Iran scrambles to sustain trade as US threatens to sanction countries
that refuse to break ties
[August 28, 2026] By
KAREEM CHEHAYEB and SAM McNEIL
BEIRUT (AP) — Iran’s economy, already strained by high inflation, years
of Western sanctions and a war that has sharply reduced oil revenue, is
poised for more instability as the Trump administration tries to coerce
other countries into ending all financial dealings with the Islamic
Republic.
A decision by the United Arab Emirates to suspend trade relations with
Iran last week kick-started the White House’s latest attempt to isolate
Tehran into submission. Iran entered the war with its foreign commerce
concentrated among a relatively small group of countries, leaving it
with fewer places to turn now.
The success of the U.S. strategy will largely hinge on China, the main
buyer of Iranian oil and its top trading partner. Russia, a fellow
target of sweeping U.S.-led sanctions, has a military conflict and
economic crisis of its own and probably can’t offer longtime ally Iran
much hard financial support.
Regional partners like Turkey, Pakistan and Iraq maintain important
relationships with both Iran and the U.S., giving them reason to avoid
exposure to the secondary sanctions that Treasury Secretary Scott
Bessent said awaited nations that did not cut economic ties with Iran.
“Those who stand with the United States will reap the rewards of our
partnership,” Bessent said Monday while outlining the plan he called
“Operation Economic Outcast.” “Those who tether themselves to the
Iranian regime should expect to share in the isolation.”
The Emirates will be hard for Iran to replace as a conduit for
foreign goods and payments
Despite Western sanctions, Iran in 2024 exchanged $125 billion worth of
goods globally, according to Trade Data Monitor, a private firm. Iran is
not a member of the World Trade Organization.
The bulk of its declared international trade, though, was with a handful
of partners. The UAE, China and Turkey supplied nearly three-quarters of
Iran’s merchandise imports. Four countries — China, Iraq, the UAE and
Turkey — accounted for more than two-thirds of its non-oil exports.
On the supply side, the UAE held outsized importance. It was Iran's
biggest source of imported items and a gateway to financial channels
that helped Iranian businesses make and receive international payments.
Both roles kept Iran connected to the global economy.
As a re-export hub, the UAE processed shipments from foreign suppliers
reluctant to deal directly with Iranian customers.
“From Iran’s perspective, the UAE can be replaced, but the Iranians are
openly saying it’s not going to happen overnight,” said Alex Vatanka, a
senior fellow at the Middle East Institute in Washington.
China has deep economic ties to Iran but depends less on the
relationship
Beijing has economic interests in the Persian Gulf beyond Iran, and so
far has avoided getting drawn into the conflict the U.S. and Israel
initiated. China buys the overwhelming majority of Iran’s crude through
opaque trading networks that bypass sanctions.
Its manufacturing clout and stranglehold on critical mineral supplies
nonetheless give Beijing more room than Iran's other partners to resist
U.S. pressure, said David Lubin, a senior research fellow at Chatham
House. Aggressive action against major Chinese banks and businesses
could revive trade tensions as Chinese leader Xi Jinping prepares to
meet with President Donald Trump in Washington next month.
“I don’t see China playing ball by any means,” Lubin said.
China is both Iran's largest reported export market and a supplier of
essential parts and products, according to WTO and U.N. data.
During the Obama administration, Beijing did agree to reduce energy
imports from Iran, said Atlantic Council fellow Daniel Fried, a former
U.S. ambassador to Poland.
“We will want the Chinese to go a lot farther than they have gone in the
past,” Fried said. “But it’s a lot harder now.”
China has experience helping an ally survive sanctions: it has long been
North Korea’s economic lifeline and main diplomatic backer. Experts say
China has avoided fully enforcing U.N. sanctions on North Korea and sent
clandestine aid to help its impoverished neighbor stay afloat.
Expanding bilateral trade would create problems for Iran's neighbors
Iranian Parliament Speaker Mohammad Bagher Qalibaf, who has been his
country's lead negotiator over the past six months, was in Iraq the day
of the UAE's trade suspension. A purpose of his visit, he said, was
“speeding up efforts to expand joint cooperation among all countries in
the region, without foreign interference.”
[to top of second column] |
A man walks away after watching a black plume of smoke rise from a
warehouse in the industrial area of Sharjah City, United Arab
Emirates, March 1, 2026, following reports of Iranian strikes in
Dubai. (AP Photo/Altaf Qadri, File)
 The U.S. dollar's preeminence in
international trade and finance, however, means none of Iran's
trading partners would antagonize Washington lightly, Vatanka said.
“We’re still at a point where if the U.S. wants to hurt you, it will
matter,” he said.
Underscoring potential consequences, Turkey settled a yearslong U.S.
dispute in July over the role of a state-owned bank in helping Iran
evade sanctions through an oil-for-gold scheme. Trump also moved to
lift sanctions on its fellow NATO member stemming from Turkey's
purchase of a sophisticated Russian missile system.
“I really don’t think Turkey would like to become the next country
helping Iran to evade sanctions right now,” said Riccardo Gasco, an
analyst at the IstanPol think tank in Istanbul.
Iran is a vital import source for Iraq and retains influence there
through allied political factions and armed groups. Baghdad has
sought closer economic and security ties with Washington. Since it
invaded Iraq in 2003, the U.S. has significant control over the
nation's foreign currency reserves because they are housed in the
Federal Reserve Bank in New York.
Oman, a frequent intermediary between Washington and Tehran, has
found its balancing act suddenly precarious. Trump threatened Oman
last week over its ongoing negotiations with Iran on the future
management of the Strait of Hormuz.
One easy route for goods slipping past sanctions on Iran would be
ports like Gwadar near the Persian Gulf in Pakistan, said Peter
Harrell, a visiting scholar at Georgetown University.
“Ship an intermodal container of drone parts to one of the ports in
western Pakistan and unload it onto a truck and have it driven
across the border into Iran,” he said.
While Pakistan, a key ally and economic partner of China in the
region, wants to increase trade with Iran, it faces competing
pressures. It is serving as a key mediator between Tehran and
Washington and has deep security ties with Saudi Arabia, Iran’s
longtime regional rival.
Caspian Sea trade route alternatives unlikely to grow quickly
With the Strait of Hormuz mostly blocked and Russia's war with
Ukraine endangering ships on the Black Sea, Iran has sought to
develop a “road of life” on the Caspian Sea, said Nikita Smagin, an
independent analyst and a former Russian state news agency
correspondent in Tehran.
Russia reportedly sent drones to Iran this year, repaying Tehran's
favor after Moscow's full-scale invasion of Ukraine. It also
rerouted exports to Iran via Caspian Sea ports like Astrakhan.
Agricultural products make up 80% of Russia and Iran's reported
trade.
“Both economies are exporting natural resources and have little to
offer each other,” Smagin said.
The other countries that border the Caspian — Azerbaijan,
Turkmenistan and Kazakhstan — probably won’t rush to join in, said
Umud Shokri, a fellow at George Mason University.
Yet Russia and Iran are already in an “axis of the sanctioned,” said
Mark Galeotti, executive director of the Mayak Intelligence firm.
For decades the pair have collaborated to thwart trade restrictions,
and increasing bilateral trade in both “strategic goods” and
contraband like military technology, microchips and Gucci handbags
could be a next step.
“Pomegranates and tomatoes only go so far,” he said.
___
McNeil reported from Brussels. Associated Press writers Amir Vahdat
in Tehran and Dasha Litvinova in Tallinn, Estonia, contributed to
this report.
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