On 18th August, the UAE broke with its two-decade role as Iran’s commercial window to the world. It halted “all trade, commercial exchange and financial transactions” with the Islamic Republic until further notice.1 Before the US-Israeli war on Iran began in February, the Emirates supplied more than 30% of Iran’s imports, worth around $21 billion a year.2

Six days later, US Treasury Secretary Scott Bessent announced Operation Economic Outcast and made the logic explicit. It was, he stated, “no longer acceptable to operate in the gray spaces” of the conflict, and economic engagement of any kind with Tehran would expose those responsible to “the full reach of American power”.3

Those grey spaces are the middle ground, and they describe a business model. Since 2022, a handful of middle powers, in particular the UAE, Turkey and India, have prospered by positioning themselves between Washington and its adversaries. They have bought discounted Russian crude, re-exported goods to Iran, and hosted the banks, shipping agents and trading houses that keep sanctioned economies connected to the world.

Washington now wants no middle ground at all. The test is how far its sanctions are succeeding in the three countries that matter most: the UAE, Turkey and India. The answer so far is that each is giving ground, but none all the way, and not for the same reasons.

What has Washington actually changed?

Primary sanctions prevent Americans from dealing with a target. Secondary sanctions reach further: they threaten foreigners who deal with that target, usually by cutting them off from the US financial system. For a global bank, losing access to dollars is close to an existential threat, which is why secondary sanctions are such a powerful tool.

The summer of 2026 saw that tool used on an unprecedented scale. Operation Economic Outcast opened with almost 60 designations of companies, individuals and vessels, plus five new sectoral determinations under Executive Order 13902. These expose any foreign bank that conducts “significant” transactions in those Iranian sectors to US penalties.4 The pace has not let up: on 8th September, Treasury designated every one of Iran’s 27 remaining active airlines.5

The second instrument is aimed at Russia but affects many of the same countries. The Lindsey O. Graham Sanctioning Russia and Iran Act authorises tariffs of up to 100% on all goods from countries that keep buying large quantities of Russian oil or gas, or that actively help Russia evade US sanctions. The rate is a dial rather than a switch. The US Trade Representative can set it anywhere between zero and 100% and must reassess it roughly every six months.6 The Act also extends the Iran Sanctions Act to 2031.7

Taken together, this is a shift from punishing adversaries to taxing neutral states. It rests on an untested assumption: that losing access to American markets will always cost more than trading with Washington’s rivals is worth. For a bank, that is almost certainly true. For a state with its own energy needs and its own voters, it is far less certain, and the countries being squeezed by the US are not adversaries but partners that Washington needs.

How are the UAE, Turkey and India responding?

On paper, the UAE’s move is one of the most economically damaging step taken against Iran since the war began. Dubai’s port of Jebel Ali has historically acted as Iran’s main transshipment hub, and its exchange houses as an undercover route around the banking system. Yet official figures recorded only $6.2 billion of UAE–Iran goods trade in 2023,8 a fraction of the real flows. That gap indicates how much of the relationship ran through re-exports, front companies and free zones that a ban on direct trade may not reach.

The Foundation for Defence of Democracies, a Washington think tank, warned that the ban “may curb ordinary commerce while leaving a major channel for Iranian sanctions evasion intact”.9 Treasury appears to agree: ten days after the ban, it moved to cut Banque Misr’s UAE branches off from US correspondent banking for serving Iranian networks.10

The UAE acted hours after two ballistic missiles were fired towards it, which Tehran denies launching,2 and the US had warned Emirati banks of secondary sanctions as early as April.9 The UAE gave way, but not only to Washington.

Turkey has taken visible steps, but is holding out selectively. Turkish Airlines, AJet and Pegasus dropped their Iranian routes, and Mahan Air suspended its flights to Turkey from 21st September. But according to flight data analysed by the FDD, at least 83 flights by US-sanctioned Iranian airlines landed in Istanbul, Ankara and Izmir in the five days after Washington’s 23rd September deadline.5

Washington is pushing back. Treasury designated Turkey’s Golden Global Bank, which it says handled tens of millions of dollars for the Revolutionary Guards’ Quds Force,11 and six Turkey-based entities were added to US sanctions lists in five days.12

Turkey’s hesitation is rational. It imported 8.17 billion cubic metres of Iranian pipeline gas in 2025, according to figures reported in Iran,13 and it wants something from Washington: a return to the F-35 fighter programme. President Trump has considered the idea, and President Erdoğan said on 24th September that he expects “concrete steps”.5 That gives the US leverage, but also a reason not to push too hard.

