Bessent's D-Day sanctions are more Anzio, but Iran response is key: Russell

U.S. Treasury Secretary Scott Bessent invoked the famous D-Day landing of Allied troops in France in 1944 when announcing new sanctions against Iran. But the measures are better compared to another World War Two amphibious landing, the considerably less successful Anzio beachhead in Italy. The Anzio battle was marked by the initial success of Allied landings, but a lack of decisive leadership saw the campaign stall and turn into a months-long campaign of attrition that largely failed to achieve its initial objectives. Bessent's new measures aim to strangle Iran economically and target countries and corporates doing business with the Islamic Republic in five sectors, namely digital assets, technology, gold, aviation and shipping. But rather than going for broke up front, Bessent is putting countries on notice that they will have to work with the United States or face losing access to the global dollar-based financial system. In other words, the new measures are more of a threat than a reality. But even if they do become reality there are doubts as to whether they will be effective enough to force Iran's rulers to capitulate, or indeed whether they will be severe enough to force a desperate Iranian populace to successfully rise up and overthrow their clerical rulers. Iran has proven adept at getting around sanctions in the past by setting up new front companies and working with its allies such as China. With Beijing unlikely to join any U.S. sanctions, it would mean that Bessent would have to be willing to impose measures against Chinese banks, refiners, shippers and traders, a level of escalation that Washington may be cautious about pursuing. What the new sanctions do achieve is to confirm that a diplomatic solution to the Iran conflict is a distant option, and they reinforce the view being put forward by the administration of President Donald Trump that some form of victory is still possible. Another lesson from history is that when both sides in a war are convinced they can still win and that time is on their side, the conflict will continue until this calculation shifts. The key for energy markets will be how Iran responds. The messaging so far on social media has been belligerent, but Iran has also yet to renew missile and drone attacks on energy and other infrastructure in Gulf nations hosting U.S. bases, such as Kuwait, Qatar and Bahrain. Tehran has also not been able to fully close the Strait of Hormuz, and while there is some dispute over the actual volume of crude moving through the narrow waterway, the key point is it's not zero and every barrel that gets through lessens Iran's leverage. Iran is also feeling pain from the existing U.S. blockade of its ports, a measure that is proving far more effective than financial sanctions. Iran exported an average of 1.75 million barrels per day (bpd) of crude in the three months leading up to the U.S. and Israeli attacks on February 28, according to data compiled by commodity analysts Kpler. This has plunged to just 255,000 bpd in August, down from 893,000 bpd in July and even weaker than the 259,000 bpd from May, which was the lowest since May 2020, a period when crude demand was hit by the COVID-19 pandemic. The problem for Bessent and Trump is that the more their blockade and economic sanctions work, the more they incentivise Iran to hit back with every military means at its disposal. If Iran's leaders see themselves in an existential battle, they are unlikely to meekly accept being economically throttled without attempting to wrest back the initiative through hitting infrastructure and vessels across the Gulf. The uncertainty of Iran's response is likely to keep a nervous premium in crude oil prices. Global benchmark Brent futures LCOc1 did ease after Bessent's announcement, falling around 2.4% on Monday to $92.17 a barrel. But this is still 31% higher than the $70.14 a barrel they dropped to during the brief ceasefire between the U.S. and Iran, which lasted from mid-June to early July.

Bessent's D-Day sanctions are more Anzio, but Iran response is key: Russell

Sanctions compared with Anzio, not D-Day

Iran's response could drive energy markets

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