Economic strangulation and the limits of leverage

Washington's betting that an economic blockade will finally isolate Tehran and force capitulation. But the reading from the region sees those secondary sanctions as a risky gamble that'll provoke Iranian armed retaliation before it ever breaks the regime.

I'm Daniel.

And I'm Shira. This is another episode of Crosswinds, a Daily Lion production, where we trace the relationships that decide what happens to Israel next.

A week where Washington shifted from airstrikes to economic blockades while regional powers tested the limits of their own political and strategic leverage. The lineup today: Shifting to an economic blockade; Testing the Mecca defense pact; Europe threatens targeted settlement sanctions; and Moving past traditional arms aid. And then, for our members, we go deep on The Battle for Syria's Post-Assad Skies.

The Treasury Department rolled out Operation Economic Outcast this week. The administration's officially pivoting from kinetic strikes to financial coercion, threatening secondary sanctions against anyone still trading with Iran.

We've seen this architecture before. Operation Economic Outcast relies on secondary sanctions to isolate Iran, which is the exact tactic the administration used during its first-term maximum pressure campaign.

The people defending the move are blunt about what they expect it to do. Treasury Secretary Scott Bessent says the objective is to sever every economic lifeline that sustains this tyrannical regime.

You can see the mechanics of that isolation starting to bite. Data from Kpler shows that no laden Iranian tankers have so far managed to break through the US blockade.

The Treasury's preparing to make an example of the banks that facilitate whatever trade is left. They announced that an unnamed financial institution would be sanctioned by the end of this week as a warning shot.

For Washington officials and hawkish analysts, this blockade's the tool that finally cuts Tehran off. But the broader analytical consensus looks at those same secondary sanctions and reads them as a dangerous half-measure. The fear there is that the blockade will provoke Iranian strikes before it ever causes the regime to collapse.

Let's look at what the pressure's actually doing inside Iran. The Soufan Center points out that the new American measures will confirm a shift toward reliance on economic pressure.

They read that strain as fracturing the leadership in Tehran. You see it out in the open with President Masoud Pezeshkian. He's publicly calling for an end to the conflict, and the phrase he uses is, it is better that we bring the war to an end now.

The hardliners in the regime are drawing the exact opposite conclusion. For them, compromise is off the table. The harder-line leaders are pushing for an offensive doctrine, insisting that only escalation, not compromise, will deter further assaults by Washington.

As we said last week, Iran's already using strait management to weaponize global oil inflation against US politics. The hardliners don't need to win a conventional war. They just need to make the economic cost of the blockade unbearable for the West.

And they're threatening to expand that cost regionally. Mohsen Rezaei, the national security adviser, vowed earthquake-like retaliation if the Trump administration imposed additional sanctions.

Raz Zimmt in Ynet writes that there's no guarantee this shift to economic warfare will actually achieve the decisive collapse the US wants.

The toll on the ground is already devastating. Zimmt cites data from Shargh showing that food prices in Iran surged by more than one hundred and twenty-eight percent in July alone.

He warns that economic pressure is only a means to change policy. It's not a goal on its own.

A survival economy changes the timeline. The risk is that the US thinks it can starve the regime out, while the regime thinks it can outlast the sanctions. Nate Swanson points out that forty-seven years of mostly unyielding pressure haven't led to a collapse.

That strategy also assumes the US can enforce a total blockade without triggering a massive geopolitical backlash. China buys more than eighty percent of Iranian oil exports.

Washington knows it can't easily cut that link. The Treasury Secretary defended the delay in imposing new penalties by asking, why would I want to blow up the global financial system?

The Chinese Foreign Ministry is already vowing to protect its own interests, warning that sanctions and pressure tactics don't help and Beijing would do what was necessary.

Economic pressure is only a tool. Without a global coalition willing to absorb the blowback from China, the blockade traps Washington in a war of attrition.

The next thing on the desk this week is the August seventh signing of the Mecca Joint Defense Agreement. Saudi Arabia, Turkey, and Pakistan formally inked a mutual assistance pact, complete with language promising collective protection. The immediate reaction in Washington treated this as a major policy win. US President Donald Trump immediately welcomed the pact, expressing happiness that the three nations had finally signed it. Mainstream analysts like Steven A Cook suggest the Saudis are looking for new regional partners because they're worried about how reliable the United States is.

As we established last week, this agreement looks much more like a hedge driven by Saudi strategic anxiety than a fully operational armed alliance. Joseph Massad looks at the signing ceremony and sees Washington's fingerprints everywhere. He contends the Mecca Agreement is just the newest version of a long-standing US strategy to protect pro-western regimes and Israel. The regional press has framed this differently. Khalid al-Jaber maintains the agreement is an effort to create a third power bloc in the region to prevent either Israel or Iran from holding a monopoly. Massad rejects that framing entirely.

Massad's pushing back against the idea that Riyadh is breaking with Washington to forge an independent path. He insists that the new pact does not replace the Abraham Accords, but rather works alongside them, as all three member nations have ties or aligned interests with Israel. In his words, "the Mecca Agreement is not an alternative to the Abraham Accords; it is a complement." Some analysts might see it as a break from Washington, but the actual alignment keeps American strategic architecture completely intact.

