Introduction
Operation Economic Outcast, launched by the U.S. Department of the Treasury on August 24, 2026, extends American economic pressure on Iran beyond Iranian entities themselves to foreign actors engaged in specified sanctionable Iran-related activities. The campaign combines new sectoral determinations under Executive Order 13902 with sanctions against Iran-linked networks and measures intended to restrict access to U.S. financial channels. Its secondary-sanctions dimension is particularly significant because non-U.S. banks and companies may face serious U.S. consequences for transactions conducted outside American territory (U.S. Department of the Treasury, 2026a; OFAC, 2026).
Domestic authorization does not resolve the separate question of international legality. The United States stands on a comparatively strong jurisdictional foundation when it regulates U.S. persons, institutions, assets within its territory, correspondent accounts maintained with American banks, or transactions genuinely routed through U.S. financial infrastructure. Territorial and nationality connections remain established bases for the exercise of State jurisdiction, even though the permissible reach of extraterritorial regulation becomes more contested as those connections weaken (Ryngaert, 2015).
The harder cases involve transactions conducted wholly between foreign actors. A bank outside the United States may finance trade involving Iran without using a U.S. institution or involving a U.S. person, yet abandon the transaction because continued business could jeopardize future access to American markets or financial services. Secondary sanctions are distinctive precisely because they can influence transactions between third-country actors that may remain lawful under the domestic law governing those transactions (Ruys, Ryngaert and Rodríguez Silvestre, 2024).
That distinction separates jurisdiction over an existing U.S. connection from economic influence created by the value of future access to the United States. The practical consequences can be similar, since a foreign institution may terminate an otherwise lawful transaction in either case. The international-law analysis is different, however, because dependence on the U.S. financial system does not by itself establish an unlimited jurisdictional entitlement to prescribe the conduct of foreign actors abroad.
A measure announced four days after the operation began illustrates this use of domestic financial gateways. On August 28, 2026, the Financial Crimes Enforcement Network proposed a rule under section 311 of the USA PATRIOT Act identifying Banque Misr UAE as a financial institution operating outside the United States of primary money laundering concern. FinCEN proposed prohibiting U.S. financial institutions from opening or maintaining correspondent accounts for the bank and imposed related due-diligence requirements (FinCEN, 2026). This was a separate anti-money-laundering mechanism rather than a designation under Executive Order 13902, but its inclusion within Operation Economic Outcast demonstrates how control over U.S. correspondent banking can affect conduct originating abroad.
International law does not classify secondary sanctions as categorically lawful or unlawful. Their legal status depends on the measure involved, the jurisdictional basis asserted, the conduct being influenced, and any international obligation that the measure may engage. Prescriptive jurisdiction, enforcement jurisdiction, non-intervention, State responsibility, international trade law, and competing regulatory regimes may each become relevant without producing the same answer in every case (Ruys, Ryngaert and Rodríguez Silvestre, 2024).
Operation Economic Outcast consequently presents a sharper question than whether the United States possesses enough economic power to influence foreign dealings with Iran. Measures governing U.S. persons, institutions, assets, and genuinely U.S.-linked transactions have a substantially stronger jurisdictional basis. The position becomes more contested when pressure is directed at transactions occurring wholly abroad and the principal U.S. connection is the foreign actor's desire to preserve future access to American markets, correspondent banking, or dollar infrastructure. The operation places that boundary between financial power and international legal jurisdiction at the center of the sanctions debate.
1. Operation Economic Outcast and Its Sanctions Mechanism
Operation Economic Outcast began on August 24, 2026, as a U.S. whole-of-government campaign designed to restrict the financial resources available to the Iranian government and the Islamic Revolutionary Guard Corps. The initial measures combined new sanctions designations, expanded sectoral coverage under existing authorities, changes to licensing policy, and diplomatic pressure on third States. Treasury also made clear that the campaign would increase secondary-sanctions exposure for foreign actors engaged in specified Iran-related activities (U.S. Department of the Treasury, 2026a).