India is under pressure. Its exposure is mainly to Russia rather than Iran, which makes it the clearest test of the Graham Act. The data show a country bending rather than breaking. Indian imports of Russian crude fell from 2.65 million barrels a day in July to 2.02 million in August and 1.74 million in September, the lowest in five months, while Middle Eastern supply rose to about 3 million barrels a day.14

Yet Russia remains India’s largest single supplier, and New Delhi’s response to the Graham Act was pointedly unapologetic. The foreign ministry stated that India “remains firmly committed to ensuring energy security for its 1.4 billion people” and warned of the implications for relations with the US.15 Not all of the fall is America’s doing either: analysts also point to tighter Russian supply and “increased competition from Chinese buyers”.16

India makes the middle powers’ strongest argument, and it deserves to be taken seriously. From India’s perspective, Washington is asking a country of 1.4 billion people to pay more for fuel to enforce a policy India never agreed to. Turkey’s selective compliance reflects the same instinct. Secondary sanctions, in effect, turn one country’s foreign policy into everyone else’s law, which is a hard sell to governments that pride themselves on strategic autonomy.

Is the middle ground closing, or just moving?

The tightest constraint on secondary sanctions is Washington itself. As the law firm Steptoe noted, the US “may also be limited by how much disruption it is willing to cause in international energy markets”.17 A full crackdown on every buyer of Iranian and Russian oil would raise the prices American voters pay too.

China, meanwhile, has not given way at all. It took more than 80% of Iran’s shipped oil in 2025.18 China’s imports of Iranian oil fell from 1.4 million barrels a day last year to 534,000 in August,19 but this reflects the US naval blockade more than sanctions. What still moves has gone offshore, through ship-to-ship transfers east of Malaysia, arriving in China recorded as Malaysian or Indonesian crude.20 It “remains to be seen” how hard Treasury will go after large Chinese firms, including banks.21

The pressure on Iran is real. The rial fell from about 1.35 million to the dollar in March22 to more than 2.5 million by late September,23 and Treasury claims Iran loaded no crude at all in September.5 But pain is not the same as success. Sanctions are meant to change behaviour, and the most widely cited study of sanctions since 1945 judges only around a third of cases successful.24 The costs also fall on the wrong people: around 800 medicines are in short supply in Iran, and essential food prices have risen by more than 123% in a year.25

Each escalation also gives Washington’s rivals another reason to work outside the dollar. China and Russia now settle most of their trade in their own currencies, although Chinese banks still route payments cautiously to protect their access to the dollar.26 Secondary sanctions certainly still bite, but they are teaching the world how to operate around them. The middle ground is not being abolished. However, it is shrinking and moving further and further beyond the reach of Western regulators.

Conclusion

The case for Washington’s strategy is real. In two months, secondary sanctions have achieved what years of diplomacy did not: the UAE has cut off Iran, Turkey’s airlines have pulled out, and India is buying less Russian oil every month. Iran’s economy is under more pressure than at any point in decades.

However, the case against is just as strong. Each country is giving ground only as far as it must, and partly for its own reasons: missiles over the Gulf, a tight oil market, a desired fighter jet. The trade has not stopped but moved, east to China and offshore to Malaysia, while the US holds back from the one step that might close it: a serious move against Chinese banks and buyers. Meanwhile, the heaviest costs fall on Iranian patients rather than the regime, and each new round of pressure strengthens the case for a financial system beyond the dollar. Washington’s own resolve is already bending. On 9th October, Trump announced a deal for Russia to release diesel onto world markets, and the treasury issued a temporary license to allow it, just weeks after signing a law that threatens India with tariffs for buying Russian oil.27 Evidently, when Washington’s voters pay the price, USA explores a middle ground of it’s own.

