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James Rundle: You're listening to the Dow Jones Risk Journal Podcast. It's Friday, September the 4th, and I'm your host, James Rundle. On today's show, the Trump administration escalates its campaign to economically isolate Iran, aggressively targeting the institutions that provide Tehran access to the global banking system.
Risk Journal's Richard Vanderford examines Washington's latest action against the United Arab Emirates operations of Egypt's Banque Misr and what it reveals about the administration's financial enforcement strategy. Then our weekly Middle East situation report with Laura James of Oxford Analytica. And later, a federal judge blocks New York's effort to force fossil fuel giants to pay seventy-five billion dollars for climate-related damage.
Risk Journal's Clara Hudson breaks down the ruling and its implications for similar state laws across the country
But first, our lead story. The Trump administration has opened a new front in its drive to squeeze Iran's economy. The Treasury Department is moving to cut off the Emirati operations of Egypt's Banque Misr from the United States financial system. Federal officials accuse the bank of processing roughly one point eight billion dollars for more than one hundred entities linked to Iranian shadow banking networks between January twenty twenty-four and June of this year.
The proposed enforcement action would prevent US banks from maintaining certain accounts for Bank Misa UAE and force them to impose stricter due diligence across the banking sector. The move marks one of the first major enforcement tests of Operation Economic Outcast, the broader pressure campaign unveiled last month by Treasury Secretary Scott Bessent.
The strategy puts financial institutions worldwide on notice. Facilitating Iranian sanctions evasion risks forfeiting access to US capital markets. Risk Journal deputy editor Richard Vanderford now speaks with Dan Tannebaum, partner and head of global anti-financial crime at consulting firm Oliver Wyman, to break down the implications.
Over to you, Richard.
Richard Vanderford: Thank you. Here to talk with me about Operation Economic Outcast and some of the recent actions is Daniel Tannebaum, partner at Oliver Wyman and a senior fellow at the Atlantic Council. Thank you for joining me, Daniel.
Daniel Tannebaum: Thanks for having me.
Richard Vanderford: So we've had for a long time sanctions against Iran off and on since forever, essentially.
But under Trump, we've had maximum pressure. Earlier this year, we had economic fury. Now we're at Operation Economic Outcast, and last week we had an action against many entities under Operation Economic Outcast. What do you think of Economic Outcast and the latest actions taken under it?
Daniel Tannebaum: Yeah, look, there was a lot of hype.
We were promised economic D-Day, and D-Day was a surprise attack and warning people on Friday about a forthcoming Monday action is the opposite of that My view was that any meaningful action related to economically isolating Iran needed to include China, and as we saw, it didn't. However, to give the administration some credit, Banque Misr UAE's branches accounted for roughly 10% of the US dollar shadow banking revenue for Iran.
So taking 10% off the board, the conduit that was used through its correspondent banking network to get access to dollarized transactions is not nothing, but it needs to be followed up with something to show a more meaningful action. And I take the point that Secretary Bessent said in the press conference when asked why he didn't sanction China, which the response being, "I didn't want to destroy the global economy."
There's ways to do this without destroying the global economy, but I do really need to see some follow-up for this to be more meaningful, and I think they've already signaled that this goes beyond a single action.
Richard Vanderford: Yeah. I think you raise a good point. Secretary Bessent was asked by a reporter, "We didn't give a big warning when we did D-Day that says D-Day is gonna come in the future.
D-Day just happened." But Bessent was... He was using that kind of really aggressive language, but he was also saying, "Oh, and we need to give a cure period, and we have to be sensitive to the financial system globally." What do you make of the choice of target? It's the big target is the UAE branch of this bank.
It's relatively small. If it was in the US, it would be like a community bank. So what are your thoughts on that?
Daniel Tannebaum: No, this is not insignificant, to be clear. $1.8 billion was roughly laundered over, I think, a four-year perior... two-year period through this branch. That's a lot. For the total revenue, I think it's alleged that Iran is moving around $7 billion in US dollars around the world through its shadow banking network.
So it's certainly not the biggest bank in the world, but I think it would be surprising if large global financial institutions were involved in this anyway. I always expect if designations, whether under OFAC or Section 311 of the Patriot Act happen, that it would be smaller financial institutions because the larger ones know better.
