The U.S. and Iran have not conducted air strikes on each other's militaries for weeks, but their last official face-to-face talks to end the six-month-old conflict took place in June and strikes on vessels in the Strait of Hormuz have continued.
A projectile struck a tanker west of the Saudi port city of Yanbu in the Red Sea on Monday, causing a fire on the main deck, shipping monitors from the United Kingdom Maritime Trade Operations said. A spokesperson for Iran's Houthi allies, who last month announced they would block Saudi oil exports diverted to the Red Sea to avoid Hormuz, said they had attacked a vessel in the area.
Thousands of people have died, most of them in Iran and Lebanon, since the U.S. and Israel began strikes on February 28, degrading much of Iran's conventional military capacity and inflicting economic pain while killing Iran's then-Supreme Leader Ayatollah Ali Khamenei.
Yet Iran has preserved enough missile and drone capability to attack its Gulf neighbours and bring shipping in the Strait of Hormuz to a near standstill, pushing up world fuel prices. The exact state of Iran's nuclear program, which the Americans and Israelis aim to wipe out, remains unknown.
Oil prices eased on Monday after two weeks of gains as investors took profits ahead of the expected U.S. announcement.
Without detailing specific measures, Bessent signalled the U.S. would target "fearful nations" that practice "appeasement" by engaging with Iran's economy and financial system.
Iran has been bracing for the sanctions for days, issuing a series of statements hinting at a major military response.
Mohsen Rezaei, secretary of Iran's Supreme National Security Council, said on Sunday further penalties would simply trigger a tighter squeeze on shipping through the Strait of Hormuz.
Iran entered the war with high inflation, energy shortages and deep structural weaknesses, and must now contend with disrupted trade, lost production and the cost of rebuilding damaged infrastructure. A slide in the rial currency, which prompted protests in January that were violently suppressed, reached a new record low on Monday, 25% below its January level.
US expected to widen secondary sanctions on Iran
The United States was set to warn countries to cut ties with Iran or risk their businesses being cut off from the dollar-based financial system when it unveils the "greatest financial offensive ever" on Monday, a source told Reuters.
U.S. Treasury Secretary Scott Bessent will outline measures at 1 p.m. (1700 GMT) to broaden the scope of potential secondary sanctions on entities and countries that maintain economic ties with Iran, said the source, who was familiar with the plans but not authorized to speak publicly.
Bessent previously urged cooperation from China, the biggest buyer of Iranian oil for several years, although the U.S. blockade of Iran's ports, renewed in mid-July, has already cut Iranian oil flows to China.
The U.S. Treasury has imposed secondary sanctions on smaller China and Hong Kong-based entities accused of processing billions of dollars in Iranian oil and helping to fund arms purchases and warned two larger banks against handling Iranian funds.
But experts say Washington is wary of Chinese retaliation ahead of expected talks next month between Trump and Chinese President Xi Jinping, with any curbs on China's exports of critical minerals a particularly sensitive issue.
The Chinese foreign ministry said sanctions and pressure tactics do not help and that Beijing would do what was necessary to protect China's interests.
Pakistan seeks to revive mediation as tensions rise
Bessent could also sharpen enforcement against oil shippers, purchasers and currency exchangers who help Iran pay for its imports. He could also target aviation. Trump has threatened tariffs on goods from countries that do business with Iran, although the Supreme Court struck down the legal basis for such taxes.
Iran has dismissed the U.S. threat, vowing to shut down all oil exports from the Gulf "if the economic war continues". It issued a new warning to shipping not to pass through the Strait of Hormuz without its permission, listing 45 ships it said had violated its rules and threatening retaliation for any ship-to-ship transfers with them.
Bessent wrote in an opinion piece in the Financial Times that Monday would mark "an economic D-Day — the single greatest financial offensive ever marshalled against an adversary".
Pakistan's army chief Asim Munir, who has built a personal rapport with U.S. President Donald Trump, arrived in Iran on Monday for talks, Iranian media said. Pakistan said the visit was part of its efforts "to promote regional peace and stability", and a Pakistani source said Munir was expected to meet people close to Iran's supreme leader.
Two Pakistani sources said Trump had called Munir last week, with another saying the main request was to bring Iran back to negotiations. The White House did not immediately respond to a request for comment.
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