Trump's Economic War on Iran and South Korea's Strategy for Responding to Dual Pressures

Executive Summary

President Trump's declared economic war on Iran strongly resembles an exit strategy, stemming from the failure of a six-month military operation to force the Iranian regime's capitulation. Treasury Secretary Besant is demanding dichotomous compliance from allies and China, framing the choice as "you are either with us or against us." China, however, is likely to find alternative routes for its crude oil imports without openly defying the U.S. South Korea must recognize that the demand to join sanctions against Iran is being linked with pressure for a military contribution in the Strait of Hormuz, as evidenced by the downsizing of the Ulchi Freedom Shield exercise. Failing to address these two issues separately risks trapping Seoul in a cycle where concessions only invite further demands. Until the specific targets and enforcement scope of the sanctions are finalized, South Korea should refrain from preemptively declaring its compliance. It is advisable to adopt an approach that expands the room for maneuver, learning from China's strategy of creating an implementation lag.

I. Analysis of the Current Situation

The Trump-Initiated Economic War on Iran: A Situational Analysis

1. Background and Developments

The armed conflict with Iran is entering its sixth month. The U.S. military operation against Iran has failed to garner public support at home [1]. The Strait of Hormuz remains largely closed to traffic due to a U.S. naval blockade [12]. Oil prices have surged to a three-week high in the wake of the U.S. announcement of threatened sanctions [15].

On August 20 (local time), President Trump announced via social media his intention to wage an "economic war and isolation of unprecedented scale" against Iran [3]. He justified the move by citing the Iranian regime's refusal to negotiate, claiming, "No one has given the Islamic Republic of Iran more opportunities to negotiate than I have" [3]. That same day, he warned that any country that trades with or supports Iran would face "tremendous" economic consequences [8][12][14].

It is noteworthy that this move coincides with the war becoming a domestic political liability in the United States. With the November midterm elections approaching, domestic criticism is growing over the war's costs and the burden on consumers [12]. This political timeline is cited as a key reason for Treasury Secretary Scott Besant's shift in emphasis from military to economic pressure [1][10].

2. Current Situation

On August 21, Treasury Secretary Besant announced his intention to impose "the most powerful sanctions in history" [15]. He argued that this measure would reduce the need for a large-scale military operation against Iran [15]. The announcement was accompanied by a preview of measures at a level "never seen before" to be unveiled in the coming week [13].

In this phase, the United States has explicitly included not only its allies but also China as targets of its pressure. Besant presented a dichotomous choice, declaring that countries are "either with us or our enemy" [1][10]. This pressures nations to choose between siding with the United States and siding with Iran [4][6].

On August 20, Kazem Gharibabadi, Iran's Deputy Foreign Minister for Legal and International Affairs, countered via social media that the U.S. designation of an "economic war" is in fact an attempt to cover up Washington's existing failures [4]. He pointed to the contradiction of the U.S. claiming Iran is "on the verge of collapse" while simultaneously requesting support from all its allies [4]. His comments were reported by Iran's state-run IRNA news agency [4]. Iranian media have dismissed Trump's threats as an "extension of a failed policy" [8], and reports also convey Tehran's stance describing the U.S. sanctions as "economic terrorism" [16].

Meanwhile, this development is also affecting U.S.-South Korea relations. Analysis suggests that President Trump's directive to scale down the Ulchi Freedom Shield exercise, issued without prior consultation with Seoul, coincided with pressure on South Korea for its perceived lack of cooperation on the Iran issue [7]. The South Korean government's refusal of a request to cooperate on Iran's denuclearization was cited as a point of contention, which the People Power Party criticized as an instance of "Korea passing" [7]. Simultaneously, pressure is mounting for a South Korean military contribution in the Strait of Hormuz [7].