Richard Vanderford: What do you see as- The next potential target. I know you've been a compliance professional for a long time. You have experience in government, at Treasury, at Federal Reserve. Is there any tea leaf reading that you could do from the announcement and think of how you escalate from here?
Daniel Tannebaum: But, but we know the other countries that trade with Iran.
You've got Turkey, you've got India, you've got other kind of Emirati businesses, even though the UAE announced a suspension of trade with Iran, but it can't go to zero overnight. But then there's obviously China, and I do think the question needs to be sorted one way or another. China has been historically known to violate US sanctions, and I say this having worked with a number of Chinese banks over the years, several of which were under investigation for US sanctions violations.
You've never really seen any cases brought to bear. I think the total fines against Chinese banks for US sanctions violations is something like ten million dollars with an M, compared to about twenty billion dollars with a B against European banks. So will these violations go unanswered in perpetuity?
That's really a question that I certainly have, because otherwise then China will continue to act freely in contravention of US sanctions. But I do think it's hard to tell where Treasury is gonna be going next, frankly. You've got obviously the upcoming visit in a couple weeks with President Xi coming to Washington, the relative detente we've seen with China, which I think the US has gone to great lengths to not upend, despite upending relations with our neighbor to the north, which still defies logic.
But it's hard to really tell where they'll go next. I would have never predicted that an Egyptian bank's Emirati branches would have been in range for a designation, and to be clear, they were designated by Section three eleven of the Patriot Act, which is just slightly less severe than an OFAC designation, which goes beyond kind of a ban transactions and also includes asset freezes.
Richard Vanderford: Yeah. Do you have any thoughts on that particular mechanism? It's also a notice of proposed rulemaking. There's a comment period that comes with it.
Daniel Tannebaum: It is a precursor step. They could do more. There's nothing that precludes, at the end of this comment period, Treasury to essentially decide to designate this bank under OFAC regulations and not under Section three eleven of the Patriot Act with FinCEN.
So it's one of several instruments that the president has at his disposal to begin to deal with these issues.
Richard Vanderford: And just following that China thread you mentioned, you're right, there have been huge multi-billion dollar fines against individual European institutions and bringing the institutions into court in New York, shaming them and fining them.
Why hasn't-- Why has there been reluctance about fining Chinese institutions? It dates back way before Trump.
Daniel Tannebaum: Yeah, no, th- and this is very bipartisan, to be clear. This has happened in Democrat and Republican administrations and going back 15 years. Why? I don't know if I've ever heard a concise, simple answer as to why, but I think the obvious reality is how connected the Chinese economy is to the U.S.
in terms of real estate interests held here, in terms of treasuries that are held and cash reserves that are held. China is inextricably linked with the American economy, and I do think there's a recognition of that just in terms of managing potential fallout.
Richard Vanderford: So in terms of-- We don't have a crystal ball on the next financial institution targets from Outkast, but If you were putting yourself in the shoes of a company, I would imagine, but I don't know, that a lot of Western companies would already have de-risked away from Iran as far as practical and treat it like there's a comprehensive embargo there.
But are there any geographies or industries that you see at risk of having their bank caught up in this or a counterparty caught up?
Daniel Tannebaum: It's the geographies I mentioned, the countries that are known to continue to trade with Iran and the U.S. It requires heightened diligence across any clients that you have in those markets, especially in the correspondent banking business, to understand who it is that you're really doing business with.
Iran has been known to operate through a series of shells, much like Russia and North Korea and other heavily sanctioned countries for years, to try and hide the proceeds of their activities to continue to allow them access to the global economy. That type of heightened scrutiny will likely continue to be applied.
But you're right, Iran is not very popular with Western financial institutions and hasn't been even when it was legal. After the JCPOA was enacted in twenty fifteen and secondary sanctions were lifted, the UK and European large global banks that were fully allowed to c- re-engage with Iran didn't, because they continued to be afraid of potential consequences in the U.S.
I do think there is, there is a challenge in diligencing markets like Turkey, like China, like Saudi, like the UAE, like India, to ensure that who you're dealing with is who they say they are.
