Washington’s economic war on Iran starts in Dubai, not Beijing


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 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.
Iran’s large-scale fuel losses appear to go beyond the smuggling cited by officials in Tehran, with evidence pointing to organized diversion within the country’s fuel distribution system.
Iranian officials repeatedly say around 20 million liters of fuel are smuggled out of the country every day, costing Iran between $4 billion and $5.2 billion a year. But the figure is far less precise than it is often presented.
Official statements generally refer to “fuel,” not gasoline alone, and include diesel and other petroleum products. In July 2026, Keramat Veys-Karami, head of the National Iranian Oil Products Distribution Company (NIOPDC), said gasoline was less vulnerable to smuggling than diesel and identified transport allocations as a major source of leakage.
The government has not published the refinery, depot, tanker, customs and station-level data needed to show that 20 million liters physically disappear from the regulated system each day. Without a product-by-product balance, the figure cannot be treated as a measured flow of smuggled gasoline.
Its dollar value is equally uncertain. Twenty million liters a day amounts to 7.3 billion liters a year. Valuing that at $4 billion assumes a loss of about 55 cents per liter; a $5.2 billion estimate puts it at 71 cents. Officials rarely explain whether those figures represent replacement costs, forgone subsidy value, foreign black-market prices or smugglers’ revenue.
What the numbers show
Data released after the war reveal a strained gasoline balance, but do not account for smuggling on the scale claimed.
NIOPDC reported that between March and mid-July 2026, Iranian refineries produced around 109 million liters of gasoline a day, with another 12 million liters supplied through blending. Average consumption stood at 129 million liters.
In late June and early July, daily distribution rose to 134.5 million liters, partly because of increased road travel and Iran’s aging vehicle fleet.
Fuel-card data reveal another problem with interpreting headline numbers. Before the three-tier pricing reform introduced in December 2025, NIOPDC was loading the equivalent of 172 million liters a day in entitlements onto fuel cards belonging to 32 million eligible vehicles, even though actual consumption was around 131 million liters.
The reform reduced those entitlements to about 135 million liters a day and was followed by a six-percent fall in consumption.
But the original gap did not mean that more than 40 million liters of fuel were physically disappearing each day. It was a gap between theoretical entitlements and actual consumption—an important distinction when assessing the scale of diversion.
Establishing how much fuel actually disappears requires comparing refinery dispatches with depot receipts, tanker movements and station-level sales, rather than treating unused or inflated card allocations as physical fuel.
The border-province problem
One argument for the scale of gasoline smuggling focuses on allocations to provinces along or near Iran’s borders. But no published NIOPDC series located for 2025–2026 verifies the claim that Kerman, Hormozgan, Kurdistan and Sistan and Baluchestan together receive 17.5 million liters a day.
Nor can their “normal” demand reliably be put at 14–15 million liters without data on vehicle registrations, fuel-card transactions, agricultural demand and interprovincial traffic.
Available evidence shows why population alone is a poor measure of legitimate demand. Kerman consumed 586 million liters of gasoline during the summer of 2025, equivalent to around six million liters a day, making it one of Iran’s five largest provincial consumers.
In July 2026, the government approved an additional 20-liter third-tier quota for private vehicles in Kerman, Hormozgan and Sistan and Baluchestan, citing long distances and inadequate public transportation.
The provincial figures therefore raise a question rather than provide an explanation. If verified allocations exceed plausible consumption by only a few million liters a day, much of the claimed national leakage must occur elsewhere, or consist of diesel and other fuels rather than gasoline.
An organized supply chain
There is considerably firmer evidence for large-scale organized smuggling and diversion.
Pakistani traders and transporters told RFE/RL in May 2026 that at least six million liters of Iranian gasoline and diesel were entering Pakistan each day. A leaked Pakistani intelligence report identified around 2,000 vehicles and 1,300 boats involved in the trade and described payments moving through hawala networks.
That points to a substantial and organized cross-border economy. But even the six-million-liter estimate accounts for less than one-third of the 20 million liters Iranian officials say are smuggled daily—and it includes both gasoline and diesel.
Evidence from inside Iran points more clearly to the organized networks behind large-scale diversion.
In November and December 2025, judicial officials in Hormozgan said an investigation known as the Toofan case had uncovered 35 interconnected smuggling networks that allegedly moved more than four billion liters of fuel over several years. Authorities opened cases against 753 people described as major participants.
These remain judicial allegations rather than final findings. But the scale and structure described by investigators point to something considerably larger than subsistence smuggling by residents of impoverished border communities.
Where does the fuel disappear?
One of the strongest official clues lies further upstream, in the way fuel allocations are administered.
NIOPDC says around 60 million liters of diesel are allocated to transport operators every day through electronic waybills and acknowledges that inaccurate information about end users creates opportunities for diversion.