3. Key Actors and Positions

The U.S. Administration. President Trump and Treasury Secretary Besant are the key architects of this new phase. Facing the rising political costs of military action, Trump has explicitly stated his goal of using economic means to induce the "collapse" of the Iranian regime [1]. The Atlantic Council assesses that this approach resembles a return to the "maximum pressure" campaign of his first administration, but with a key difference: this time, it is coupled with the credible threat of resuming direct military strikes [3].

Iran. Iranian officials, including Deputy Minister Gharibabadi, characterize the U.S. sanctions campaign as rhetoric aimed at concealing the administration's own failures [4]. Iranian media describe the move as a repetition of a "policy doomed to fail," signaling that Tehran has no intention of capitulating [8][16].

China. The U.S. has demanded that China make a binary choice, placing it in the same category as U.S. allies [1][6][10]. As a major importer of Iranian crude oil, China would suffer a direct blow to its energy supply and economic ties with Iran if it were to comply with U.S. demands. The Cyprus Mail notes that this threat raises the risk of a direct confrontation with key trading partners, including China [17].

South Korea. South Korea faces simultaneous demands to cooperate on Iran's denuclearization and to make a military contribution in the Strait of Hormuz [7]. The U.S. directive to scale down military exercises was issued without prior consultation with Seoul, sparking concerns within South Korean political circles that a lack of cooperation on Iran could impact other bilateral security issues [7].

Middle Eastern Oil-Producing and Neighboring Countries. Regional countries, including Saudi Arabia and Jordan, are covering these developments in detail through their domestic media outlets [12][13][15]. The rise in oil prices resulting from the blockade of the Strait of Hormuz is a matter of direct interest to these nations.

4. Key Issues

The issues in this current phase can be summarized in three points.

The first issue is whether U.S. pressure can actually lead to the collapse of the Iranian regime. The effectiveness of the sanctions themselves remains unproven, so much so that the Atlantic Council has published a separate analysis on the reasons why Iran has "not yet capitulated" [3].

The second issue is China's choice. It is unusual for the United States to place China under the same pressure as its allies [1][6][10]. Given that China has little incentive to reduce its imports of Iranian crude oil, it remains uncertain whether this pressure will translate into a tangible policy shift.

The third issue concerns the negative side effects for alliance management. As the South Korean case illustrates, the demand for cooperation on Iran is exposing structural vulnerabilities in existing security consultation channels [7]. There is a risk that the demand for a united front in this economic war will become entangled with other bilateral issues, creating unexpected friction with individual allies.

II. In-Depth Issue Analysis

The Trump-Initiated Economic War on Iran: An In-Depth Analysis

1. Analysis of Root Causes

The declaration of this economic war originates from the political failure of the six-month military operation against Iran. Trump's military campaign failed to win popular support in the United States [1]. Despite the blockade of the Strait of Hormuz, the Iranian regime did not collapse [3]. The Atlantic Council explicitly raised this as an issue, analyzing "why Iran has not yet capitulated" [3]. Having failed to achieve his goals by military means, Trump has pivoted to economic ones.

The timeline of the November midterm elections dictated the timing of this pivot. Amid growing domestic criticism over the war's costs and the burden on consumers [12], a political calculation came into play: Trump could not face the electorate without a military victory. Besant's remark, while announcing powerful sanctions, that "this will reduce the need for a large-scale military operation" [15], suggests that the economic war is less an alternative to military action and more of an exit strategy to manage its failure.

The Iranian interpretation takes direct aim at this point. Deputy Minister Gharibabadi highlighted the contradiction of the United States claiming Iran is "on the verge of collapse" while simultaneously requesting support from its allies across the globe [4]. His point is a rhetorical question: why is worldwide cooperation necessary to isolate an adversary that is supposedly about to fall? This is more than simple propaganda; it is a political framing that casts the U.S. move as a measure of last resort, stemming from an inability to overpower its opponent single-handedly.

2. Structural Context

Security Structure. The Strait of Hormuz is largely closed to traffic due to the U.S. naval blockade [12]. While this blockade has disrupted Iranian crude oil exports [6], it has also had the adverse effect of pushing oil prices to a three-week high [15]. The military pressure is thus structured to impose costs not only on Iran but also on American consumers and the economies of allied nations. This cost structure is the background against which Trump has shifted the form of pressure from military to economic.