A central measure was OFAC’s determination under Executive Order 13902 extending section 1(a)(i) to five additional sectors of the Iranian economy: aviation, digital assets, gold, shipping, and technology. Those sectors joined areas already subject to earlier determinations, including Iran’s financial sector and its petroleum and petrochemical sectors. Executive Order 13902 permits measures against persons operating in designated sectors and against persons engaging in specified significant transactions or providing material assistance to persons blocked under the order (Executive Order 13902, 2020; OFAC, 2026a).
OFAC also sanctioned nearly 60 entities, individuals, and vessels across several jurisdictions. The designations concerned networks linked to Iranian oil revenues, proliferation-sensitive procurement, missile activity, and malicious cyber operations. Treasury relied on several pre-existing authorities, including Executive Orders 13902, 13382, 13224 as amended, and 13694 as amended. The campaign is accordingly not a single sanctions instrument but a coordinated use of multiple statutory and executive authorities (U.S. Department of the Treasury, 2026a).
Foreign financial institutions face a distinct form of exposure under section 2 of Executive Order 13902. Where Treasury makes the required determination, it may prohibit the opening of a correspondent or payable-through account in the United States and may prohibit or impose strict conditions on maintaining such an account for the foreign institution. The triggering conduct can include knowingly conducting or facilitating specified significant financial transactions connected with designated Iranian sectors or persons blocked under the order (Executive Order 13902, 2020).
The campaign has also used financial authorities outside the conventional OFAC designation framework. On August 28, 2026, the Financial Crimes Enforcement Network proposed a rule under 31 U.S.C. § 5318A, enacted through section 311 of the USA PATRIOT Act, identifying Banque Misr UAE as a financial institution operating outside the United States of primary money laundering concern. The proposal would bar U.S. financial institutions from opening or maintaining correspondent accounts for the bank and would require measures intended to prevent indirect processing of its transactions (FinCEN, 2026). This mechanism is legally distinct from an Executive Order 13902 designation, but it demonstrates the importance of U.S. correspondent banking access to the campaign.
The diplomatic dimension extends that pressure beyond individual enforcement actions. On August 30, Treasury Secretary Scott Bessent stated that the United States was likely to introduce new secondary sanctions on a weekly basis, initially focusing on banks, and that he intended to press G20 finance ministers and central bank governors to reduce economic ties with Iran. He also warned that institutions maintaining specified Iran-related relationships could face secondary sanctions and potentially lose access to the dollar-based financial system (Reuters, 2026).
The significance of the campaign lies partly in this combination of legal prohibition and economic leverage. U.S. authorities can regulate persons, accounts, assets, and institutions within American jurisdiction, while also attaching serious consequences to specified conduct by foreign banks and companies. Pressure on foreign governments adds another dimension. The resulting international-law problem concerns not only what the United States may control directly, but how far control over U.S. financial access can be used to influence transactions and policies beyond its territory.
2. Primary and Secondary Sanctions Are Legally Different
International law contains no universally accepted definition of secondary sanctions. In general usage, primary sanctions regulate persons, property, or transactions already subject to the sanctioning State’s law, while secondary sanctions impose adverse consequences on foreign actors because of their dealings with a sanctions target, even when those dealings may remain lawful under the domestic law otherwise governing them (Ruys, Ryngaert and Rodríguez Silvestre, 2024).
The distinction is visible in the structure of the U.S. measures against Iran. If a U.S. financial institution processes a prohibited Iran-related payment, the transaction directly engages a person or institution subject to U.S. law. A different situation arises when a foreign bank conducts a transaction outside the United States but becomes exposed to restrictions on its U.S. correspondent accounts because Treasury determines that the transaction falls within the criteria established by Executive Order 13902 (Executive Order 13902, 2020).
The geographical location of the underlying transaction is only part of the analysis. A payment between foreign parties may still pass through a U.S. correspondent bank, involve property within U.S. territory, or be processed by a U.S. person. These connections create a present U.S. nexus. By contrast, a transaction conducted entirely abroad may lack such a connection even though the parties remain vulnerable to future exclusion from U.S. markets or financial services.
Secondary sanctions often operate through that second form of pressure. U.S. law may identify specified foreign conduct as sanctionable and make it the basis for blocking measures, correspondent-account restrictions, denial of market access, or other consequences. The foreign transaction does not necessarily become criminal or legally invalid in the jurisdiction where it occurs. Instead, the foreign actor may be forced to choose between continuing the transaction and preserving a separate economic relationship with the United States (Ruys and Ryngaert, 2020).
