What secondary sanctions are — how the US punishes companies in third countries
Secondary sanctions let the United States penalise companies and individuals in third countries for dealing with a sanctioned state. What distinguishes them from primary sanctions is that they reach transactions involving no American person and no dollar, and their force comes not from fines but from cutting off access to the US financial system
The three lines
- Definition — sanctioning a third-country company for trading with a sanctioned state, with no direct US connection required
- Weapon — not fines but exclusion from dollar clearing and the US market, which makes counterparties withdraw on their own
- Now — Trump warned on August 19-20, 2026 of 'economic warfare on an unprecedented scale' against Iran, with penalties for states that help it
Key questions
- What are secondary sanctions?
- They are US sanctions imposed directly on companies or individuals in a third country because those parties dealt with a sanctioned state. The key word is 'third country.' Suppose a Korean firm trades with an Iranian company using no American person, no US bank and no dollars. On its face, US law has no jurisdictional hook. Secondary sanctions place that Korean firm on a US sanctions list anyway. Once listed, it cannot deal with US banks, cannot do business in the US market, and is effectively cut out of dollar clearing. The mechanism is not a fine — it is removal from the American economy.
- How do they differ from primary sanctions?
- In who is covered. Primary sanctions govern American persons, American companies and transactions on US soil; a state ordering its own nationals not to trade with Iran raises no unusual legal question. Secondary sanctions reach beyond that, penalising a foreign company for a foreign transaction, which raises extraterritorial jurisdiction objections — the European Union among others has pushed back on precisely this ground. They work anyway because the source of the leverage is not jurisdiction but the position of the dollar. So long as international trade and finance route through dollars and US financial infrastructure, losing that access costs more than the Iranian business is worth.
- How have they actually been applied to Iran?
- By sector, expanding over time. When the US reinstated Iran sanctions, secondary sanctions on non-US persons returned across sectors including energy, precious metals, software, food and financial services. Executive Order 13902, signed in January 2020, extended the reach to construction, mining, manufacturing and textiles; the Treasury added the financial sector in October 2020 and petroleum and petrochemicals in October 2024 under the same order. The measures Trump signalled in August 2026 read as an escalation on that existing frame, but this page could not confirm their legal basis or effective date.
Imagine a transaction with no American in it, no US bank in it and no dollars in it. There appears to be nothing for US law to reach.
Secondary sanctions are aimed at exactly that transaction.
On August 19–20, 2026, President Trump warned of "economic warfare and isolation on an unprecedented scale" against Iran, and said any nation helping Tehran evade sanctions would face severe financial penalties. That second half is this mechanism.
1. Primary versus secondary
| Primary sanctions | Secondary sanctions | |
|---|---|---|
| Covers | US persons, US firms, US-based transactions | third-country firms and individuals |
| Basis | domestic jurisdiction | control of access to US finance |
| US connection | required | not required |
| Penalty | fines, criminal liability | listing → loss of access |
| Legal controversy | limited | extraterritoriality objections |
Primary sanctions are straightforward. A state tells its own nationals and companies not to trade with Iran. Every state can do that much.
Secondary sanctions reach outside. Penalising a foreign company for a transaction conducted abroad steps into another state's sovereign space, which is why the European Union has objected to the practice.
2. Why they work anyway
Because the leverage does not come from law. It comes from the dollar.
| Step | What happens |
|---|---|
| 1 | The US lists Company A |
| 2 | Any US bank dealing with A would itself be sanctioned |
| 3 | So US banks cut A off |
| 4 | A can no longer clear payments in dollars |
| 5 | A's other counterparties withdraw to avoid the risk |
The US may never impose a fine on Company A at all. Listing alone is enough for the market to sever it.
A large share of international trade settlement and finance passes through dollars and US financial infrastructure. Losing that access usually costs more than the Iranian business is worth. So most companies stop trading before they are ever listed.
That is how this instrument actually functions — as deterrence, not punishment.
3. How it has been applied to Iran
When the US reinstated Iran sanctions, secondary measures on non-US persons returned, and the covered sectors kept widening.
| Date | Sectors added |
|---|---|
| On reinstatement | energy, precious metals, software, food, financial services and others |
| January 2020 (EO 13902) | construction, mining, manufacturing, textiles |
| October 2020 | financial sector |
| October 2024 | petroleum and petrochemicals |
The operative concept is "significant transaction." Any contact with an Iranian counterparty does not automatically trigger designation; regulators weigh size, frequency and awareness before treating a dealing as significant. The hardest part for companies is that no published numerical threshold defines it in advance.
4. What was signalled in August 2026
The channels named were specific.
| Channels targeted |
|---|
| Oil smuggling |
| Currency swap lines |
| Cash transfers |
| Exchange houses |
| Ship registries |
| Front companies |
This list is the classic secondary-sanctions target set. Every item is a route around sanctions, and every item sits in a third country. Ship registries and exchange houses are the clearest cases — Iranian crude needs a flag from some jurisdiction to move, and the payments need a bureau somewhere to circulate.
Iran's deputy foreign minister, Kazem Gharibabadi, responded on X to the effect that the military war produced no results, so the next failure has been named "economic war."
This page could not confirm whether the signalled measures constitute a new executive order or an expansion of existing ones, nor when they take effect. What has been established so far is at the level of statements and posts.
5. The limits of the instrument
Secondary sanctions are not unlimited. Three constraints are well documented.
First, non-dollar routes grow. The harder the pressure, the more the targeted state builds settlement channels that avoid dollars — barter, third-country currencies, regional payment systems. They are less efficient, but they are not fully closed.
Second, allies object. Sanctioning a third-country company means friction with that country's government. The European Union has previously adopted blocking rules in response to US extraterritorial measures.
Third, targets adapt. Iran has lived under sanctions for decades. The observation that Tehran is well acquainted with sanctions surfaced again this week. Against a state that has already built evasion structures, the marginal effect of the same measure is smaller than against a first-time target.
6. What is unresolved
- Legal basis — whether the August signals are a new executive order or an expansion was not confirmed.
- "Penalties on nations that help" — country-level measures or firm-level designations are not distinguished. In practice these are very different actions.
- EO 13902 sector dates — taken from law firm and compliance material, not checked against the Federal Register.
- "Significant transaction" — no published numerical threshold exists.
- Korean companies — this article covers the structure of the regime only. Individual cases require professional legal advice.
- Related coverage — this page has followed the Strait of Hormuz and Iranian affairs in "The Strait of Hormuz: 34km carrying a fifth of the world's oil" and "The US-Iran memorandum expires (August 17)." How this economic pressure bears on those negotiations is not yet established.
Sources
- sanctions.io — Primary And Secondary Sanctions Explained
- LegalClarity — Iran Secondary Sanctions: How They Work and Who They Target
- Willkie Compliance Concourse — Comprehensive Sanctions: Iran
- CNBC — Trump declares 'economic warfare' on Iran, threatens its backers
- The Hill — Trump vows unprecedented economic warfare to isolate Iran
- OPB — Trump warns Iran of 'economic D-Day', but Tehran is well acquainted with sanctions