The underlying logic here is about power consolidation rather than Saudi independence. Massad points out that the primary purpose of these US-organized security pacts is to serve American and Israeli power by confronting their Middle Eastern adversaries. This reading treats the three capitals as subcontractors. They're taking on the burden of containing Iran so Washington doesn't have to expend its own combat resources.

The cynical reading from the right completely rejects the idea that this is a functional American tool, or a functional tool for anyone. The argument from these analysts is that the new Mecca Pact between Saudi Arabia, Pakistan, and Turkey is structurally weak because of the region's political culture and the internal instability of the member states. While the pact might achieve immediate objectives, it's fundamentally unstable due to deep disagreements over Gaza, terrorism, and regional dominance. They read the pact as a public-relations release masquerading as a strategic blueprint.

History strongly supports that skepticism. Past attempts at Middle Eastern alliances, like the nineteen fifty-five Baghdad Pact and CENTO, have consistently fractured over internal rivalries. The people defending this skeptical view maintain that historical attempts at Middle Eastern alliances, like the Arab League and CENTO, have consistently failed because the region lacks a genuine commitment to shared mutual protection. You can't build a NATO-style umbrella when the member states fundamentally distrust each other's long-term intentions.

Look at the actual track record of the signatories when they're tested. The assessment here suggests Turkey is probably the most unreliable member of the coalition because of its inconsistent foreign policy and its support for political Islam. The analysts recall that Pakistan previously failed to act when Saudi Arabia was attacked by Iranian forces, despite a prior alliance between Riyadh and Islamabad. An alliance requires shared values, and this triad only shares an immediate tactical anxiety about Iran.

Another assessment looks past Washington entirely to see who actually benefits from this diversification. One reading of the same regional shifts suggests that the new mutual pact between Saudi Arabia, Turkey, and Pakistan ultimately serves Beijing's interests more than anyone else's. China's perfectly positioned to let the Gulf powers balance each other. Beijing has no interest in seeing Iran either completely victorious or entirely defeated, preferring a dependent partner.

The financial numbers back up that Chinese leverage. Figures published in Israel report that trade between China and both Saudi Arabia and the UAE hit roughly one hundred and eight billion dollars each in twenty twenty-five. The argument here is that Israel should respond to the new Saudi-led bloc by strengthening its ties with Abu Dhabi to prevent any single power from dominating the region. China sells the hardware and lets the local actors manage the regional balance.

All of these readings are grappling with the same central illusion. The pact serves as a political signal to Washington that Gulf powers have alternatives, even if the alliance lacks the internal cohesion to function as a true operational bloc. Saudi Arabia's buying the appearance of a collective protective umbrella to force American attention, knowing perfectly well the umbrella won't open in a storm.

Another story on the desk this week is the sudden acceleration of European pressure over the West Bank. Israel just opened bidding for new housing units in the E1 corridor, and the blowback from London was immediate. The British Foreign Secretary demanded a halt to the construction, warning that the UK won't accept the destruction of the two-state solution.

The E1 project's the planned development between Jerusalem and Ma'aleh Adumim. It's repeatedly resurfaced during Israeli election cycles since nineteen ninety-four, and the bidding process this time is scheduled to close just a week before Israelis vote. But the European response is much sharper than the usual official protests. Over a hundred former diplomats from France and the UK are pushing their governments to jointly enforce international law, warning that Israel is actively trying to eliminate the possibility of an independent Palestinian state.

They're demanding actual consequences. The argument from these former envoys characterizes the combination of house demolitions and settler violence in the West Bank and East Jerusalem as ethnic cleansing. They assert that Israel has lost its standing as a genuine democracy because it deprives others of their land, and they insist that holding perpetrators of war crimes accountable is the only way Western governments can avoid accusations of double standards. A coalition of Western nations even went so far as warning potential corporate bidders that participating in the E1 project could violate international law.

The focus on E1 is specific because of the geography. British Foreign Secretary Ed Miliband argues that building there physically divides Palestinian territory, threatening the viability of a two-state solution by cutting across the heart of the West Bank. That's driving a fierce political push in London, where Prime Minister Andy Burnham is understood to want a more robust position than his predecessor. The expectation is that the UK government will announce punitive measures before the Labour conference next month.

The British push is moving toward real economic penalties. The case being made in London right now is that Britain should ban the import of goods from West Bank settlements to deter Israeli expansion. The argument is that the current Israeli government is doing its best to extinguish the hope of a Palestinian state, and if Britain doesn't act now, there won't be one.

There's intense debate inside British politics over whether that's even possible. The warning from within the Labour party is that a targeted trade boycott of settlements is practically impossible to enforce, and will inevitably become a de facto boycott of all of Israel. Plus, implementing these sanctions right before the October elections risks feeding the siege mentality of the Israeli right, potentially hurting the opposition's chances at the ballot box.

The Israeli response to all of this is what makes this week's collision interesting. Nobody on the Israeli side is trying to soothe London. The right's answer is that Britain has no right to dictate where Jewish people can live. They contend that focusing only on Israeli actions while ignoring Palestinian extremism fuels antisemitic attacks against British Jews. But the reaction goes beyond rhetoric. We're seeing a shift in how Jerusalem actually handles this pressure.