Conditional access must also be distinguished from direct regulation of conduct abroad. The United States exercises substantial authority over accounts maintained with U.S. banks, financial institutions operating within its territory, and admission to its domestic market. Denying access to those facilities raises different legal questions from imposing a civil or criminal penalty solely for offshore conduct between foreign parties. Access restrictions are not automatically lawful under international law, but neither are they analytically identical to direct extraterritorial prescription.
That distinction is especially important for Iran secondary sanctions. A foreign institution may remain legally entitled under its own domestic law to conduct a transaction with an Iranian counterparty, yet decide against doing so because the potential loss of U.S. correspondent banking or market access is commercially unacceptable. The legal question then turns on the character of the U.S. measure, the connection with the regulated conduct, and any international obligations engaged by the threatened consequence.
3. U.S. Domestic Authority and International Legality
The domestic legal foundation for the campaign rests largely on authorities that predate its 2026 launch. The International Emergency Economic Powers Act authorizes the President, after declaring a national emergency, to exercise specified economic powers in response to an unusual and extraordinary threat that has its source wholly or substantially outside the United States (50 U.S.C. §§ 1701–1708). The national emergency concerning Iran, first declared in Executive Order 12957 in 1995, remained in force in 2026 (Executive Order 12957, 1995; White House, 2026).
Executive Order 13902 is one of the principal instruments used in the current measures. Issued in January 2020 under IEEPA and related presidential authorities, it permits the blocking of property and interests in property located in the United States, later entering the United States, or coming within the possession or control of a U.S. person when Treasury determines that the relevant designation criteria are satisfied (Executive Order 13902, 2020).
The order also creates a mechanism specifically directed at foreign financial institutions. Treasury may prohibit the opening of a correspondent or payable-through account in the United States and may prohibit or impose strict conditions on maintaining such an account where a foreign financial institution knowingly conducts or facilitates financial transactions meeting the criteria set out in section 2. OFAC’s August 24, 2026 determination expanded the economic sectors to which relevant provisions of the order may apply (OFAC, 2026a).
Other measures announced at the campaign’s launch relied on separate executive authorities. Executive Order 13382 supported proliferation-related designations, Executive Order 13224 as amended applied to terrorism-related targets, and Executive Order 13694 as amended applied to malicious cyber activity. FinCEN’s later Banque Misr UAE proposal rested instead on 31 U.S.C. § 5318A. These authorities operate differently, even though they were deployed within the same broader policy campaign (U.S. Department of the Treasury, 2026a; FinCEN, 2026).
Domestic legal authorization does not settle the international-law question. IEEPA and the relevant executive orders establish the powers available to U.S. authorities under American law. They do not, by themselves, determine whether every exercise of those powers is compatible with rules on jurisdiction, treaty commitments, non-intervention, or international economic law (Ruys and Ryngaert, 2020).
The converse is also true. A foreign State’s political or legal objection to U.S. sanctions does not by itself establish an internationally wrongful act. International responsibility requires conduct attributable to a State that breaches an international obligation binding upon it. The legality of a particular sanction must consequently be assessed by reference to the obligation allegedly violated, the jurisdictional basis asserted, and the specific form of the measure.
4. The Dollar System and the Reach of U.S. Sanctions
The international effectiveness of U.S. financial sanctions depends heavily on the structure of cross-border banking. Foreign banks commonly maintain correspondent relationships with U.S. financial institutions to receive payments, settle transactions, or gain access to dollar-based financial services. Because those accounts are maintained within the United States, federal authorities possess substantial regulatory control over the U.S. institutions and accounts involved (31 U.S.C. §§ 5318, 5318A).
Executive Order 13902 uses that territorial connection directly. When Treasury makes the determination required by section 2, it may restrict a foreign financial institution’s ability to open or maintain correspondent or payable-through accounts in the United States. The conduct prompting the restriction may have occurred abroad, but the account to which the legal consequence attaches is located within the U.S. financial system (Executive Order 13902, 2020).
The jurisdictional position is similarly strong where a foreign bank operates a branch in the United States. The branch is physically present within U.S. territory and subject to American regulation concerning its domestic activities. That position differs materially from that of a bank with no U.S. branch, no U.S.-located account, and no transaction passing through an American institution.
