Bessent's Sanctions Pledge Meets Market Resistance as Treasury Intervention Stalls and Iran Policy Falters

Treasury Secretary Scott Bessent spoke to the press twice in recent days, and according to the Naked Capitalism writer, he said more than he meant to. The immediate trigger was frustration. Oil and Treasury markets had not moved in line with the Administration's public talk, and an effort to push down yields at the long end of the Treasury curve had, in the author's reading, backfired. Instead of calming investors, it signaled that the Administration is worried about rising interest rates.

This is an opinion piece, and the author's own claims should be read as such. One phrase drew particular scorn. Bessent said that once the market understands the government is focused on fiscal consolidation and bringing the market into equilibrium, yields would fall. The author notes that fiscal consolidation, as anyone familiar with IMF bailouts knows, means cutting spending to shrink deficits. The Administration is doing nothing of the sort, the author says, pointing to its Pentagon spending plans. The new fiscal year begins October 1, and the author presumes the budget is largely set, leaving Treasury little room to act on the deficit even if it wished to. Bessent's description of Treasuries as a thinly traded market is also dismissed. Longer-dated and off-the-run issues are less liquid, the author concedes, but the Fed's sustained firepower in quantitative easing shows how large the market is.

The passage the author treats as the real confession concerns Iran sanctions. Bessent said oil markets misread the economic pressure, promised what he called the greatest coordinated economic isolation in history, and said the U.S. would tell allies they are with us or against us. Anyone doing business with Iran, whether moving money, buying its oil, or conducting seaborne ship transfers, would face the full force of Treasury and the U.S. government. The author fixes on four words: we're going to our allies.

The contrast offered is the Russia sanctions. The author says the U.S., UK and EU launched massive sanctions before the invasion began, which implies they had been planned and agreed in advance. Nothing comparable exists here, the author argues. Bessent, in this telling, must go to allies as a supplicant. Those allies did not provide navy ships to help reopen the Strait of Hormuz. The Gulf states are likely to be ambivalent, and the author says the claim that the UAE has cut off Iran is bogus. The UAE, he writes, merely restated a commerce restriction it has not observed in practice, and close watchers on Twitter saw no change in its dealings with Iran.

Al Jazeera's live feed offers support for the skeptical view. It reports no indication that Beijing intends to stop buying Iranian oil. China says it rejects unilateral U.S. sanctions and that trade between two countries is their own business. China is Iran's biggest crude customer, taking about 80 percent of its shipments, much of it going to smaller teapot refineries through tanker networks that can obscure the oil's origin. The same report adds that China is not heavily reliant on Iranian oil and could in theory stop buying if Washington pressed hard enough.

The author also devotes a long aside to the broader risk. He says a crisis is likely and growing more probable, but that Treasuries are the wrong place to look. Rising interest rates, which are climbing worldwide, would push exposed borrowers over the edge, so the damage would not be confined to dollar assets. He argues that a currency issuer like the U.S. will not default involuntarily. He expects something slower than 1987 or 2008, which depended on leverage stacked on leverage, though slow unwinds such as Japan's lost decades and the U.S. savings and loan crisis can also be destructive.

The opacity worries him most. He cites a Financial Times treatment of how little is known about private credit funds, and the layering of subscription-line borrowing at the fund level on top of company-level debt. He quotes a late-July Bloomberg piece on how big tech's AI spending, expected to exceed $3 trillion, is using off-balance-sheet vehicles like those Enron used. Meta's Louisiana data center joint venture with Blue Owl Capital carries a maximum exposure of $46 billion per its SEC filings, and Bloomberg reports the campus could cost as much as $250 billion. Alphabet keeps similar arrangements off its balance sheet. Because central banks are built to rescue banks and not other players, he suggests early losses might land on public pension and sovereign wealth funds, quietly.

What to watch is whether allies actually sign on to the proposed sanctions, and whether rising global rates start exposing the leveraged private credit and AI-related debt the author describes.