The evidence therefore points not to a single route or group of smugglers but to overlapping channels: manipulated fuel entitlements, transport documentation, bulk tanker movements, maritime trafficking and informal payment networks.
That does not establish that Iran’s official estimate of 20 million liters smuggled each day is wrong. It shows that authorities have not published the data necessary to establish what those millions of liters consist of or where they leave the regulated system.
Answering that question would require depot balances, tanker GPS records, station-level sales and provincial allocation data. Until those are published, attributing 20 million liters of daily smuggling chiefly to border communities risks mistaking the visible final carriers for the organized supply system that makes diversion on such a scale possible.
The US has opened a new front in its economic campaign against Iran by threatening to cut a major third-country bank out of the dollar system over alleged involvement in Tehran’s shadow-banking network.
The US Treasury on Friday labeled Banque Misr’s UAE branches a “financial institution of primary money laundering concern” and proposed cutting them off from the dollar system, marking the first Section 311 action against a third-country bank under Washington’s new Operation Economic Outcast.
The Treasury’s Financial Crimes Enforcement Network (FinCEN) estimates that between January 2024 and June 2026, Banque Misr UAE processed approximately $1.8 billion in transactions for 103 companies it assesses are potentially part of the Islamic Republic’s “shadow banking” network.
The department described the bank as “a critical node for the Iranian regime’s access to US dollars” and said its customers included front companies working for Iran’s Ministry of Defense and Armed Forces Logistics and the Revolutionary Guards, as well as a company described in media reports as a money-laundering conduit for Mojtaba Khamenei.
“We also warned that Iran’s enablers cannot continue to enjoy access to the US dollar and the global financial system,” Treasury Secretary Scott Bessent said. “Banque Misr UAE decided to find out the hard way.”
The move is the first use of Section 311 under Operation Economic Outcast, which Bessent announced on August 24 with the stated aim of cutting off the Iranian government’s revenue streams worldwide.
Unlike conventional sanctions, however, the FinCEN action involves no asset freezes.
Cutting off the dollar
Section 311 of the USA Patriot Act allows the Treasury to designate a foreign financial institution as being of “primary money laundering concern” and impose special measures restricting its access to the US financial system.
In Banque Misr UAE’s case, FinCEN has proposed the most severe option, known as the fifth special measure.
The measure would not only close the bank’s three direct correspondent accounts with US financial institutions. American banks would also be required to prevent Banque Misr UAE from accessing dollars indirectly through intermediary foreign banks.
The proposal is subject to a 30-day public comment period after publication in the Federal Register before it can be finalized.
The measure applies only to Banque Misr’s five UAE branches — two in Dubai and one each in Abu Dhabi, Sharjah and Ras Al Khaimah. The bank’s Cairo-based parent and operations in other countries are excluded.
Iran-linked transactions
FinCEN named three Banque Misr UAE customers as examples of the activity behind its action.
UAE-based Alpa Trading FZCO conducted more than $32 million in transactions and, according to FinCEN, procured goods on behalf of Iran’s defense ministry and the Revolutionary Guards.
Naba Alzaki Raw Materials Trading LLC processed more than $29 million and was identified as a front for the Iran-based Khandan Exchange. Midas Oil Trading DMCC conducted more than $1 million in transactions and has been described in media reports as a money-laundering conduit for Mojtaba Khamenei.
Of the $1.8 billion in potentially Iran-linked transactions identified by FinCEN, roughly $520 million was processed in the 12 months to June 2026, a period covering the war and tightening US sanctions.
FinCEN described the proportion of suspected Iranian activity relative to the size of Banque Misr UAE as “concerningly high.”
The agency has previously said it identified about $9 billion in potential Iranian shadow-banking activity moving through US correspondent accounts in 2024 alone.
The network relies on exchange houses inside Iran and front companies registered in third countries, particularly the UAE and Hong Kong, to turn revenue from sanctioned Iranian exports into usable currency.
A growing bank
Banque Misr UAE’s audited accounts show that its business was expanding during the period in which FinCEN alleges it became a conduit for Iran’s shadow-banking network.
Total assets rose 11% in 2025 to 23.4 billion dirhams ($6.4 billion), customer deposits increased 9% to 19.1 billion dirhams and loans jumped 60% to 8.8 billion dirhams.
The accounts also show the importance of trade finance to its business. Its books carry more than 1.3 billion dirhams in letters of guarantee and 3.6 billion dirhams in undrawn credit commitments.
Losing dollar correspondent access would therefore strike directly at a business heavily involved in cross-border trade finance, even without freezing any of its assets.