Property blocking provides another concrete nexus. Executive Order 13902 reaches property and interests in property situated in the United States, later entering the United States, or coming within the possession or control of a U.S. person. Where a foreign company holds assets through a U.S. institution, or where funds are actually processed by a U.S. bank, American authorities are exercising control over an identifiable domestic component of the transaction (Executive Order 13902, 2020).
Dollar denomination alone is different. A contract expressed in U.S. dollars does not establish that every part of the transaction falls within U.S. jurisdiction. If payment is actually cleared through a U.S. correspondent bank, a concrete territorial connection exists because a U.S.-based institution participates in the payment chain. That nexus supports regulation of the U.S. institution and the domestic payment leg; it does not automatically resolve the jurisdictional position of every foreign party or every aspect of the underlying transaction (Ruys and Ryngaert, 2020).
Access to American capital markets can operate in a similar way. The United States may regulate participation in markets and financial institutions located within its territory, subject to applicable international obligations. A foreign company seeking access to U.S. capital or banking services is consequently exposed to conditions attached to that access. The legal analysis becomes more difficult when those conditions are designed to alter conduct occurring entirely outside the United States.
Consider an Iran-related transaction between two foreign actors using non-U.S. banks, with no U.S. person, branch, account, or U.S.-located asset involved. The transaction may nonetheless be abandoned because one participant fears designation or the loss of future correspondent banking, dollar clearing, or access to American markets. In that setting, the effectiveness of the U.S. measure derives principally from the economic value of maintaining access to U.S. infrastructure rather than from direct control over the underlying transaction.
That difference separates financial power from jurisdiction. Control over a U.S.-located bank account, branch, asset, payment leg, or market-access mechanism supplies an identifiable connection with U.S. territory. The commercial dependence of a foreign actor on future American access explains why secondary sanctions may be highly effective, but economic dependence does not by itself establish unrestricted legal authority over foreign commercial relations.
5. International-Law Limits on Secondary Sanctions
International law does not establish a categorical rule making unilateral economic sanctions unlawful merely because they are imposed outside the United Nations collective-security system. Their legality depends on the particular measure, the connection between the sanctioning State and the regulated conduct, and any treaty or customary obligation that the measure engages. Secondary sanctions require especially careful analysis because their economic effects often extend beyond transactions involving U.S. persons or territory.
For Operation Economic Outcast, jurisdiction is only part of the inquiry. A measure supported by a substantial U.S. nexus may still conflict with an applicable treaty obligation. Conversely, economic pressure imposed on a foreign actor does not become an internationally wrongful act merely because another State considers the policy coercive or illegitimate.
The legal character of each mechanism must consequently be assessed separately. Property blocking, restrictions on correspondent accounts, exclusion from U.S. markets, and consequences attached to wholly foreign transactions do not necessarily rest on identical jurisdictional foundations or engage the same international obligations (Ruys and Ryngaert, 2020; Terry, 2024).
5.1 Prescriptive Jurisdiction and Extraterritoriality
Territoriality provides the clearest basis for regulating conduct occurring within a State's territory. Nationality supplies another established connection, allowing States to regulate the conduct of their nationals abroad within the limits recognized by international law. The protective principle is narrower: it has traditionally been invoked for foreign conduct threatening fundamental governmental functions or security interests, rather than as a general basis for regulating commerce that conflicts with a State's foreign policy.
Effects-based jurisdiction presents greater controversy when asserted expansively. U.S. law has relied on domestic effects to justify regulation of some conduct initiated abroad, particularly in fields such as competition law. International acceptance of broad effects-based formulations is not uniform, and neither commercial consequences nor disagreement with foreign economic activity can simply be treated as sufficient effects for all purposes of international jurisdiction.
The distinction becomes concrete in the sanctions context. An Iran-related payment processed by a U.S. bank, property held within the United States, or activity conducted through a U.S. branch presents an identifiable territorial nexus. A transaction conducted between foreign entities through foreign institutions raises a more difficult jurisdictional question when the principal American connection is the possibility that one participant may later seek access to U.S. markets or banking services (Ruys and Ryngaert, 2020; Terry, 2024).
