As US-Iran fighting resumes, Taiwan faces the fallout of a new sanctions campaign dubbed Economic D-Day, experts say

Washington is betting that secondary sanctions can force Iran to reopen the Strait of Hormuz, but experts warn that the strategy risks widening the conflict into a confrontation over China, the dollar system and the credibility of US security commitments.

A new front in the war

The pause in direct military conflict between the United States and Iran has ended.

On Aug. 30, US forces struck two Iranian launchers on Larak Island in the Strait of Hormuz. Iran also launched ballistic missiles at US bases in Jordan, while the United Arab Emirates (UAE) said on Aug. 31 that it intercepted an Iranian drone over its territorial waters.

The exchange marked the first known direct US-Iran military confrontation since late July.

The renewed violence has come just days after Washington opened another potentially more consequential front: an economic campaign designed not merely to punish Iran, but to compel the rest of the world to choose sides.

On Aug. 24, Treasury Secretary Scott Bessent unveiled Operation Economic Outcast, part of what President Donald Trump has described as an “Economic D-Day.”

The US Treasury stated that the campaign would sever Iran's remaining financial lifelines. The initial package targeted nearly 60 entities, individuals and vessels linked to oil revenues, nuclear and missile procurement, cyber operations and other activities, while dramatically expanding the sectors in which foreign actors could face secondary sanctions.

The issue of secondary sanctions mattered because they reach beyond Iran's borders. Under the American framework, foreign companies need not themselves be Iranian to become vulnerable.

For Taiwan, the immediate exposure is not direct trade with Iran. It lies instead in the effects of Washington's economic campaign on oil markets, the dollar-centric financial system, and Chinese reactions, among other concerns.

The real battlefield: The Strait of Hormuz

Middle East affairs specialist Liu Yen-ting (劉燕婷) told TCN that the economic campaign cannot be understood separately from the military stalemate.

Liu said that Washington wants Iran to relinquish its leverage over the Strait of Hormuz, but remains constrained by domestic political considerations and the risks of further expanding the war.

Tehran, she said, wants the naval blockade lifted but does not want to surrender its control over the strait or appear to capitulate. Gulf states, meanwhile, want the conflict contained without allowing Iran to emerge as the victor.

That triangular impasse, Liu said, is the essential backdrop to Economic D-Day.

The objective, in practical terms, may therefore be narrower than regime change or a new nuclear agreement: Washington wants to use economic pressure to force Iran to reopen the waterway and abandon attempts to charge for passage.

Tehran, by contrast, wants to retain some leverage over the strait while extracting economic concessions, including sanctions relief, an end to port blockades and compensation for wartime losses.

Washington has warned that entities dealing with Iranian bodies involved in managing or providing services around the Strait of Hormuz could face sanctions. That could include accepting insurance or other services, responding to information demands, and making payments through digital assets, barter, offsets or physical transactions in exchange for safe passage.

Iran, for its part, has threatened that if neighboring countries participate in the American economic campaign, not “a drop of oil” would leave the Persian Gulf and Strait of Hormuz.

The result is an extraordinary paradox: Washington is using economic warfare to reopen a waterway whose closure has already generated an economic shock far beyond Iran.

Liu told TCN that the effectiveness of Washington’s Economic D-Day will ultimately hinge on whether governments and companies comply out of fear of secondary sanctions or quietly circumvent them, potentially accelerating the broader trend of de-dollarization.

At the heart of that calculation, she said, are the economic weight of the actors involved and, crucially, how far the United States is ultimately prepared to push its sanctions regime in order to pressure Iran.

And when the guns began firing again, markets immediately took notice. Brent crude rose above $90 a barrel after the latest US-Iran exchange, underscoring how quickly military escalation can renew supply concerns over Hormuz.

Whether economic pressure can finally break Iran

Skepticism over the campaign's effectiveness is widespread.

Liu pointed to a fundamental distinction between this operation and the sanctions imposed on Iran for decades. The decisive question, she said, is not how long the sanctions list becomes, but whether Washington is prepared to impose genuinely coercive measures against the most important economic actors supporting Tehran.

That means China.

China is Iran's largest trading partner and overwhelmingly its largest buyer of Iranian crude. Yet Beijing has made clear that it will not simply follow Washington's lead.

Jeffrey Sachs, an American economist and professor at Columbia University, and Sybil Fares wrote on Aug. 31 for Al Jazeera that the campaign is ultimately aimed at China, which buys more than 80% of Iran's oil exports.

They framed Washington's pressure on Beijing as a strategic trap, with China having already demonstrated its countermeasures such as restrictions on rare-earth exports, especially at a time just weeks before an upcoming meeting between President Trump and Chinese leader Xi Jinping (習近平).

They wrote Beijing's restrictions on rare-earth exports in 2025 exposed the vulnerability of Western manufacturing to China's control of critical minerals and magnets.

Former US Ambassador to China Gary Locke similarly warned that Beijing has numerous economic weapons of its own, particularly rare earths and critical minerals essential to American missiles, interceptors, fighter aircraft and satellites.

That is why the campaign's treatment of China may determine whether Economic D-Day becomes a successful coercive strategy or the opening salvo of another global economic confrontation.

Liu cautioned against treating China as an unconditional Iranian ally. Beijing may continue buying Iranian oil to prevent Tehran from being completely strangled, but China's economic relationship with the United States and Gulf states is vastly larger than its trade with Iran. Beijing's overriding calculation is likely to remain its own national interest.

Liu added that this is why Iranian strategists have argued that Tehran should regard China as a pragmatic strategic partner rather than an unconditional ally — and avoid a “North Korea model” of economic dependence.