Alliance Management Structure. A hallmark of Trump's second-term foreign policy is the linking of security and economics to demand greater burden-sharing from allies and partner nations [5]. The current economic war on Iran fits squarely within this framework. Besant's ultimatum to other countries—"you are either with us or against us" [1][6]—represents an extension of the negotiating tactics seen in disputes over tariffs and defense cost-sharing. By forcing the same binary choice on friends and adversaries alike, this move transcends the stated goal of isolating Iran; it functions as a test of every nation's deference to the U.S.-centric order.

Linkage with the China Framework. The explicit inclusion of China among the targets of this pressure is structurally significant [1][17]. If China, a major consumer of Iranian crude oil, complies with U.S. demands, its energy supply structure will suffer. If it refuses, the U.S.-China conflict will expand from the trade front to the Iran issue. A Cypriot media outlet has pointed out that this measure "could increase the risk of conflict with major trading partners, including China" [17]. This signifies that the Iran issue is no longer an isolated regional matter but is being absorbed as a secondary front in the U.S.-China strategic competition.

Fissures in the U.S.-South Korea Alliance Structure. This phase also sends a structural signal to South Korea. The directive to scale down the Ulchi Freedom Shield exercise came without prior consultation with Seoul, and its timing coincided with pressure on South Korea over its refusal of a request to cooperate on Iran's denuclearization [7]. This was accompanied by simultaneous pressure for a military contribution in the Strait of Hormuz [7]. This shows that the United States does not treat its security alliance and cooperation on economic pressure as separate matters. A structure is emerging in which an ally's compliance with security commitments is de facto linked to its cooperation on the Iran issue.

3. Comparison with Historical Precedents

The Atlantic Council describes this measure as a repeat of the "maximum pressure" campaign from Trump's first term [3]. Implemented after the U.S. withdrawal from the Iran nuclear deal in 2018, that campaign sought to block third-country trade with Iran via secondary sanctions. The difference this time is the parallel use of military instruments. The Atlantic Council points out, "This time, it is combined with the real threat of a resumption of direct U.S. attacks" [3]. Given Trump's track record of launching direct attacks during his second term, there is a structural possibility that a failure of the economic war could lead to a reversion to military escalation.

The tactic of pressuring third countries via secondary sanctions is not new. It is a method seen repeatedly, from Cold War-era export controls on the Soviet Union to the financial sanctions against Iran and Russia in the 2010s. What distinguishes this case, however, is that the U.S. targets extend beyond a traditional adversary (Iran) to include Western allies and China, placing them all on the same footing. Besant's use of the "with us or against us" framing [1][6] is a dichotomy reminiscent of the Bush administration's rhetoric in the post-9/11 war on terror. The key difference is that the justification then was eradicating terrorism, whereas today it is collapsing a specific country's economy, making the objective more overt and narrow.

4. Key Variables Shaping the Issue's Development

The first variable is China's response. Whether Beijing complies with U.S. demands to reduce its imports of Iranian crude oil or maintains its own course will determine the effectiveness of this economic war. If China refuses to comply, the practical reach of the secondary sanctions will necessarily be limited.

The second variable is the U.S. domestic political timeline. If rising oil prices and the burden on consumers persist in the run-up to the November midterm elections [12][15], it is uncertain how long the Trump administration can maintain its economic war policy. A paradoxical situation could emerge in which the sanctions, by driving oil prices even higher, end up turning domestic public opinion against the administration.

The third variable is the choices made by U.S. allies, including South Korea. If a structure linking security commitments (e.g., the scale of military exercises, defense cost-sharing) to cooperation on the Iran issue becomes entrenched, these allies will be repeatedly forced to choose between their relationship with the United States and their own national interests, such as energy security and relations with China [7].