Motorists drive past an anti-US billboard in Tehran on August 24, 2026. Iran responded with defiance on August 24 to a US threat of —AFP via Getty ImagesSix months into the war between the United States and Iran, President Donald Trump has turned to economic warfare to force the country into submission and threatened an “Economic D-Day” against Iran. This new American strategy was spelled out by Treasury Secretary Scott Bessent earlier this week: a campaign of U.S. sanctions against countries and financial institutions that do business with Iran or help it evade sanctions. The proposed new sanctions go beyond oil exports to target digital assets, gold, and the aviation sectors that help finance the Iranian economy. Bessent described it as a campaign to “collapse every last option for Iran.” Making all this work depends on whether the U.S. can convince Iran’s most important trade partners to cut out the Islamic Republic. China, which buys around 80% of Iran’s seaborne crude oil, has already pushed back, warning that it will “take all necessary measures” to protect its interests should it be targeted by U.S. sanctions. Beijing's response casts doubt on whether Washington’s new gambit can deliver results. If the aim, as stated, is to deal an economic blow to Iran, the fact is that the country is already under severe strain. A U.S. naval blockade has constrained oil exports, the primary source of revenue for Iran. Ordinary Iranians are facing greater economic pressure as their purchasing power is eroding: food inflation reached 128% year-on-year in July and families are cutting back on meat and other items. The dollar value of the minimum wage has fallen from about $105 to $86 since late March as the rial has weakened significantly. On Monday, Iranian currency fell to a record low of 2.02 million rials to the dollar. So what is the goal of Bessent’s announcement? Simply put, acknowledging the reality—even if the administration won’t state it in these terms—of avoiding a further, major military campaign as the conflict drags on. For their part, Iran’s leaders have dismissed the threat of intensified economic warfare, insisting the new punitive economic measures would fail. “It is the same movie they keep playing over and over again,” remarked Iran’s foreign minister, Abbas Araghchi. Does this mean nothing will change with the American announcement? Put another way, are we likely to see a continuation of the current state of neither war nor peace, with Iran prolonging things until it can secure a favorable deal to end the conflict? It is true that Tehran has powerful reasons to avoid another major military escalation. Tehran, it is true, has powerful reasons to avoid another major military escalation. A new round of fighting could deepen the damage to Iran’s energy, transport and industrial infrastructure—much of it still under repair from earlier hostilities— and would also complicate reconstruction by further straining state finances, disrupting imports and exposing an already weakened economy to another cycle of destruction.Yet American economic saber-rattling could alter this calculus. After all, on Aug. 10, Iran’s Supreme Leader Mojtaba Khamenei appointed Brigadier General Ahmad Vahidi, a hardliner with significant experience in intelligence and operational positions, as the commander of the Islamic Revolutionary Guard Corps (IRGC), instructing him to strengthen capabilities for “powerful offensive operations against the enemy.” That language was echoed on Aug. 22 by Mohsen Rezaei, who was recently appointed secretary of the Supreme National Security Council, the top national security body of Iran. In an interview Rezaei spoke of Tehran going to introduce “changes in the conduct of the war” and bring “new capabilities” into play. He also warned that Iran had so far targeted only U.S. military bases but could begin striking American economic interests if Washington intensified its economic campaign. Tick tock, tick tockIf Iran is pondering a possible escalation in the military conflict, the Trump Administration appears to be betting that time may yield what bombs have so far failed to. The naval blockade in the Strait of Hormuz remains in place, secondary sanctions are being tightened, and pressure is being increased on countries and financial networks that have allowed Tehran to circumvent previous restrictions. On Aug. 19, the United Arab Emirates, which has been a traditional financial gateway for Iran, suspended financial and commercial transactions with the country, a decision that is bound to hurt the Iranian economy. Iran has declared the Strait of Hormuz closed, but oil has continued to move through the waterway, which is 29 nautical miles wide at its narrowest point. The U.S. military has established a protected route along the southern side of the strait, close to the shore of Oman. The Gulf states have experimented with ship-to-ship transfers and other means of moving crude around Iranian restrictions. Saudi Arabia and the United Arab Emirates have been working intensively to reduce their dependence on the strait, building pipelines and investing in storage facilities to transport their oil by other routes.Precise estimates of oil passing through the strait are not available, but the volume seems to be somewhere between a quarter and half of the prewar flow of 20 million barrels a day. Oil prices remain elevated, hovering around $90 a barrel, but they are still far below the levels Tehran might have expected from an effective and sustained closure. Tehran had hoped that continued disruption in Hormuz would eventually make the economic costs of the confrontation intolerable for Washington and force Trump back toward compromise. Instead, the U.S. increasingly appears to believe that it can keep enough oil moving while allowing the blockade and sanctions to steadily increase the pressure on Iran.For Iran, that creates a very different calculation. The longer the current situation continues, the greater the strain on an economy already struggling with shortages, inflation and restrictions on trade. Iranian