Iran builds parallel financial system with China to bypass US-led banking
The Trump administration last week unveiled what it billed as an “Economic D-Day” aimed at forcing Iran to reopen the Strait of Hormuz and return to the negotiating table, announcing a sanctions drive dubbed “Operation Economic Outcast” that targets Iran and its financial connections. The administration has called the campaign the biggest-ever financial offensive leveled against a U.S. adversary. Officials say Iran is already buckling: its inflation has soared past 80% and the country has shifted, in the Journal’s words, to a “survival economy.”
But a Wall Street Journal analysis this week, drawing on the historical record of Western sanctions against Cuba, North Korea, Venezuela, Syria and Russia, found that economic pressure campaigns alone rarely force autocratic concessions. The leaders of those countries, the Journal reported, have used a combination of violence, economic adaptation and political suppression to withstand economic pain for years, if not decades.
Cuba has lived under a U.S. embargo for more than six decades. As the Trump administration has increased pressure, the island’s economy has withered — suffering from power outages and food shortages — but the leadership, including Miguel Díaz-Canel, has remained defiant even as Trump threatens a “friendly takeover” of Cuba. In a recent interview with Brazilian media, Díaz-Canel said his government would not make concessions and was not afraid of being captured the way former Venezuelan leader Nicolás Maduro was captured by U.S. forces in January. “If it comes for me, it comes,” Díaz-Canel said. Havana, the Journal noted, learned surveillance and control techniques from the Soviet Union’s KGB and East Germany’s Stasi during the Cold War and uses them to monitor residents, schools, unions and the media.
North Korea presents a similar pattern. Decades of some of the world’s harshest sanctions have failed to force Pyongyang to abandon its nuclear and long-range missile programs. In recent years, North Korean leader Kim Jong Un’s government has deployed troops to the Russian front lines in exchange for payment, built an elite force of cyber operatives capable of stealing billions in cryptocurrency, and used other workarounds — including tricking Americans into working for North Korean interests at U.S. companies, according to the Journal — to boost its coffers. Kim recently rebuffed overtures from Trump to meet, saying the United States can choose between “peaceful coexistence or eternal confrontation” with his regime. Yang Il-cheol, 31, who defected from North Korea last year, told the Journal that citizens have developed workarounds for fuel outages, starvation and chronic shortages of fertilizer, rice and electricity, including using car batteries to provide emergency power during blackouts. “I think North Koreans’ ability to respond to crises is the best in the world,” Yang said. “If a car accident happened once, you would panic. But if it happens all the time, nobody is surprised anymore.”
Russia’s experience under Western sanctions after its 2022 invasion of Ukraine similarly complicates expectations. Despite then-President Joe Biden’s prediction that the sanctions would cut Russia’s economy in half, the country’s gross domestic product fell just 1.4% in the first year before recovering at a pace the Journal described as “torrid.” Russia has reoriented its trade flows toward China and other non-Western powers. More than four years later, Russian President Vladimir Putin’s grip on power remains firm and shows no signs of easing the assault on Ukraine. Addressing lawmakers in late July, Putin mocked the sanctions as futile. “We are setting goals for technological leadership and, strange as it may seem, are achieving the results we need, despite all these external constraints,” Putin said.
Venezuela’s case shows the limits of sanctions when applied without force. Maduro survived roughly seven years of U.S. economic and financial sanctions that targeted more than 200 of his aides and military figures in an effort to sow internal divisions. The effort failed: Maduro’s inner circle banded together, and the economy contracted by almost 75% — what the Journal called the deepest contraction ever seen outside of wartime. More than eight million Venezuelans, a quarter of the population, fled during his rule. Maduro held on until U.S. elite forces stormed his compound in January. Both Washington and Caracas officials have privately acknowledged that unwinding the sanctions and luring businesses back has proven difficult, slowing economic recovery for Maduro’s successor, Delcy Rodríguez. Naiara Patiño, 26, a Venezuelan physicist now pursuing an astronomy doctorate at Boston University, said there are no job opportunities back home. “There are no job opportunities,” she said, “even with a PhD.”
Syria’s case is similarly instructive. The United States began applying sanctions on Syria in 1979, including its designation as a state sponsor of terrorism. The Assad regime’s eventual downfall in December 2024 came only after rebel forces launched an offensive while his two main international backers — Russia and Iran — were bogged down in wars elsewhere and neighboring Lebanon was suffering an economic collapse that spilled across the border. The U.S. sanctions were not quickly lifted after the regime change, and it took nearly two years of diplomatic effort before the State Department removed Syria’s state sponsor of terrorism designation last week.
Historical successes are also part of the record. Nicaraguan leader Daniel Ortega was voted out in 1990 after a decade of sanctions that battered the economy, though he later returned to power and remains in charge today. South Africa dismantled apartheid under intense global economic pressure. Libya gave up its nuclear program in 2003 amid heavy sanctions. But in each case, the Journal reported, sanctions were paired with other diplomatic or political pressures rather than standing alone.
Iran, the Journal noted, has decades of experience adapting to sanctions. Sanctions typically push activity underground, creating black markets for goods, services and people, and dictators use outside pressure to rally their populations. Tehran has branded the U.S. campaign “economic terrorism” and grown its trade with countries that share a land border. Iran has also built a parallel financial system with China that bypasses the U.S.-led banking architecture, weakening Washington’s enforcement powers.
Economists and sanctions experts interviewed by the Journal were divided on whether the new U.S. measures would alter Tehran’s calculus. “The fact that the U.S. can inflict pain is a given,” said Djavad Salehi-Isfahani, an economist at Virginia Tech. “My feeling is that these pressures aren’t going to result in more pressure on the Iranian government to compromise.” Aaron Arnold, a former expert on the United Nations panel monitoring sanctions enforcement against North Korea who is now at the Royal United Services Institute, a London think tank, said economic pressure has to be coupled with diplomatic campaigns to squeeze an autocratic regime effectively. “These kinds of levers by themselves may not be the most effective tools,” Arnold said.
In announcing the latest wave of economic pressure last week, Trump said the Strait of Hormuz is open and all mines have been cleared. White House spokeswoman Anna Kelly said the naval blockade remains in full force. “The naval blockade remains in full force and effect, and Operation Economic Outcast is under way to sever every remaining economic lifeline sustaining the regime,” Kelly said in a statement.
This assessment builds on MSI’s prior coverage of Operation Economic Outcast, including the Aug. 25 report on the tanker strike and the campaign’s launch and the Aug. 24 article on the financial offensive against Iran.