treasury reiterated its warning against paying any fees or transferring anything of value to the various Iranian entities that "regulate" crossing in the northern half of the Strait of Hormuz. Though the Iranian route has attractive safety benefits, the risk of U.S. sanctions on non-U.S. persons and financial entities for paying Iran's tolls is significant, Treasury warned.

Big targets, big side effects

Iran's most important counterparties are Chinese, notably the well-known Bank of Kunlun (a subsidiary of state oil company CNPC), which has been subject to a softer set of U.S. sanctions since 2012. Bessent declined to say whether the administration would levy penalties on China's state-backed financial institutions. Instead, he said that all countries would be covered by the "D-Day" warning.

Asked why sanctions penalties would not start immediately for all offenders, Bessent responded,"Why would I want to blow up the global financial system?" Instead, he said, it would be better if foreign banks self-corrected, without the need to hit them with sanctions. Sanctions effectively eject the target entity from the U.S. dollar-denominated financial system, leaving it unable to receive or make payments - and potentially unsettling private investors in the process.

Beyond risk to the financial system, sanctions on Chinese entities would attract a political response from the Chinese government.

"China's reaction likely will depend on the size of the bank. But expect retaliation," former State Department sanctions enforcement officer Jim Mullinax told RFE. "If China doesn’t play ball, then others won’t either and it’s hard to see how this doesn’t escalate."