officials are increasingly speaking of the domestic consequences. First Vice President Mohammad Reza Aref has spoken of the danger of economic discontent turning into social instability; the speaker of Parliament, Mohammad Bagher Ghalibaf, has warned that measures such as raising gasoline prices could provide an opening for renewed unrest. President Masoud Pezeshkian has acknowledged that the blockade has restricted the country’s ability to import essential goods, including fuel. Thus, Tehran is finding it increasingly harder to sustain the condition of “no war, no peace.” A renewed war would impose enormous costs on Iran, but its leaders might ask a different question: will those costs be greater after months of economic pressure, declining revenues and continued military containment? If the answer is yes, then waiting ceases to be a strategy of restraint and begins to look like gradual erosion of power and strength. And they could consider escalation as a means of breaking the deadlock before Iran’s position deteriorates further.From retaliation to initiativeEconomic pressure is not the only reason Iran may be more willing to take risks. Tehran’s own understanding of deterrence has also changed over the course of the war. For years, Iranian leaders portrayed military action as retaliatory: Iran would absorb an attack, then impose costs on the aggressor. The experience of the past two years has increasingly called that logic into question. From Tehran’s perspective, repeated attempts to contain escalation did not prevent Israel and the United States from expanding their attacks. The strategic reassessment is now visible in Iran’s military leadership and practice. After appointing Vahidi as the commander of the IRGC, Khamenei instructed him to pursue “maximum deterrence” while preparing the force for “powerful offensive operations.” The wording is significant. Offensive action is increasingly being conceived as a path to restoring deterrence. Iran has already offered a glimpse of what this could mean in practice. On Jul. 28, the IRGC launched ballistic missiles at a U.S. military base in Jordan, at a time when Trump had paused American strikes to give diplomacy more time. In a departure from the past, the strike was not a response to an American attack. U.S. Central Command described it as an attempted surprise attack, and Washington subsequently resumed its strikes against Iran. The sequence suggested that Tehran was becoming more willing to initiate military action when it believed doing so could alter the strategic equation, rather than waiting to retaliate. Iranian leaders may also feel they have more room to act than Washington or Israel expected. Despite the enormous damage inflicted on Iran’s military-industrial infrastructure, recent satellite imagery and Israeli assessments indicate that Tehran has been restoring missile bases, production facilities, ports and other military infrastructure at a surprisingly rapid pace. Iran has not recovered from the war, and its leaders have not become indifferent to the risks of another military confrontation. Yet capability and willingness do interact. The more Tehran believes it can regenerate the military tools damaged during the war, the less compelling a strategy of absorbing economic pressure becomes. The emerging emphasis on proactive military action and sense of military regeneration could establish a lower threshold for Iranian military escalation than Washington assumes. If Iran considers the current balance as unsustainable, its escalation would have to differ from what it has already tried. Tehran is already attacking commercial shipping, contesting passage through Hormuz and relying on the Houthis to keep pressure on maritime traffic in the Red Sea. Intensifying those actions may raise costs, but it is unlikely to change Washington’s calculation of moving significant volumes of oil through the southern part of the strait. Iran could resume attacks on U.S. bases, radar systems, and other facilities that support maritime surveillance and command-and-control systems that help protect and coordinate shipping through the Strait. More dangerous still, it could attempt to strike U.S. naval vessels directly. Iran is believed to possess anti-ship missiles that, at least on paper, can threaten American warships operating in and around the Persian Gulf. The harder problem is locating and tracking moving targets with sufficient precision, why is why better intelligence, including potentially from partners such as Russia or China, could become an important variable. So far, Tehran has generally had strong reasons to avoid inflicting large numbers of American casualties, which could trigger a much larger U.S. campaign against Iran’s military and civilian infrastructure. But that restraint depends on Iranian leaders continuing to believe that avoiding such a confrontation leaves them better off. If they conclude instead that prolonged blockade and economic pressure are steadily worsening their position, the threshold for taking that risk could fall. Tehran has already warned that major U.S. attacks on Iranian energy or civilian infrastructure would be met with strikes against comparable infrastructure across the region, potentially widening the confrontation well beyond Hormuz. This is also why diplomacy remains the least costly way out for both sides. Washington may believe that time and economic pressure are improving its bargaining position; Tehran may increasingly believe that the same process is closing its window for action. That is a particularly dangerous combination. The memorandum of understanding reached earlier in the conflict is imperfect and each side accuses the other of violating it, but it still provides an existing framework for sequencing de-escalation, maritime arrangements, sanctions relief, and further negotiations. Reviving it would require concessions from both Washington and Tehran. The alternative is to allow each side’s strategy to reinforce the other’s worst assumptions until escalation begins to look less like a choice than an inevitability.