The most consequential front in the US-Iran conflict may not be the missile exchanges over Tel Aviv or the dogfights over the Persian Gulf. It is the sanctions architecture that the US has spent fifteen years building—and that the war is now systematically dismantling.
The US sanctions regime against Iran operates on two distinct layers, and conflating them is the most common analytical error observers make.
Primary sanctions are straightforward: they prohibit US persons, entities, and dollar transactions from touching Iran. If you are an American company or a foreign subsidiary operating in dollars, you are cut off. These work as designed. No major US bank touches Iranian business. No American oil major takes Iranian crude.
Secondary sanctions are the lever that makes the regime truly global—and the source of its current structural failure. These target third-country actors: Chinese companies, Indian refiners, Emirati traders, European banks. If a non-US entity conducts "significant" business with a sanctioned Iranian entity—particularly in oil, shipping, banking, or the energy sector—OFAC can designate that foreign company to the SDN list, cutting it off from the US financial system entirely. That means no dollar clearing, no correspondent banking, no access to US markets. For a Chinese conglomerate or an Indian state refiner, the threat is existential.
This is why, under maximum pressure campaigns, China's purchases of Iranian oil dropped dramatically in 2019-2020. The secondary sanctions created compliance bureaucracies that made the business cost-prohibitive for risk-averse multinationals.
Here is what the current conflict has exposed. Secondary sanctions worked—until they didn't. The mechanism that made them effective was the existence of a parallel infrastructure for sanctions evasion: Chinese refiners usingrenminbi-denominated trade, dark fleet tankers moving Iranian oil under ship-to-ship transfers in Malaysian or Omani waters, UAE trading houses acting as cutouts, and payment channels through third-country banks.
That infrastructure depended on one thing above all else: shipping through the Strait of Hormuz. Tankers had to pass through the strait to move Iranian crude to Chinese and Indian buyers. Iran's own insurance and tanker fleets, already under sanctions, relied on the strait's traffic to function.
The Islamic Republic shut the strait. Not fully, not all at once—but deliberately and disruptively enough that insurance costs soared, ship owners rerouted, and the parallel infrastructure seized up. As of this week, Iran has approved only humanitarian goods vessels to its ports under designated protocols—a fig leaf that signals awareness of the optics problem but does not restore commercial shipping.
The result: the sanctions architecture's enforcement mechanism (secondary sanctions on third-country buyers) has been undermined not by US diplomatic failure, but by the same adversary whose behavior those sanctions were designed to constrain. Iran weaponized Hormuz and, in doing so, gutted its own oil export market—but also the compliance pressure point the US used to coerce China and India. When there is no shipping lane to use, the threat of secondary sanctions loses its grip.
China remains Iran's most important sanctions-evasion partner, but the relationship is more fragile than commonly assumed. Before the war, China was Iran's largest crude customer—buying somewhere between 800,000 and 1.5 million barrels per day, much of it at steep discounts routed through UAE intermediaries. China also became the settlement currency for Iranian oil, increasingly denominating trades in renminbi to avoid dollar clearing.
During the war, this lifeline has become complicated. Beijing faces a direct choice: continue buying Iranian oil at a discount and expose Chinese shipping and financial intermediaries to secondary sanctions, or scale back and concede influence over Tehran. The early evidence suggests China has not stopped buying—but the Hormuz disruption means the volumes reaching Chinese ports have fallen regardless of Beijing's preferences. A Fortune analysis this week quoted energy experts suggesting Iran is nonetheless winning the "energy war" because Hormuz control gives it leverage to sustain higher prices longer than the US can absorb the disruption costs.
India presents the most revealing current case study in secondary sanctions failure. New Delhi had invested hundreds of millions of dollars in the port of Chabahar—a strategic gateway to Afghanistan and Central Asia that bypasses Pakistan. The US had granted Chabahar-related transactions a limited carve-out, recognizing its strategic utility for humanitarian access to landlocked Central Asia.
The war has ended that ambiguity. India now faces a direct pressure: maintain the Chabahar investment and face secondary sanctions exposure, or abandon a decade of strategic positioning to stay in the US financial system. Concurrently, the US Treasury granted India a 30-day waiver to purchase Russian crude—explicitly framed as a "stop gap" response to Hormuz disruptions. India is being squeezed from two directions: pushed away from Iran by secondary sanctions risk, and offered a grudging concession on Russia as a pressure-release valve.