So, is there really no middle ground? Not yet. Secondary sanctions undeniably make neutrality very expensive, but they cannot make it impossible without costs the US itself is unwilling to absorb, starting with the oil price. The next test lies with the Graham Act’s first tariff decisions, which will decide whether “up to 100%” means anything in practice. If India is named, the real conflict over the middle ground will have begun.

Footnotes

  1. The National, UAE suspends trade and financial transactions with Iran (opens in a new tab), 18th August 2026.

  2. Associated Press, United Arab Emirates Suspends Trade With Iran After Coming Under Renewed Missile Fire (opens in a new tab), 19th August 2026. 2

  3. PBS NewsHour, WATCH: Bessent announces new sanctions to block Iran's revenue streams (opens in a new tab), 24th August 2026.

  4. Al Habtoor Research Centre, Economic Outcast: The Limits of U.S. Secondary Sanctions Against a China-Insulated Iranian Economy (opens in a new tab), 26th August 2026.

  5. Fox News, Trump's Iran crackdown collides with NATO ally seeking access to America's prized fighter jet (opens in a new tab), 2nd October 2026. 2 3 4

  6. King & Spalding, New Sanctions and Tariff Power Under the Lindsey O. Graham Sanctioning Russia and Iran Act of 2026 (opens in a new tab), 22nd September 2026.

  7. Baker Botts, President Trump Signs Graham Sanctions Act, Expanding Russia Sanctions and Tariff Authorities (opens in a new tab), 24th September 2026.

  8. Al Jazeera, UAE trade embargo could shut Iran's key economic escape route: Here's why (opens in a new tab), 19th August 2026.

  9. Foundation for Defense of Democracies, Halting Trade With Iran Won't Help UAE Combat Sanctions Evasion (opens in a new tab), 21st August 2026. 2

  10. US Department of the Treasury, Iran's Access to UAE Banks Targeted Under Operation Economic Outcast (opens in a new tab), 28th August 2026.

  11. US Department of the Treasury, Treasury Severs Iranian Regime's Financial Lifelines in Türkiye (opens in a new tab), 4th September 2026.

  12. Turkish Minute, US sanctions 3 Turkish firms over alleged support for Iran's Mahan Air (opens in a new tab), 9th September 2026.

  13. Tehran Times, Iran's gas exports to Turkey rise to over 8b cubic meters in 2025 (opens in a new tab), 11th February 2026.

  14. Business Standard, Russian crude import falls to 5-month low as refiners diversify supply (opens in a new tab), 28th September 2026.

  15. Business Standard, India vows to protect energy security, warns US tariffs could hit ties (opens in a new tab), 17th September 2026.

  16. ThePrint, India's Russian crude imports set to fall in September amid tighter supply, Iraq a key alternative (opens in a new tab), 14th September 2026.

  17. Steptoe, Sanctions Update: August 24, 2026 (opens in a new tab), 24th August 2026.

  18. China-Global South Project, Iranian Oil Exports to China Face Major Challenges (opens in a new tab), 21st August 2026.

  19. Iran International, Iranian oil offers to China fall as US blockade squeezes exports (opens in a new tab), 21st August 2026.

  20. NPR, How China gets around the blockade of the Strait of Hormuz to get Iranian oil (opens in a new tab), 2nd August 2026.

  21. Orrick, Operation Economic Outcast: Treasury Escalates Maximum-Pressure Campaign on Iran (opens in a new tab), 4th September 2026.

  22. IndexBox, Iranian Rial Hits Record Low as Dollar Surpasses 2.1 Million Rials (opens in a new tab), 2nd September 2026.

  23. PBS NewsHour, Iran's currency hits a new record low as war erodes the country's economic stability (opens in a new tab), 29th September 2026.

  24. VoxEU, Failure and success of economic sanctions (opens in a new tab), 27th March 2012.

  25. Al Jazeera, Medicine shortages grow in Iran as US tightens sanctions, blockade (opens in a new tab), 9th September 2026.

  26. South China Morning Post, Do China-Russia trade payment frictions show limits of de-dollarisation? (opens in a new tab), 5th June 2026.

  27. Financial Times, Trump agrees deal with Putin for Russia to release diesel on to global market (opens in a new tab), 9th October 2026.