War and economic pressure on Iran: the repercussions of the blockade of the Strait of Hormuz and Washington's sanctions

In recent weeks, the United States has succeeded in loosening “Iran’s grip” on the Strait of Hormuz, while effectively halting Iranian oil exports. This accelerated Tehran’s economic collapse, according to a report by the Associated Press.

But the war launched by the United States and Israel in February (which was supposed to last a few weeks) is still far from over, and the ongoing stalemate imposes a high cost on both sides. An agreement reached in June quickly collapsed, with no sign of diplomatic progress since then. Low-intensity fighting is still ongoing, and the United States does not appear to have an exit strategy from the war.

The increasing economic pressure on Iran has not yet sparked an internal uprising. The price of a barrel of Brent crude, the international standard, exceeded $100 this week, while diesel (widely used in transportation and agriculture) reached a record level. Which may fuel inflation. US President Donald Trump acknowledged that gasoline prices are likely to remain high until the midterm elections for the US Congress.

Iran is losing pressure cards

Iran effectively closed the Strait of Hormuz (through which a fifth of the world's oil and gas traded in peacetime passes) in the early days of the war, using the global economic shock as leverage. At the same time, it continued to export its oil, mainly to China.

But in recent weeks, the equation has reversed; An American blockade effectively halted Iran's exports, while the American military facilitated an increase in Gulf countries' exports, according to figures compiled by Humayun Falakshahi, an oil expert at Kpler, a company that monitors global trade.

It was found that Iran's oil exports declined from 1.85 million barrels per day last spring to about 255,000 barrels in August. Non-Iranian oil exports rose from 300,000 barrels per day at the height of the war to 8.4 million barrels in September, while exports via alternative routes raised this number to 10.8 million barrels.

US Energy Secretary Chris Wright boasted similar numbers on Sunday, saying: “We may have reached two-thirds or more of the flows that were recorded before the conflict.” Non-Iranian exports amounted to about 14 million barrels per day before the war, according to Falakshahi.

But increasing flows depends on a large US military deployment in the strait. This put pressure on the army's resources. The unpopular war has already cost American taxpayers more than $37.5 billion, led to the deaths of 18 American soldiers, and is expected to weigh heavily on Republicans in the November elections.

The blockade puts pressure on the Iranian economy

The tightening blockade and new US sanctions have already begun to cause serious damage to the Iranian economy; This led to higher prices and longer queues in front of gas stations.

But that has so far shown no sign of pushing the country's increasingly hard-line leaders to make concessions on the Strait of Hormuz, Iran's disputed nuclear program or Tehran's support for militant groups in the region.

Ali Vaez, an expert on Iran at the International Crisis Group, said: “The main problem for Washington is that it still lacks a theory of victory: more ships are crossing, and Iran is in pain, but none of that has led to a political result.”

The US government said today (Thursday) that it has imposed new sanctions on companies and individuals that it says support the Lebanese Hezbollah group and other allies of Iran in the Middle East, at a time when it intensifies its campaign to isolate Iran economically.

The latest sanctions come within the framework of the “Economic Exclusion Operation” by the Treasury Department, which was first announced on August 24 and aims to cut off revenues that Tehran uses to finance the war, manufacture missiles, carry out cyber attacks, and support the Revolutionary Guards.

The US Treasury Department stated in a statement that today's actions, taken by its Office of Foreign Assets Control, target entities and individuals in Iraq, the UAE, Lebanon, and Turkey that Washington says support the Hezbollah Brigades, an Iraqi paramilitary group under the command of the Iranian Revolutionary Guard, and Hezbollah in Lebanon.

The Treasury Department also announced a settlement with an American who agreed to pay $1.43 million to settle a potential civil lawsuit over 39 apparent violations of sanctions imposed on Iran, and launched an appeal to all whistleblowers to provide information about any sanctions fraud or money laundering carried out by Iran.

OFAC also issued a bulletin clarifying that it would deny most Iran-related license applications except in special circumstances, and said that the Licensing Division immediately began denying the “vast majority” of a list of specific Iran-related license applications.

The Treasury Department stated, “Office of Foreign Assets Control will continue to follow this licensing policy until Iran changes its behavior, including obstructing passage through the Strait of Hormuz, attacking American military personnel and partners in the Gulf, and seeking to possess nuclear and conventional weapons.”

US Treasury Secretary Scott Besent said in a statement, “Operation Economic Exclusion targets those who continue to stand with the crumbling Iranian regime... whether they are financing terrorism, laundering money, or helping Iran evade sanctions... we will find them, isolate them from the US financial system, and dismantle the networks that keep the regime standing.”

The war on Iran, now in its seventh month, has led to a decline in President Donald Trump's popularity as Americans suffer from skyrocketing gasoline prices, which could threaten the Republican Party's chances of retaining control of Congress in the midterm elections in November.

Impact on oil shipments

A US official said the Treasury Department's campaign is hitting Iran's economy hard, while the US naval blockade limits Tehran's ability to transport oil. He pointed out that the quantities of Iranian oil being loaded decreased to about 0.2 million barrels per day during the past thirty days, compared to 1.8 million barrels per day in the months of January and February.

The official added that oil unloading operations decreased to 0.9 million barrels per day from 1.4 million barrels per day before the war.

The average amount of Iranian or suspected Iranian oil on ships at sea reached only 110 million barrels over the past week, down from more than 180 million barrels in January and February.

The official stated that food prices have risen sharply, while the value of the Iranian rial has fallen by about 30 percent against the dollar since the beginning of the war.

Reuters quoted Brett Erickson, director at Obsidian Risk Advisors, as saying that the latest sanctions will have only a marginal impact on Iran's ability to make hard currency transfers.

He continued, “These sanctions do not make any significant difference. “Moreover, it targets Hezbollah, but not Iran’s far more influential proxy, the Houthis, who are wreaking havoc on global energy markets.”