The long squeeze

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MYRNA BROWN, HOST: Coming next on The World and Everything in It: squeezing Iran.

Yesterday, the U.S. House Armed Services Committee heard testimony from Secretary of War Pete Hegseth and Joint Chiefs Chair General Dan Caine, requesting a $1.5 trillion budget for next fiscal year.

MARY REICHARD, HOST: In the hours-long meeting, Hegseth said that number will help the department invest in projects like the Golden Dome missile defense system and revitalize shipbuilding, aviation, and drones.

HEGSETH: We have flipped the Pentagon acquisition process from a bureaucratic model to a business model; 180. Decisively moving from an acquisition environment, paralyzed by bureaucratic red tape into an outcomes driven organization focused on delivering the most at cost, at scale, for taxpayer dollars.

BROWN: Also yesterday, the Pentagon put a figure for spending on the Iran war so far: 25 billion dollars, mostly in munitions.

But for now, the fighting is paused, and the U.S. Naval blockade is in place for the foreseeable future. That’s moved the war to one more about economics.

MARY REICHARD: Well, joining us now is Max Meizlish with the Foundation for Defense of Democracies. He previously worked for the U.S. Treasury’s Office of Foreign Assets Control, the primary U.S. agency responsible for administering economic sanctions. 

Good morning!

MAX MEIZLISH: Hey, good to be with you, thanks.

REICHARD: The Wall Street Journal reports that President Trump has instructed aides to be prepared for an extended blockade. The U.S. just imposed still more sanctions, so what do you expect out of these latest rounds of sanctions?

MEIZLISH: So, this is interesting. The United States is definitely stepping up its application of sanctions against Iran during this war. But notably, a lot of the actions that we've taken thus far, you know, significant in their own right, don't really deviate that much from what's been done before the war. 

So most recently, last week on Friday we saw an action from the Treasury Department sanctioning a Chinese teapot refinery, one of the larger Chinese teapot refineries responsible for processing Iranian crude. But already the Trump administration had designated four other teapot refineries, and that was before we were on a war footing.

There are additional actions taken against money laundering networks, sanctions evasion channels. Hopefully, what we'll see is that some of these actions are meant to be more of a signal to foreign financial institutions, that if they don't close the accounts for the bad actors supporting the regime, then those financial institutions could themselves be sanctioned.

REICHARD: I’m curious as to what is Iran’s capacity to hold out on extended blockade? What help is it getting from other countries, say China and Russia?

MEIZLISH: It's a bit difficult to say, right? In the best of times, details are murky, right? With respect to financial flows going into Iran our estimates at the Foundation for Defense of Democracies show that on the conservative end, it could be upwards of 40% of Iran's GDP that's been hit, taken offline as a result of the military strikes and the blockade.

We know that there have been meetings at very high levels between Iranian officials and Russian officials. But the Russians are themselves fighting their own war that's proving to be quite costly and damaging their bottom line on the books. 

But what we do know for sure is that, historically speaking at least, it's been China that has really supported Iran in terms of sanctions evasion, buying upwards of 90% of Iran's exported crude. And so we know that China will continue to seek discounted crude wherever it can.

REICHARD: You know, Iran hasn’t yet backed down on the President’s “red line” items—namely its nuclear aspirations. But U.S. gas prices are up, the president’s approval ratings are down… and he has expressed skepticism about whether Iran is even negotiating in good faith. So what signs are you looking for to tell if this is ultimately a winning strategy?

MEIZLISH: What's going to tell if it's a winning strategy is if the Iranians come to the table and accept terms that are more favorable to the United States, right? There's very clear indication from the administration that it's working to ensure that Iran is not able to enrich, it's not able to build up this nuclear program. Hopefully, there's elements that relate to preventing its missile supply from being brought back online and reconstructed in a more meaningful way. But arguably, things could get worse. 

I think that the president is putting out this posture that we can withstand a long time period of having the blockade in effect, but it's hard to imagine that the president is going to want to continue this war for a prolonged period of time that could ultimately impact the midterm elections.

REICHARD: Alright, let’s talk money, now. The Pentagon on Wednesday said the war so far has cost $25 billion, that’s with a “b,” mostly for munitions. That’s the first official estimate, and less than what was initially requested. 

So Max, what do you make of the U.S. expenditure so far?

MEIZLISH: If we can spend several billion dollars to take out what is arguably one of the more serious threats to U.S. interests in the region and the interest of our allies, then I think that's money well spent. But it's important to note that we're spending potentially $25 billion over the course of just two months, and that's not necessarily accounting for the cost of damage to U.S. bases in the region. So, that's an added expense. 

But I think that one of the more interesting elements here is to assess where are we not spending money, right? So, right now, we're in this phase of the campaign that the administration is referring to as economic fury, right, so thinking about, how can we apply sanctions and other tools of economic statecraft against the regime? But you know, where I used to work, at Treasury's Office of Foreign Assets Control, which is the primary administrator for U.S. sanctions, over the years that's only received just a fraction of what the Department of War is spending in just two months fighting this war. 

And so, across kind of all elements of U.S. economic statecraft, from Treasury's OFAC to the Financial Crimes Enforcement Network, to other elements that relate to financial intelligence gathering, that all feed into how we actually create sanctions packages and how we go after the banks that are supporting money laundering and sanctions evasion over the last 10 years, right? They've only really received about a couple billion dollars compared to 25 billion that we've spent in just two months fighting this war. 

So as people think about how should we spend our money, I think about, how can we spend our money wisely and do so ahead of time, so as to hopefully prevent a conflict like this from emerging again?

REICHARD: Max Meizlish focuses on economic statecraft at the Foundation for Defense of Democracies. 

Max, thanks so much. 

MEIZLISH: Thanks.

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