Prescriptive jurisdiction must also be distinguished from enforcement jurisdiction. A State may legislate in relation to conduct with recognized connections to its legal order without acquiring authority to exercise coercive governmental powers inside another State. Enforcement remains strongly territorial: absent consent or another recognized legal basis, officials of one State generally may not execute their laws within the territory of another.
The 1927 judgment in S.S. Lotus does not eliminate those distinctions. The Permanent Court of International Justice rejected a general presumption that extraterritorial prescription always requires an express permissive rule, but the dispute concerned criminal jurisdiction arising from a collision at sea and reflected the international law of its period. The judgment is not an unlimited authorization for States to regulate foreign conduct whenever they possess sufficient economic power to make their legislation effective (PCIJ, 1927).
5.2 Non-Intervention and Economic Coercion
The customary principle of non-intervention supplies a different legal constraint. In Military and Paramilitary Activities in and against Nicaragua, the International Court of Justice held that prohibited intervention concerns matters on which a State is entitled to decide freely, including the choice of its political, economic, social, and cultural system and the formulation of foreign policy. Coercion is an essential element of the prohibited intervention identified by the Court (ICJ, 1986, para. 205).
Severe economic pressure does not automatically satisfy that test. Nicaragua challenged, among other measures, the withdrawal of U.S. economic assistance, reductions in its sugar quota, a trade embargo, and U.S. opposition to international lending. The Court nevertheless stated that it could not regard the economic action complained of as a breach of the customary principle of non-intervention (ICJ, 1986, para. 245).
The identity of the immediate target remains relevant but is not conclusive. Pressure imposed on a private company or commercial bank may still form part of an effort to coerce a State regarding a decision within its sovereign sphere. Measures directed explicitly at a foreign government or central bank make the interstate dimension more apparent, but the legal inquiry still requires proof of coercion connected to a matter on which the target State is entitled to decide freely.
State practice and legal opinion remain divided over the broader international-law status of economic coercion. Numerous States have condemned unilateral coercive measures in diplomatic and United Nations forums, while other States continue to employ sanctions and reject the existence of a categorical customary prohibition. The non-intervention principle must accordingly be applied to the particular conduct and purpose at issue rather than treated as a general prohibition of secondary sanctions.
5.3 Retorsion, Countermeasures, and State Responsibility
Not every unfriendly economic measure requires justification as a countermeasure. Retorsion consists of conduct that is unfriendly but otherwise lawful, such as withdrawing a discretionary economic benefit or altering diplomatic relations. Because no international obligation is breached, the prior commission of an internationally wrongful act is unnecessary.
Countermeasures arise in a different setting. Under the International Law Commission's Articles on State Responsibility, an injured State may temporarily suspend performance of an obligation owed to a responsible State in order to induce compliance following an internationally wrongful act. The conduct qualifies as a countermeasure precisely because it would otherwise conflict with an international obligation (ILC, 2001, art. 49).
The ARSIWA framework imposes substantive limits. Countermeasures must be directed against the responsible State, remain proportionate to the injury suffered in light of the gravity of the wrongful act and the rights affected, and be structured so far as possible to permit resumption of performance. They may not affect the prohibition on the use of force, specified fundamental human rights and humanitarian obligations, or obligations arising from peremptory norms (ILC, 2001, arts. 49–51).
Article 52 also sets out procedural conditions concerning prior calls for compliance, notification, and an offer to negotiate, subject to provision for urgent measures necessary to preserve rights. The Articles are not a treaty, and the customary status of every element of Article 52 is not equally settled. Failure to satisfy a particular Article 52 requirement cannot be treated automatically as conclusive proof that a measure violates customary international law.
A further uncertainty concerns action by States other than an injured State. Article 54 deliberately preserves the possibility of “lawful measures” by States entitled to invoke responsibility in the collective interest without resolving the full legality of countermeasures by non-injured States (ILC, 2001, art. 54). Operation Economic Outcast has not been presented simply as a countermeasures regime, so the correct sequence remains to identify an otherwise applicable U.S. obligation before asking whether countermeasure doctrine is needed as a justification.