The political impact for the US and Iran

Iran, meanwhile, is already under extraordinary economic strain.

Liu cited July data from the Statistical Center of Iran, the country's official statistics agency, to show that average annual inflation had reached a record 62%, with year-on-year inflation around 82%.

Food inflation in Iran reached 134% in July and 140% in rural areas, with more than two-thirds of monitored food products reportedly exceeding crisis-level inflation.

The pressure is particularly severe because the war has compounded vulnerabilities that predated it. Bread, meat, poultry and other basic necessities have become increasingly unaffordable, while fuel shortages have forced Tehran to consider measures ranging from station-level supply caps to changes in vehicle and individual fuel quotas.

Liu stated that sustained economic deterioration could strengthen pragmatic voices advocating negotiations, particularly after the January financial crisis and nationwide demonstrations, the subsequent wars and the destruction caused by the conflict.

However, the historical record gives reason for caution.

Robert Pape, a political scientist at the University of Chicago, said that economic sanctions on their own have not produced one single successful case of decisive political capitulation since the First World War.

He warned that, much as economic pressure against Japan before Pearl Harbor helped intensify rather than resolve confrontation, sanctions can create incentives for escalation rather than compromise.

Vali Nasr, an Iranian-American scholar at Johns Hopkins University, likewise argued that Bessent's strategy is not supported by the history of sanctions.

What is different this time, he said, is that the strategic stature of the United States has diminished, with Washington no longer appearing as dominant or capable of providing an unequivocal security umbrella.

For Taiwan, Nasr said, the responses of the UAE, Saudi Arabia and other Gulf states offer a revealing lesson: even countries deeply distrustful of Iran, much as Taiwan is wary of China, may still find it necessary to repair ties with a potential adversary when the United States can no longer be relied upon to provide a dependable security blanket.

Trita Parsi, the executive vice president of the Quincy Institute, described the sequence as particularly unusual: sanctions normally precede war as a means of escalation, whereas this time the United States is moving in the opposite direction — from military conflict toward intensified economic warfare.

He described the Economic D-Day campaign as “bizarre” and “chaotic.”

Mohammed Marandi, a professor at the University of Tehran, offered a similar assessment from the Iranian side: Economic D-Day may actually weaken the image of the United States as an all-powerful actor capable of economically strangling any adversary. Iran, he stated, has serious economic problems, but it has not collapsed.

The BBC also cited Iranian officials saying that Iran had long endured US sanctions and that it would get through this latest campaign.

John Mearsheimer, an American scholar in international relations, shared a similar view.

Bessent's reluctance to immediately impose the harshest secondary sanctions and his own words explaining the rationale, Mearsheimer said, reflect the recognition that doing so could “blow up” the international economy.

Mearsheimer also doubted that Tehran would compromise. From the Iranian perspective, years of maximum pressure under successive American administrations have failed to resolve the conflict, while repeated American threats to destroy Iran have transformed the confrontation into an existential struggle.

The case for Economic D-Day

There is, however, a notable dissenting view.

Former Secretary of State Mike Pompeo is considerably more optimistic about the strategy.

He told Fox News that economic pressure takes time to translate into political results — that there is a distance between “D-Day” and “Victory.”

For Pompeo, the crucial next step is therefore secondary sanctions against Chinese banks. His theory is that sufficiently severe isolation could create pressure not only on the Iranian public but also within the military, particularly among soldiers who may not want Iran to become an economic outcast comparable to North Korea.

This is essentially the Trump administration's wager: that Iran's capacity to endure pain is finite, and that the cumulative effect of financial isolation, declining oil revenue and domestic inflation will eventually make continued confrontation more costly than compromise.

Leslie Vinjamuri, president and CEO of the Chicago Council on Global Affairs, identified two separate hurdles to this outcome.

First, can Washington persuade countries such as China, Turkey and the UAE to participate?

Second, even if it can, will that pressure actually make Tehran surrender its strategic objective over Hormuz?

She doubted both propositions.

What it means for Taiwan

The implications extend beyond Iran.

For Taiwan, Liu told TCN, the most immediate lesson is not that Economic D-Day will directly punish the island's economy. Taiwan's commercial links with Iran are limited.

Liu argued that the most consequential development for Taiwan will be whether international markets believe the Middle East is moving toward a negotiated reopening of Hormuz or toward a broader regional war.

If markets conclude that the strait will gradually reopen and negotiations remain viable, oil prices can stabilize, cushioning Taiwan, a major energy importer.

If that assumption collapses, the consequences would be significant: higher crude prices, greater transportation and manufacturing costs, renewed inflationary pressure and potentially tighter financial conditions.

Taiwan also has a strategic lesson to draw from the latest developments in the Middle East.

Jake Sullivan, former US national security advisor and a guest on the TCN-produced Taiwan Frontlines podcast series, said that the health of American alliances is measured not only through military deterrence but also through economic and technological measures.

He warned that Washington's aggressive actions toward allies could inadvertently strengthen China's efforts to weaken the US-led alliance system.

If Washington's economic and military strategy is perceived as unpredictable, allies and partners may begin hedging rather than aligning more tightly.

Pape similarly warned that the perception of weakening American military availability — including the movement of US aircraft carriers away from Asia toward the Middle East without equivalent replacements — could encourage countries in both Asia and the Middle East to reconsider their security assumptions, including their incentives to acquire nuclear capabilities.

For Taiwan, therefore, the deepest question is not whether it trades with Iran.

It is whether the United States can impose economic coercion without simultaneously undermining confidence in the broader architecture of American power.