U.S. Weaponizes Dollar to Pressure Iran, Risks Global Financial Fallout
The U.S. government is doubling down on its use of the dollar as a foreign policy tool, threatening to cut off Iranian airlines and companies that do business with them from the global financial system.
U.S. Treasury Secretary Scott Bessent announced plans to effectively ground Iran's commercial airlines, warning any company or country supporting Iranian airlines could face secondary sanctions and be 'knocked out' of the dollar system.
The threat of sanctions incentivizes foreign governments, companies, and banks to drop Iranian business rather than risk financial disruption. However, this creates a perverse incentive for them to limit their exposure to the dollar system, as seen in central bank gold buying after Russia invaded Ukraine.
De-dollarization potentially creates economic problems for the U.S. that are every bit as bad as the consequences facing sanctioned countries, including an inflation tsunami and a currency crisis if global demand for dollars drops.