Secondary sanctions represent a significant extension of US economic power, moving beyond direct trade embargoes to target the global supply chain. Unlike primary sanctions, which prohibit US citizens and companies from doing business with a specific country, secondary sanctions threaten to cut off any foreign entity—bank, corporation, or individual—from the US financial system if they engage in prohibited transactions with the sanctioned party.

In the context of Iran, these sanctions are designed to isolate the nation's economy by making it prohibitively expensive for international partners to maintain commercial relationships. When the US threatens to impose these penalties, it creates a 'chilling effect' in global markets. Financial institutions, fearing the loss of access to the US dollar and American capital markets, often preemptively sever ties with Iranian entities, even in sectors that might technically be exempt from direct sanctions, such as humanitarian aid or food supplies.

Critics argue that these measures function as a form of extraterritorial reach, forcing foreign governments to adhere to US foreign policy goals regardless of their own national interests or international law. Proponents, however, view them as a necessary non-military tool to exert maximum pressure on regimes that violate international norms. The effectiveness of these sanctions relies heavily on the dominance of the US dollar in global trade; as long as international banks require access to the US clearing system, the threat of being 'blacklisted' remains a potent deterrent against trading with Iran.