Richard Vanderford: Yeah. Al-along the lines of what you just mentioned, is... Do you see a divergence between the U.S. and its allies here?
There's some sanctions regimes where we're really in lockstep with allies, others we're way apart.
Daniel Tannebaum: Well, Operation Economic Outcast is a unilateral sanctions program. And what I can say, having done this for too long at this point, unilateral sanctions don't work, especially in an instance where the largest Iranian bank, Bank Melli, maintains branch operations in countries like Great Britain.
You need your allies to increase pressure to try and help work the mission. I think there was a message that came out of the G20 finance ministerial in Asheville this week that did talk about UK and European allies' support for this, but actions are what we really need. And right now, given the way the U.S.
has operated, it doesn't necessarily have that many allies that are willing to jump in here. Bank Melli operates branches in France and Germany and Hong Kong and Bahrain, where the Fifth Fleet is, in the UK, in the UAE. You need allies to further cut off access to stop these branches from operating as Iran's largest bank.
And right now, it does seem like we're going this alone.
Richard Vanderford: Yeah, and the geopolitical environment, i-if you think of the sanctions that were Levied against Russia when it made its full-scale invasion of Ukraine. The US really marshaled support from allies, and a lot of the sanctions were on the same page. But now we're in a geopolitical trade context where the US is antagonizing Canada.
It's threatening tariffs ac- across the board on a lot of allies. Do you think that bleeds into when the sanctions enforcers come together and decide what to do?
Daniel Tannebaum: Of course. Now you want our help. That's a bit of the, the question that they're likely getting is the bewildered response of g- being treated poorly on trade-related issues and then being expected to pick up and help a lending hand on this issue, which there is a common thread here, but there's still a divide in how these foreign policy issues are being handled.
So I do think that likely is complicating the effectiveness here. We've heard mixed messages. The Treasury Secretary said there was, uh, discussions happening with different foreign leaders. The president basically questioned why he would need to talk to foreign leaders on these issues in, in an Oval Office spray a few days ago.
So it's hard to tell really what's happening along those lines, but I have to believe that the approach to foreign policy is definitely adversely impacting coordination and cooperation
Richard Vanderford: There's analysis and thoughts about the limits of unilateral sanctions, but there's also thoughts about the limits of sanctions in general.
Like even there's been reporting lately from The Wall Street Journal and others about whether any sanctions package can actually achieve its aims. Like we have had Cuba sanctions for decades, and it's 90 miles away from Florida, and there's still communists controlling Cuba. So do you have thoughts on that, whether it could ever achieve its aims?
Daniel Tannebaum: Look, sanctions have worked historically. Sanctions were used in limited form to help isolate South Africa under apartheid to help bring down the apartheid regime. I don't think this is debatable, but sanctions and the broad multilateral coalition of sanctions that led towards the JCPOA in 2015 did help force Iran to the negotiating table when it was truly isolated from pretty much most of the world.
I think they can work, but you need to have a clear objective in mind. There is no doubt that Iran has learned to live as best they can under the nearly 50 years of sanctions that they've been subject to. But what is the objective? Is it regime change? Is it a nuclear weapon? Is it like freedom of the people?
What are the objectives here? But for a country that's long existed under sanctions, they know how to deal with this. It is not a stupid country at all. It's an educated population. It's a young population. But what we're now facing at the moment in taking out the prior ayatollah is a more radicalized regime with even greater prominence of IRGC influence because there are questions of who is even controlling Iran.
So you have a scenario where this situation may be immune not just to sanctions, but kinetic warfare as well as we're seeing. And I do think that is the difference here. But sanctions can work. They need to be time-bound. They need to have a clear objective in mind. But there's obviously many examples where they have not worked.
Cuba is certainly a great one, and we're just seeing an increase of pressure along those lines at present.
Richard Vanderford: And there's also this concept when people debate broadly about whether sanctions work or can work, this idea of de-dollarization that will push countries to develop alternative settlement mechanisms to turn to other currencies to settle international transactions.
And one answer is it hasn't happened yet. But we have crypto, we have other things. Like w- do you see a risk of that in the long term?
