The strategic and global repercussions of President Trump’s newly launched “Operation Economic Outcast”—unveiled by US Treasury Secretary Scott Bessent—are driving a sharp realignment of global trade, heightening geopolitical tensions, and triggering a high-stakes standoff over the Strait of Hormuz. India will have to further efforts to ensure it can stave off as much as possible the resulting impact on its economy.
By imposing what experts call a “nuclear option”—including a blanket 25% tariff on countries trading with Tehran and threats of complete exile from the US dollar-based financial system—the US is forcing nations to choose between Iranian engagement and American market access.
This will lead to acceleration of a further divided global trade system with increased US-China brinkmanship. China remains Iran’s largest trading partner, absorbing nearly 90 percent of Iranian oil exports. With a crucial Trump-Xi summit weeks away and a bilateral tariff truce expiring this autumn, any US sanctions targeting major Chinese financial institutions risk triggering massive Chinese countermeasures, particularly restrictions on critical minerals. By weaponising the dollar via secondary sanctions, the US is inadvertently accelerating alternative financial architectures. Iran and its unyielding partners are actively attempting to route transactions through non-Western payment networks and local currencies to bypass American jurisdiction.
Then there are fractures and compliance disparities among key partners. For instance, the United Arab Emirates, previously responsible for over 30% of Iran’s imports, has already moved to halt trade and financial transactions with Tehran following intense Washington pressure. India’s bilateral trade with Iran has already shrunk to $1.6 billion. However, after briefly resuming Iranian crude imports during a temporary US waiver, Indian refiners face severe exposure if they continue procuring Iranian energy under the new “zero-revenue” mandate. Along with China and the UAE, Turkey stands as one of Iran’s top three trading lifelines and faces immense pressure to close its border trade and financial gray zones.
While US sanctions have caused the Iranian Rial to collapse and contraction of its GDP by over 5%, Iran retains leverage over the Strait of Hormuz. Iranian disruptions have brought transit through the vital corridor—which previously handled one-fifth of global oil trade—to a near-standstill. Although the US military is currently escorting limited commercial vessels through the strait, Iran is refusing to fully reopen the corridor unless it can charge transiting ships. Tehran is concurrently finalising a joint waterway management plan with Oman to formalise its control.
Blanket tariffs and the threat of retaliatory trade measures risk igniting a broader global trade war. Squeezing Iran’s remaining oil buyers while maritime traffic remains choked in the Persian Gulf threatens to destabilise international energy markets, placing acute inflationary pressure on energy-importing economies across Europe and Asia. How the world, and India, will cope with the consequences remains to be seen, but disruption of national economies is a given.