6. Operation Economic Outcast and WTO Law
WTO law imposes treaty-specific obligations that are analytically separate from general international-law rules on jurisdiction. Iran cannot itself bring an ordinary WTO dispute against the United States as a WTO Member because, as of September 2026, it remains an acceding government rather than a Member. Its Working Party was established in 2005, but the accession process has not been completed (WTO, 2026).
That does not remove U.S. Iran-related measures from possible WTO scrutiny. Another WTO Member could challenge a measure if it considered rights under a covered agreement to have been impaired. Any claim would require identification of the particular U.S. restriction, the relevant WTO agreement and obligation, and the Member possessing the necessary treaty rights.
Measures affecting trade in goods could engage provisions of the GATT 1994, depending on their design and effect. Restrictions affecting banking, payment processing, clearing, or other financial services may instead engage the GATS, including its most-favored-nation obligation and, where relevant, market-access or national-treatment commitments contained in the U.S. schedule.
Financial measures may also raise the prudential carve-out in paragraph 2(a) of the GATS Annex on Financial Services. That provision permits measures taken for prudential reasons, including the protection of investors, depositors, policyholders, and the integrity and stability of the financial system. It also prevents the provision from being used as a means of avoiding GATS commitments or obligations.
National-security exceptions provide a separate possible defense. GATT Article XXI and GATS Article XIV bis permit specified measures connected with essential security interests, including action taken in time of war or another emergency in international relations. Their wording grants Members substantial discretion, but neither provision should be treated simply as an automatic exemption from treaty scrutiny.
The WTO panel in Russia — Traffic in Transit interpreted GATT Article XXI, not GATS Article XIV bis. It rejected Russia's argument that invocation of Article XXI(b) removed the dispute entirely from review, holding that the circumstances identified in the subparagraphs were objectively reviewable while preserving significant discretion for a Member in identifying its essential security interests and the measures it considered necessary to protect them. The report was adopted in April 2019 (WTO Panel, 2019).
Because Article XIV bis contains related security language, Russia — Traffic in Transit may inform arguments concerning the GATS, but its holding does not directly determine the interpretation of Article XIV bis. The distinction matters particularly for financial restrictions, where both service-specific commitments and the financial-services prudential provision may need to be considered.
Later WTO panels have continued to reject an entirely non-reviewable interpretation of Article XXI. The panel in United States — Origin Marking Requirement, for example, rejected the U.S. security defense on the facts before it. The United States appealed the report in January 2023 while the Appellate Body was non-operational, so the report has not been adopted and does not possess the status of an adopted dispute-settlement report.
A WTO claim would consequently differ from a general objection to extraterritorial sanctions. A measure may possess a substantial territorial connection under general jurisdictional principles yet violate a WTO commitment unless an exception applies. Equally, the absence of a viable WTO claim would not determine whether the measure complies with customary rules governing jurisdiction or intervention.
7. The EU Blocking Statute and Bank Melli
The European Union provides a concrete example of the conflict generated when U.S. secondary sanctions affect conduct regulated by another legal order. Council Regulation (EC) No 2271/96, commonly known as the Blocking Statute, protects specified EU persons against the effects of foreign extraterritorial legislation identified in its Annex. It does not prohibit compliance with all foreign sanctions; its scope is limited to the listed legislation and resulting actions.
After the United States withdrew from the JCPOA in 2018, Commission Delegated Regulation (EU) 2018/1100 amended the Annex to restore specified U.S. Iran-related sanctions to the Regulation's coverage. Article 5 generally prohibits covered EU operators from complying, directly or through a subsidiary or intermediary, with requirements or prohibitions based on the listed measures. The Commission may authorize compliance where non-compliance would seriously damage the interests of the applicant or the Union.
The Regulation also contains mechanisms directed at the domestic effects of foreign sanctions. Article 4 restricts recognition or enforcement within the Union of foreign decisions giving effect to listed legislation, while Article 6 permits recovery of certain damages arising from its application. These provisions seek to preserve the operation of the EU legal order rather than merely express political disagreement with U.S. policy.
The Court of Justice clarified Article 5 in Bank Melli Iran v Telekom Deutschland GmbH. In 2021, the Grand Chamber held that the prohibition can apply even where no U.S. administrative or judicial authority has issued a specific direction requiring an EU operator to comply. It also held that an operator exercising an ordinary contractual right of termination is not automatically required to provide reasons for that decision (CJEU, 2021, Case C-124/20).