The bank appears well capitalized, with a capital adequacy ratio of 24.7%, well above the UAE central bank’s 10.5% minimum. The immediate threat is therefore not insolvency but the viability of parts of a business dependent on international currency settlement and trade finance.
Banque Misr is Egypt’s second-largest bank and is fully owned by the Egyptian state. That makes Washington’s decision to target its UAE operations particularly significant as the US seeks to persuade foreign financial institutions to stop facilitating Iranian trade.
The move nevertheless stops short of targeting larger financial institutions, particularly major Chinese banks involved in financing Iranian trade, a step Washington has so far avoided amid concerns over wider financial disruption and retaliation.
By threatening a state-owned bank belonging to a major Arab partner with exclusion from the dollar system, Washington is setting out the potential cost for third-country institutions that continue handling business it considers part of Iran’s shadow-banking network.
The warning is now explicit: institutions dealing with Tehran may increasingly have to weigh that business against their access to the dollar.
Mohsen Rezaei on Friday set out four Iranian conditions for an agreement with the United States, another sign that the former IRGC commander who once championed an “offensive doctrine” may be moving from advocating war to contemplating a deal at the right price.
Rezaei named an end to the regional war, lifting the blockade of Iranian ports, compensation and sanctions relief as Iran’s core conditions. He said the demands had been compiled in response to requests from mediators.
Rezaei has served since August 10 as secretary of the Supreme National Security Council and is also the Supreme Leader’s representative on the body, giving his remarks greater institutional weight than those of an individual political or military figure.
Whether the conditions constitute a formally approved negotiating mandate, however, remains unclear. Rezaei’s description suggests an ongoing process of defining Iran’s negotiating position rather than the presentation of final instructions to negotiators.
Since taking over the SNSC, Rezaei has increasingly emerged as one of the principal voices through which Iran’s security establishment frames diplomacy.
The council brings together senior military, intelligence and government officials alongside representatives of the Supreme Leader, who holds ultimate authority over major national security decisions.
Back to MoU
That makes the evolution of Rezaei’s language significant. His movement from advocating an “offensive doctrine” to discussing the terms of a possible agreement has not amounted to an embrace of accommodation with Washington.
But diplomacy is increasingly appearing in his rhetoric as an instrument of Iranian strategy rather than something inherently at odds with it.
Only days ago, Rezaei told Pakistan’s Field Marshal Asim Munir that Washington needed to change its behavior and take practical steps to implement the Islamabad MoU. Iranian media, including Press TV, quoted him as saying the United States should return to the June agreement.
That was notable because the Islamabad MoU provided a framework for de-escalation: ending hostilities, reopening the Strait of Hormuz and moving toward a broader agreement.
President Masoud Pezeshkian has also defended the MoU as the best available path while emphasizing adherence to the Supreme Leader’s policy.
Friday’s demands do not necessarily reverse that position. Rather, they fit an evolving sequence in Rezaei’s public stance: initial rejection of the MoU, movement toward reviving the June framework and now a willingness to discuss negotiations while attaching a higher price to them.
Tactical shift
There is an echo here of Donald Trump’s own approach to the conflict. The US president has moved between military pressure, diplomacy, rejection of the MoU, economic pressure and renewed suggestions that an agreement remains possible.
Both sides appear to be using uncertainty itself as leverage: escalating, reopening the door and then raising the terms for walking through it.
That does not mean Rezaei is consciously emulating Trump. But his recent statements suggest a similarly transactional approach in which apparently contradictory positions can coexist.
Negotiations remain possible, while threats and maximal demands are used to improve the terms on which they might take place.
For Rezaei, this represents a change in tactics rather than ideology. He has not abandoned the hardline worldview that has defined much of his political career, nor do his statements yet signal a broader Iranian pivot toward accommodation with Washington.
More significant may be the evolution of the role he is now playing. The former IRGC commander is no longer simply warning against compromise; he is beginning to define its price.
Since Mojtaba Khamenei was named the Islamic Republic's third supreme leader, no one has seen him or heard his voice. That looks like weakness. It is worth asking whether it might instead be postponing the system's political death.
For nearly half a century the Islamic Republic has reproduced the image of its leaders everywhere: on the walls of schools and government offices, in theatres, cinemas and concert halls, behind officials at podiums, on television screens. Visibility was not vanity. In a system built on the authority of one man, the leader had to be seen for the state to demonstrate that it existed.
Before the war with the United States and Israel, that was the rule. Now the same system publishes messages from its new leader without being able, or perhaps without wanting, to show him.
In the first weeks after his appointment by the Assembly of Experts, the clerical body that selects Iran's supreme leader, intelligence services and media inside and outside the country waited for one thing: his Nowruz address. The Persian new year, which falls around March 20, brings the leader's most closely watched speech of the year, and a video would have answered the essential questions at once. He would have been demonstrably alive, apparently well, and visibly in charge.