Daniel Tannebaum: The, the yuan and its usage globally rose substantially after Russia's invasion of Ukraine, and I think certainly what we saw with trade and oil flows that continued to flow over the last six months was that the trade wasn't happening in the dollar.
It makes sanctions m- far less useful if trade is happening in cryptocurrency, if trade is happening in yuan. I think the Peterson Institute just put something out Over the last few days, just talking about the change in stature of CIPS, China's Cross-Border Interbank Payment System, and the usage that it's seeing growing, particularly with this crisis in the Strait of Hormuz.
De-dollarization is certainly not a reality yet, but let's face it, there are growing increases of other currencies being used for trade-related purposes. The kind of knock-off of the dollar as the de facto global currency of trade is years away from a reality. But let's face it, people are trying to dethrone it.
That is absolutely happening.
Richard Vanderford: Thinking about China and a possible next action, because that would, I think, be considered really impactful and, and really needle moving. I know you don't have a crystal ball, but maybe I'm asking for an educated guess. Do you think we're in a holding pattern on China until the Xi-Trump summit?
Daniel Tannebaum: I do think we are, honestly. And the one thing that I would hope is, given the claims of the relationship between President Trump and President Xi, that there is some sort of a deal that the US can offer China to offset the roughly eighty to ninety percent of Iranian oil that China is buying. Because China is not a strategic ally.
They buy cheaper oil and energy from them. Is there something that the US can do to offset it, particularly now with the announcement of the expansion of extraction from Venezuela, which obviously will need refinement to make that heavy crude more valuable more broadly? That I would love to see is some sort of a deal coming out of this where President Trump attempts to drive more of a wedge between China and Iran.
Whether that happens, that's the real test of this supposed relationship.
Richard Vanderford: That's all we have time for. Thanks for joining me, Dan.
Daniel Tannebaum: Thanks for having me.
James Rundle: That was Dan Tannebaum of Oliver Wyman and Risk Journal's Richard Vanderford. Next, our weekly update on the Middle East
Laura James: Hello and welcome to our weekly update on the US-Iran war. I'm Laura James, Deputy Director of Analysis and Senior Middle East Analyst at Oxford Analytica. This week saw yet another mili- military escalation sparked by a confrontation over the Strait of Hormuz. Iran stepped up deadly attacks on ships using the US-backed southern route off Oman and sought to deploy new mines.
The US attacked launchers on Larak Island and subsequently a range of coastal military installations as Iranian drones and missiles again targeted US bases in Gulf States and Jordan. To some extent, this is all within the established playbook of contained escalation, but at a deeper level, Iran's cost-benefit analysis may be shifting.
From the US perspective, the latest escalation does not end the new economic warfare strategy launched in August, but continues it. Washington has doubled down on plans to blockade Iranian ports and intensify sanctions towards the economic collapse and possible overthrow of the Islamic Republic, while steadily shuttling Gulf oil through the strait.
Tehran's level of social resilience thus remains a key question. President Trump asked this week, "When are the Iranian people going to rise up and fight?" Meanwhile, Iran's media are heavily publicizing civilian casualties after a US strike on a wedding party in the south, seeking to revive public wartime solidarity.
Underlining the new longer-term focus, the Pentagon has reportedly extended US military deployments in the region into twenty twenty-seven. Meanwhile, other US sources are hinting at a potential re-escalation after the November midterm elections. However, Washington's planned shift to a longer-term confrontation is not necessarily feasible for two reasons.
First, the latest developments strengthen Iranian hardliners' perennial argument that Washington cannot be trusted and is planning a new attack at a time of its choosing after weakening Tehran further. This will likely help them win their case for sharper preemptive escalation against the pragmatists who are still looking for a potential deal.
Iran will explore new ways to break out of the US trap, especially by raising the costs of the war for the global economy and US Gulf allies. That raises the second problem with the long-term economic warfare scenario. Those costs are already substantial. Although oil is getting through the strait, the flow is variable, fragile, and insufficient in the longer term to balance markets, let alone sustain all of the Gulf economies.
Moreover, other vital imports and exports are mostly not getting through. The countries affected cannot afford to wait on the construction of new supply chains, which could take years, let alone on the sanctions-driven collapse of the Iranian regime, which experience suggests might take decades, if it happens at all.