The strategy's shifting from passive posture to foreign-policy retaliation. The argument gaining traction here is that Israel is now a wealthy, populous regional power, and it's entirely capable of imposing costs on countries that act against its interests. The writers making this case maintain that Israel should no longer passively absorb political blows, provided the retaliation is measured and coordinated with Washington.

They're already doing it. The Netherlands plans to ban imports from beyond the Green Line starting September twenty-second. In response, the Israeli Foreign Minister expelled Dutch representatives from the Gaza coordination center, declaring that nations acting against Israel will lose their regional access.

That coordination center in Kiryat Gat is a US-led facility that oversees humanitarian activity and postwar planning for Gaza. Getting kicked out of it means losing your window into the day-to-day management of the strip. And this isn't a one-off. Israel previously excluded Spain from the exact same center after Madrid took hostile measures.

The people defending these expulsions frame this as a necessary evolution. They insist that European capitals are trying to have it both ways—penalizing Israel economically while still expecting to shape the region's future. The new approach is to force a choice. You can boycott Jerusalem, or you can have a seat at the table in Gaza, but you can't have both.

Israel's establishing a new doctrine of strategic counter-linkage. It's treating access to local coordination as a privilege it can and will revoke from hostile European nations.

A different kind of pressure's building inside the American bilateral alliance. The friction right now is a fundamental split over how to manage the region. Washington wants regional de-escalation across the board, looking to quiet the map. Jerusalem, on the other hand, is demanding complete operational freedom to handle threats as they emerge.

The hawkish reading of this friction is that American policymakers fundamentally misunderstand the Middle East. The argument from the right is that Washington operates on the assumption that conflicts have definitive conclusions. Americans tend to believe wars end.

Those operational pauses are exactly the danger. In this view, Islamist groups don't stop fighting. They rebuild during pauses, use ceasefires to rearm, and prepare for the next offensive. Washington might look at a pause and see a successful negotiation. The right looks at the same pause and sees adversaries buying time.

We established last week that the bilateral relationship has devolved into a purely transactional, closed-door operational partnership. That reality's looming over the fact that Israel and the Trump administration are currently negotiating the next ten-year U.S.-Israel memorandum of understanding.

One strategic warning circulating this week notes that relying on a transactional American president is a massive national vulnerability. This reading points out that American interest sets the bargain; chemistry, prestige, and the transaction at hand reprice it. The danger is assuming that historical alignment guarantees future support from the White House.

The example the people making this case point to is South Korea. Trump ordered the Pentagon to substantially reduce joint army drills with South Korea. South Korean officials admitted the directive surprised both Seoul and parts of the American government. The lesson drawn here is that Trump operates on a specific logic. His most loyal allies are often the safest to squeeze, because Washington assumes they have nowhere else to go.

A national strategy built on that kind of loyalty is just exposure. Israel maintains an independent army, but its critical capabilities depend on American replenishment, munitions, and production capacity. The people pushing for a shift want Israel to drastically reduce those material dependencies. They suggest looking toward Europe instead, pointing out that American power is greater; European interests are anchored in geography. Washington can pivot.

A completely different structural fix is being pitched in Washington. Jewish Insider reports on a new proposal from the JINSA think tank that recommends abandoning the traditional financial aid model entirely. The institute recommends that the two countries sign one final ten-year MOU to manage the transition away from direct assistance.

JINSA wants to replace the financial assistance with deep operational integration. They advocate for a permanent U.S. troop presence at Israel’s Ovda Airbase, effectively turning the country into a forward hub. The institute notes that Israel's budget allocation of nearly eight percent of GDP exceeds NATO’s new five percent benchmark, making it a highly capable partner for joint operations rather than a dependent client state.

The logic driving this proposal is that embedding American forces caters to America's benefit. Blaise Misztal contends that shifting to a mutual posture ensures the strategy is catered to “America’s benefit”. If the relationship is explicitly about American interests, it becomes much harder for politicians to attack it as charity.

But a column in JNS Opinion warns that Israel's new security doctrine is on a collision course with Washington's push for diplomatic wins. It insists Israel has to keep its freedom of action if Iran rebuilds its nuclear programs. Tying themselves to American political timelines could force Israel into dangerous compromises.

JD Vance is already suggesting that Iran is negotiating like a normal country. For the strategists demanding operational independence, that kind of American optimism is terrifying. They insist that Israel’s threshold for proactive kinetic action must be lower, and the IDF can't afford to wait for Washington's permission when regional threats materialize.

For the reform-minded analysts, the current aid model is politically toxic, and structural integration is the only way to save the alliance. The hawkish reading treats that same integration as a trap, prioritizing complete operational independence over political harmony.

The transactional nature of this White House is forcing a reckoning in Jerusalem. Being a loyal ally offers no immunity from sudden policy reversals or coercion.

The realization across the week's reading is that the old architecture of American support is ending. Jerusalem's being pushed toward reducing its material dependencies, whether by finding new partners or by financing its own wars.