No video came. The absence stopped looking like a security precaution and started looking like a condition.
The record since has only deepened the ambiguity. There is no photograph, no audio, no film.
Written statements have appeared, attributed to his office rather than demonstrably from his hand. The absence of anything verifiable, no image, no voice, no signature, has weakened the official account of his health and strengthened the theory that he was gravely wounded.
The effect on the state has been visible. Officials who held together in the first days of the war have since split over what comes next, and the fault line runs through the war-or-negotiation question: the state broadcaster has censored the government's own negotiators, while hardline outlets have claimed the leader opposed the process that produced the Islamabad agreement. Both camps invoke him. Neither can produce him.
So the question is whether any of this can work in the system's favor.
Absence as possibility
Consider what visibility would cost. If Mojtaba Khamenei appears and the marks of injury or incapacity are apparent, the Islamic Republic must concede that its leader is diminished. If his death is confirmed, the succession fight begins. If he turns out to be healthy and active, he must accept responsibility for the decisions of the past six months, including a war.
Absence suspends all three. He can be alive, wounded, incapacitated or dead, and the machinery of the state can go on issuing orders in his name.
Uncertainty, which ought to be the government's problem, becomes its instrument.
While the leader's status remains unresolved, no faction can settle the succession, and no official has the standing either to accept defeat or to wind the system up. Commanders and institutions can continue to say they take their orders from the center, a center that may exist but cannot be seen.
That has a second edge, and it cuts the other way. The same fog that prevents anyone from declaring the system finished also prevents anyone from commanding it. An absent leader cannot arbitrate between the men arguing over war and diplomacy, which is very likely why they began arguing in the first place. Ambiguity buys the system time by denying it direction.
Still, on this reading, even the collapse of the state's outer structure would not necessarily be the end. A network of the Revolutionary Guards, the Basij, the intelligence services, financial channels and allied forces across the region could carry on in the name of an absent leader. What would survive, in that case, would no longer be a government. It would be an underground organization.
From state to network
The comparison that follows is about mechanics, not equivalence. The question is narrow: how does a network continue after it loses its territory or its leader disappears? On that specific question, two cases are instructive, and neither is offered as a moral parallel to a state that has governed 90 million people for nearly five decades.
Abu Bakr al-Baghdadi declared the Islamic State's caliphate from a mosque in Mosul in July 2014 and did not appear on camera again for almost five years, though audio messages attributed to him continued to circulate. In that period the group lost nearly all its territory and became a network of clandestine cells. After he was killed in 2019, a US Defense Department inspector general assessment found his death had produced no immediate decisive effect on the group's operations.
Osama bin Laden spent almost a decade in hiding while releasing video and audio messages. His evasion of capture became, for his followers, evidence of invulnerability. Killing him destroyed that impression but did not destroy a network that had already devolved into regional branches.
The Islamic Republic is far better equipped for that kind of afterlife than either. It has governed for close to half a century. It has trained personnel, security intelligence, economic resources, religious institutions and cross-border networks. Driven underground, it would not be starting from nothing.


A familiar pattern of absence
Absence also carries a particular charge in Shia religious culture, and this is where the Islamic Republic has a vocabulary ready to hand.
Twelver Shia Muslims believe the twelfth imam, who vanished in the ninth century, is alive but hidden and will one day return. During the period known as the Lesser Occultation, roughly 874 to 941, his instructions are said to have reached his followers through four successive deputies who spoke on his behalf. The Greater Occultation, in which he remains hidden and has no named deputy, has continued ever since.
This is not a claim about religious rank. Mojtaba Khamenei holds no such standing for Shia believers, and the comparison is not about status. It is about the function of absence: a person who cannot be seen can still be treated as present. Intermediaries speak in his name, and waiting takes the place of proof.
The Islamic Republic itself was built on a theology of absence. Its constitution justifies the rule of a jurist explicitly as an arrangement for the era of the hidden imam, which means the state has spent 47 years governing on behalf of a leader nobody can see. Its propaganda apparatus therefore has both the language and the precedent to convert the absence of Mojtaba Khamenei into a kind of hidden presence.
That possibility is not indefinite. The longer the absence lasts, the harder it becomes to distinguish a genuine order from a manufactured one, the sharper the competition among those claiming to speak for the leader, and the more insistent the question: who is actually giving the orders in Tehran?
Mojtaba Khamenei's absence will probably not save the Islamic Republic from military defeat, economic collapse or social unrest. It may, however, allow it to go on existing after such a collapse.
As long as the fate of the absent leader remains unclear, the system's followers can treat the fall as temporary, the defeat as unfinished and the return as possible. Because sometimes governments continue not because they are still standing, but because their death has not yet been proven.