James Rundle: And that was Laura James of Oxford Analytica. To follow these developments as they happen, subscribe to the Dow Jones Crisis Monitor. It's a weekly premium newsletter covering the Iran conflict and major geopolitical risks impacting global energy markets. You can sign up at /crisis-monitor.
Coming up, a federal judge strikes down New York's attempt to force energy companies to pay billions in climate recovery costs. We look at why the law collapsed in court and what the decision portends for other states. That's right after the break
Welcome back. New York's Climate Change Superfund Act of 2024 claimed to make major fossil fuel producers pay for climate adaptation. State regulators plan to assess roughly $75 billion in fees against energy companies based on their historical emissions, funneling the revenue into local flood protection and infrastructure resilience.
But instead, a federal judge halted the law this week, ruling that Albany's statute unconstitutionally intrudes on federal authority. The court victory for energy companies carries nationwide stakes. Vermont enacted a similar climate Superfund law that faces an identical federal challenge. While the Trump administration has made dismantling state-level environmental mandates a core feature of its energy policy.
For now, New York officials say they are reviewing their legal options. Risk Journal's Clara Hudson joins us to explain the legal reasoning and what this block means for corporate accountability Clara, welcome back. First, let's lay this out. What was New York trying to do with this law, and why did the judge say it couldn't?
Clara Hudson: This was a pretty novel way to offset the funds communities were looking for to help them adapt to really warm summers or flash floods or what have you. So fossil fuel companies would essentially be footing that bill. But now a judge has said that the state doesn't have the authority to charge companies in this way.
James Rundle: And that bill's pretty steep, right? New York was looking to collect around $75 billion, uh, from energy companies. How significant a setback is this for the state's climate agenda?
Clara Hudson: That kind of money would obviously give the state the ability to make huge investments in its communities. But those payments weren't going to come all at once, so this fund was supposed to fill up over decades.
So it doesn't mean that the state can't find another route to fund its climate efforts in the long run.
James Rundle: And, uh, we're seeing this more and more. You and I have spoken about instances where this has happened over the past couple years. But, uh, an interesting point is the Justice Department intervened on the side of the energy industry here.
Uh, how much is this becoming part of the kind of wider fight between the Trump administration on one side and then states pursuing their own climate policies on the other?
Clara Hudson: So that fight has been ongoing since Trump took office. There's this sort of skirmish going on between the administration and blue states, where one sets up a policy and the other sues, and it just keeps going back and forth like that.
And we've seen this particularly for states like California and New York. But the, the issue is that this can create a lot of confusion, because then companies might be starting to prepare for one rule, but the law ultimately gets overturned after a court battle.
James Rundle: And as I mentioned in my introduction, Vermont has a similar climate superfund law that the Justice Department is also challenging.
Uh, so does this ruling in New York make other state efforts more vulnerable in your view?
Clara Hudson: Yeah. This ruling isn't exactly good news for Vermont's superfund law. It's obviously in a different state, so we can't predict how exactly a judge is going to respond, but it certainly sets the precedent for these kinds of climate fund laws to get thrown out.
And I think that longer term that could create a chilling effect because the New York ruling might actually scare other states away from setting up a similar law.
James Rundle: And of course, this was a federal judge, uh, not the Supreme Court, so it's not necessarily over. New York says it's considering its next steps.
So what happens now, and is there still a viable path for states that want fossil fuel companies to help pay for climate related costs?
Clara Hudson: Yeah, you're right. The state could appeal the decision, so it's not a sure thing that the New York law is gone forever. This is obviously a setback, but it doesn't mean that states won't find other ways to hold energy companies liable for their emissions.
And I think blue states are pretty happy to get creative and try whatever route that they can that could ultimately help them get corporate funds to offset climate change.
James Rundle: All right, Clara. Really interesting story. Thank you very much. That was Clara Hudson of Risk Journal. And that wraps up this edition of the Dow Jones Risk Journal Podcast.
This episode was hosted and produced by me, James Rundle, and edited by Kim Nash. If you found this week's episode valuable, please leave us a rating on Apple Podcasts, Amazon, or Spotify, and hit subscribe so you never miss an episode. You can also subscribe to Risk Journal and
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