Judicial scrutiny nevertheless becomes possible where the evidence available to the national court suggests prima facie that termination was intended to comply with legislation covered by the Blocking Statute. In that situation, the operator must establish to the requisite legal standard that its conduct did not seek to comply with those foreign measures. A national court considering invalidation must also take account of the freedom to conduct a business under Article 16 of the Charter of Fundamental Rights and assess proportionality (CJEU, 2021).
Bank Melli did not decide that U.S. secondary sanctions are unlawful under international law. Its significance is the regulatory collision it exposes. A company may face substantial U.S. economic consequences if it maintains an Iranian relationship while simultaneously encountering EU legal restrictions on terminating that relationship for the purpose of complying with specified American sanctions.
8. China and Third-State Resistance
China has opposed the 2026 expansion of U.S. secondary sanctions against Iran in explicitly legal terms. On August 25, Foreign Ministry spokesperson Lin Jian described unilateral sanctions lacking Security Council authorization as unlawful and stated that China's economic cooperation with Iran should not be disrupted by U.S. measures (Ministry of Foreign Affairs of China, 2026).
That statement records China's legal and diplomatic position; it does not itself establish the content of customary international law. State practice and opinio juris must be assessed more broadly. Chinese objections are relevant evidence within that inquiry but cannot independently demonstrate that every form of U.S. secondary sanction is internationally unlawful.
China has also created domestic mechanisms for resisting foreign extraterritorial measures. The Ministry of Commerce's 2021 Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures address circumstances in which foreign measures are considered to unjustifiably restrict Chinese persons from normal economic or trade activity with a third State or its persons. The framework provides for reporting obligations, prohibition orders, possible exemptions, judicial remedies in specified circumstances, and governmental countermeasures (MOFCOM, 2021).
The Anti-Foreign Sanctions Law, adopted in June 2021, established a separate basis for Chinese countermeasures. Implementing regulations issued by the State Council in March 2025 added detail concerning measures such as asset freezes and restrictions on transactions, cooperation, and other activities. These instruments increase the possibility that companies operating across jurisdictions will face incompatible legal demands.
China's domestic response does not determine the international legality of the U.S. measures it opposes. It does, however, demonstrate that extraterritorial sanctions operate within a field of competing regulatory authority. The resulting conflict resembles the problem created by the EU Blocking Statute: the economic reach of one State encounters another State's effort to protect conduct occurring within its own legal and commercial sphere.
9. Does Armed Conflict Change the Sanctions Analysis?
The direct resort to armed force between the United States and Iran in 2026 altered the legal context surrounding the sanctions campaign. U.S. Central Command reported repeated U.S. strikes against Iranian military targets during July and Iranian missile attacks against U.S. forces. Armed force between two States is sufficient to trigger an international armed conflict for the purposes of Common Article 2 of the Geneva Conventions, without a separate minimum-intensity threshold.
The existence of that conflict does not convert every financial restriction into a method of warfare. Sanctions imposed through banking, designation, or market-access mechanisms retain their own legal character unless the requirements of a particular rule of international humanitarian law are met. Their purpose, design, effects, and relationship to the hostilities remain relevant.
The prohibition on starvation illustrates the need for precision. Article 54(1) of Additional Protocol I prohibits starvation of civilians as a method of warfare. Neither the United States nor Iran is a party to Additional Protocol I, although both signed it in 1977. The ICRC nevertheless identifies the prohibition on starvation of civilians as a customary rule applicable in international armed conflict (ICRC, Rule 53).
Economic hardship alone does not establish starvation as a method of warfare. Reduced trade, higher prices, restricted financing, or deterioration in living conditions may have serious humanitarian consequences without satisfying the legal elements of the customary prohibition. Application of the rule requires examination of the specific measure and its relationship to the prohibited method.
Financial sanctions must also be distinguished from the separate naval measures adopted during the hostilities. U.S. military authorities announced and described the enforcement of a naval blockade against Iranian ports during the July 2026 conflict. That blockade raises its own questions under the law of naval warfare; its existence does not transform banking restrictions or secondary sanctions into a blockade.