The message this sends to New Delhi is clear: Washington needs India's alignment more than the sanctions architecture suggests. Secondary sanctions are a coercive tool, but they are only as strong as the geopolitical relationship that underpins compliance.
The UAE and Gulf states occupy an awkward middle ground. Dubai-based trading houses have long been the intermediary layer for Iranian oil moving to East Asian buyers. UAE banks process payments that never touch dollar clearing directly but are denominated in dirhams or routed through Oman. The war has made this business more lucrative—higher oil prices, greater discounts on Iranian crude—but also more dangerous. US intelligence and Treasury enforcement have intensified scrutiny on UAE intermediaries, and several designations have followed. The UAE government's incentives are split: it wants US security guarantees and financial system access, but it also benefits from being the world's preferred sanctions-arbitrage jurisdiction.
This is the analytical point that deserves more attention than it is receiving.
A Fortune analysis published today makes the argument directly: Iran may have lost significant military capability—its air defenses degraded, senior commanders eliminated, launchers destroyed—but it is winning the energy war because it controls who can ship oil through the Strait of Hormuz. The US position, which requires global oil flows through this single chokepoint, creates a structural vulnerability that Iran can exploit at will.
Trump's April 6 deadline for Iran to "make a deal, open Hormuz" or face intensified strikes on energy infrastructure is a threat whose credibility is complicated by this asymmetry. Bombing Iranian energy infrastructure could reduce Iran's oil export capacity further—but it does nothing to reopen the strait that the oil must pass through. As energy analyst Dan Pickering put it: "The ripple effects of Iran in control of the Strait of Hormuz are really bad." Iran knows this.
The result is a situation where both sides have escalation options that are worse for the other than for themselves—but neither can fully claim the escalator.
There is one area where the sanctions architecture and the war's realities intersect most starkly: humanitarian exceptions.
Iran's decision this week to approve passage of ships carrying essential goods and livestock feed through Hormuz—announced via a letter from the Agriculture Ministry's trade development office—is framed as a goodwill gesture. It is also an implicit admission that the total strait closure was unsustainable and internationally costly. The carve-out reveals the friction that comprehensive sanctions and warfare create for civilian populations. Iran's own civilians face shortages; its trading partners face insurance and shipping costs that make even discounted Iranian oil unviable.
This is the structural flaw in both the sanctions regime and the war's conduct: the mechanisms designed to pressure the Iranian government fall most heavily on ordinary Iranians, while the elite networks that supply the IRGC and the regime's foreign operations have the connections to route around restrictions. Independent analysts tracking sanctions evasion note that the informal trade networks—Belt and Road-linked companies, shell entities in Hong Kong, Omani intermediaries—operate precisely because the formal channels have been closed.
Three conclusions follow from this analysis:
First, secondary sanctions are a coercive instrument calibrated for peacetime trade competition, not wartime disruption. The Hormuz closure has reduced Iranian oil exports to China and India regardless of whether they want to buy—and thus removed the primary compliance pressure point the US used to coerce those buyers. The sanctions regime is functioning as designed against US persons, but its global reach has been degraded by the war's direct effects.
Second, the US-Russia-India triangle reveals that secondary sanctions are negotiable for close enough allies. The 30-day Russian oil waiver for India signals that Treasury is willing to grant strategic carve-outs when geopolitical costs become too high. This suggests the sanctions architecture is more malleable than its formal strictness implies—which is both a strength (it can be flexed for diplomacy) and a weakness (actors learn that waivers are obtainable).
Third, the energy war and the kinetic war are decoupling. The military exchanges and diplomatic overtures are happening on one track; the Hormuz shipping disruption and global oil price implications are on another. US decision-makers face a scenario where they can achieve every military objective—degrading Iranian defenses, eliminating commanders, striking nuclear-adjacent sites—and still lose the strategic contest if the Hormuz chokepoint remains partially or intermittently disrupted. This is the scenario that US intelligence, per recent reporting, considers the most likely near-term outcome.
This analysis draws on reporting from Fortune, Reuters, the Times of Israel, Al Jazeera, NPR, Middle East Monitor, the Center for a New American Security sanctions database, and sanctions law practitioners. Independent trade-tracking analysts cited include Jordan Blum (Fortune) and Dan Pickering (Pickering Energy Partners).
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The sanctions architecture designed to coerce Iran is being undermined by the war's own effects on Hormuz shipping—the very chokepoint that gave the US leverage over China and India.
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