US sanctions on Iran are right but wrongly sequenced

The US-Israeli war against Iran passed its six-month mark this week, and on August 24, the bill for two decades of hosting American power came due. The US Treasury opened a global sanctions campaign against everyone still trading with Tehran. It runs through Emirati and Qatari banks, ports and free zones. It named no entities, set no deadline and published no guidance, and it was designed without the capitals it runs through. Four days later, it named one of them. On August 28, FinCEN proposed cutting the five Emirati branches of Egypt’s Banque Misr off from American correspondent banking, citing roughly US$1.8 billion moved for 103 suspected Iranian front companies since January 2024. The same day, Treasury’s OFAC designated the Dubai branch manager of Bank Melli along with a Hong Kong trading company. The first institution named under the new campaign sits in the UAE, which had already cut Iran off, apparently unasked, nine days earlier. Treasury’s objective remains clear: Iran lacks nuclear inspectors on its territory, and its uranium stockpile enriched to 60% is unaccounted for. A campaign targeting this is justified and needs no apology. What requires explanation is how it is being done. A compliance officer in Dubai is working from a rule that reached him as an enforcement action first and as a proposal open for comment second. He is applying it against a neighbor that treats such enforcement as an act of war, and the retaliation lands on his country’s ports rather than on Washington. Iran never needed to strike American forces in the Gulf directly. Instead, Arab governments provided bases and intelligence but were barred from revealing them. When the war opened on February 28, and Operation Epic Fury followed the next day, those governments became Iran’s targets. Iran hit energy facilities and airports in the Emirates and Saudi Arabia, drone-struck American support sites in Jordan and Kuwait, and in August fired ballistic missiles toward Emirati waters. Each of those countries was hosting, in one form or another, a campaign planned in Washington and Jerusalem. The Strait of Hormuz itself became a checkpoint. Tehran set up an authority for the Gulf Straits, began charging transit tolls and now claims through the Islamic Revolutionary Guard Corps that the whole waterway, including Omani waters, will remain under Iranian military control until the US returns to the memorandum signed under Pakistani mediation in June. War-risk insurance ran at about a quarter of 1% of hull value before the war. It moved into the 1% to 3% range within a week of the opening strikes and reached 7.5% to 10% by late July, which, on an unchanged ship carrying unchanged cargo, comes to millions of dollars per transit. Crossings are down roughly 90%, and some 6,000 seafarers remain stranded aboard ships in the Gulf. Abu Dhabi, for one, has begun paying the price. On August 19, the UAE suspended all trade and financial dealings with Iran indefinitely, five days before the US Treasury announcement and without being asked. The Emirates had supplied more than 30% of Iranian imports, amounting to some $21 billion a year. That outweighs the first tranche of American designations, and it came without consultation or published rules. One cost has gone unpriced. For five months Iran had every commercial reason to keep Hormuz open because two million barrels of its own crude went out through it every day. The blockade has taken those exports to nearly nothing. A country with no cargo of its own loses very little by shutting a waterway that carries everyone else’s. Last weekend, Iran’s new security chief said no oil would leave the Gulf if the economic war continues. He was describing where his country already is. The pressure came first and the guarantee for keeping the Strait open never did, which is how Washington talked itself out of the one thing that had kept Tehran cautious. The campaign was right; the order was not. An Arab NATO alone cannot fix this by itself, and an American withdrawal under the disguise of regional ownership might make matters worse. Tehran’s idea — a Gulf order excluding outside military forces — essentially removes the police and gives the arsonist the fire safety rules. Some believe that a paid strait is better than a contested one and think Washington should allow Iran to charge fees. However, the concern remains: fees could turn a temporary closure into a permanent right, encouraging other chokepoint nations to adopt similar strategies. The Gulf needs something enforceable at Hormuz. UN Resolution 2817, adopted on March 11 with 135 co-sponsors, condemned Iran’s attacks but authorized nothing. Russia and China vetoed the follow-up text that would have allowed defensive escort on April 7. If the UN Security Council stays closed, the coalition of more than 40 states already committed to protecting shipping can be given a standing escort mandate outside it, in the language of Resolution 2817, if not under its authority. Meanwhile, the US Treasury should publish designations and the guidance explaining them on the same day, rather than letting a Section 311 finding be the first notice a bank receives. America is still the insurer of last resort against an Iranian breakout, and no one in the region is looking for another one. (Beijing offers consultation but not protection.) The arrangement only works if Washington stops treating allied territory as ground it happens to use and allied banks as tools it happens to need. An unnamed alliance with the US is cheap in peacetime. In war, the cost falls on those who never agreed to it. This is a poor way to manage a strait that still influences energy prices for everyone else. Eric Alter is a non-resident senior fellow at the Atlantic Council’s Middle East programs and a former UN civil servant.