The distinction prevents two different legal regimes from being conflated. A blockade physically restricts maritime access through belligerent measures, whereas financial sanctions operate through regulation of accounts, institutions, transactions, and market access. International humanitarian law can constrain either form of conduct where its rules apply, but armed conflict does not make the categories legally interchangeable.
10. How Far Can Operation Economic Outcast Lawfully Reach?
The strongest jurisdictional cases involve conduct anchored in U.S. territory or the U.S. legal order. Regulation of U.S. persons, American financial institutions, U.S. branches, property within the United States, domestic correspondent accounts, and transactions genuinely processed through U.S. payment infrastructure rests on identifiable territorial or nationality connections. Separate treaty obligations may still limit particular measures, but the jurisdictional basis is comparatively firm.
A correspondent account illustrates the point. U.S. authorities may regulate the domestic institution maintaining the account and determine the conditions under which a foreign bank may use that U.S.-based facility. A payment actually processed within the United States similarly permits regulation of the domestic payment leg. Neither proposition requires the broader claim that every aspect of the underlying foreign transaction falls under unrestricted U.S. jurisdiction.
Access restrictions create a harder problem. One interpretation characterizes exclusion from the U.S. market or banking system as territorial control over domestic economic access: the foreign actor remains free to continue its Iranian relationship but loses a separate privilege within the United States. Another view treats such restrictions as mechanisms for enforcing an extraterritorial prescription when their purpose is to induce abandonment of conduct occurring entirely abroad (Ruys and Ryngaert, 2020; Terry, 2024).
The dispute becomes sharper when neither the actors nor the transaction possesses a substantial present U.S. connection. Trade between foreign parties conducted through foreign banks, involving no U.S. person, branch, account, asset, or payment leg, provides a much weaker territorial foundation. Exclusion from future U.S. financial access may still be commercially decisive, but economic effectiveness does not itself constitute a jurisdictional principle.
The protective principle does not cure every weak nexus. It is generally associated with foreign conduct threatening fundamental State interests, such as governmental security or core sovereign functions, and its boundaries remain contested. A generalized assertion that foreign commerce conflicts with U.S. national-security or foreign-policy objectives is insufficient by itself to demonstrate that the principle applies.
Effects-based reasoning is similarly limited. Substantial domestic effects may support jurisdiction in some fields, but the expansive U.S. conception of the effects doctrine is not universally accepted as customary international law. A remote commercial consequence, loss of policy effectiveness, or disagreement with transactions occurring abroad cannot automatically substitute for a substantial connection with U.S. territory.
Jurisdiction also does not exhaust the inquiry. Measures resting on a strong U.S. nexus can still engage WTO commitments, treaty obligations, or other international rules. Conversely, serious economic pressure imposed on a foreign company does not necessarily amount to prohibited intervention unless the elements of that customary rule are established.
No universal answer follows from the label “secondary sanctions.” Control over U.S.-located persons, property, institutions, accounts, branches, and payment processing stands on stronger jurisdictional ground. The legal position becomes progressively more disputed as U.S. measures move toward changing wholly foreign conduct through the threat of exclusion from future market or financial access.
Conclusion
Operation Economic Outcast demonstrates the difference between the capacity to impose global economic consequences and the existence of global legal jurisdiction. International law leaves the United States substantial authority over persons, institutions, assets, branches, correspondent accounts, and transactions genuinely connected with its territory or legal order.
That authority becomes less certain when the underlying economic relationship is wholly foreign, and the principal instrument of pressure is threatened exclusion from future U.S. market or financial access. International law does not treat every such measure as unlawful, but neither does the importance of the dollar or the U.S. financial system create an unrestricted jurisdiction to regulate third-country commerce.
The legality of Operation Economic Outcast consequently depends on the measure involved. Jurisdictional nexus, the form of the economic consequence, applicable treaty commitments, non-intervention, and any valid justification must be assessed separately. The campaign's practical reach is extensive; its international legal reach is necessarily more limited and more contested.
References
Anti-Foreign Sanctions Law of the People’s Republic of China (2021) adopted and entered into force 10 June 2021, Presidential Order No. 90.
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Council Regulation (EC) No 2271/96 (1996) Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom, OJ L 309, 29 November 1996, pp. 1–6.
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