Even-more-maximum pressure: sanctions on Iran

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1:24The Economist

1:31Hello and welcome to The Intelligence from The Economist. I'm Jason Palmer. And I'm Rosie Blore.

1:40Today on the show, why the Philippines' offshoring industry is growing despite AI, and where to move to get paid most.

1:54First up, though.

2:00Today, at President Trump's direction, the United States Treasury has begun Operation Economic Outcast, an unprecedented campaign against the Islamic Republic of Iran and its enablers. America's Treasury Secretary, Scott Besant, had been trailing it for days. Economic D-Day, he called it. The single greatest financial offensive ever marshaled against an adversary. And then, yesterday, the big reveal. Much of the financial offensive aimed at Iran's trading partners. No nation should expect to enjoy the rewards of our system while helping those who seek to destroy it. It is now a time for world leaders to make a decision between prosperity and isolation, peace and terror, America and Iran.

2:58But our foreign correspondent Fraser McIlwath reckons the rhetoric to be a bit hollow. America is trying to break the regime by smashing Iran economically. But the country is likely to shrug off these threats.

3:16So tell us more about this effort to economically smash Iran. Iran has been under American sanctions since the Islamic Revolution in 1979. It's got a lot of experience of circumventing sanctions and of finding ways to produce things at home that otherwise it would have imported from foreign trading partners. In the first Trump term, the president exerted what he called maximum pressure on the regime in order to get concessions on its nuclear program. It's kind of unclear what Besant is driving at here, but it seems to be a kind of attempt to go back to that strategy and try and impose some kind of maximum pressure plus.

3:59As well as enforcing the blockade that America's navy is implementing against Iran's oil exports, The Treasury Secretary said that America will increase pressure on Iran's trading partners and institutions that help the regime move money. But yesterday, a lot of people were expecting big announcements of maybe secondary sanctions on Chinese banks or other big institutions. But really, it was pretty piecemeal. We saw a few designations of some smaller entities. But really, what he was doing was issuing the threats again. in the hope that by saying them louder and clearer, countries would comply.

4:39He set out timelines for countries to work with America on cutting Iran out of the global trading system, but he didn't demand immediate action. So the scheme will be delayed, and I think it also carries some risks for America. So before we talk about those risks, what does Iran's economy look like now before this super mega maximum pressure plus plus comes into force? Scott Besant has been saying that Iran's economy is under immense pressure. And he's right. The real, Iran's currency, has lost nearly half of its value against the dollar since the start of the year. And ahead of Besant's announcement, it hit an all-time low.

5:19There are lots of reasons for this. Iran's economy was in a very bad place before the war, not least because of decades of sanctions. But the scale of the fighting since February has destroyed swathes of Iranian industry. The blockade that America has been implementing since April has caused Iran's oil exports to completely collapse. For the first time in recent days, we've heard figures like the head of Iran's central bank saying that their oil income is now at zero. There was a moment yesterday in Besant's press conference where he said he hoped that once soldiers start seeing their paychecks bounce, they will lay down their arms and the regime will collapse.

5:56But that seems like wishful thinking to me. Well, let's carry out the exercise of picking through the wishful thinking. What is America trying to do here? What or who is it targeting? One of the things that stood out at Bassin's press conference yesterday was the fact that he was very careful not to name countries. But there are very important trading partners for Iran that you would expect America to be putting pressure on behind the scenes. So the most important is China. China is the biggest importer of Iranian oil by far. Last year, it imported about 90 % of Iran's oil in contravention of sanctions.

6:34That provided Iran with around half of its annual budget last year. Another important country is the UAE. Now, the UAE is a kind of hawkish American ally in the Gulf. But at the same time, it has close commercial ties with Iran. So it provided around a third of the country's imports last year. It also acts as a kind of hub for illicit financing. So it hosts exchange houses and shadow banks and so on that the regime has long used to evade sanctions. And America has complained about this repeatedly. And what chance they will comply with all of this? In a way, the UAE has already preempted what America is doing here.

7:18The Emirates suffered the brunt of Iranian attacks early in the war. In recent months, they had been softening their stance towards Iran. They'd been trading again and allowing their diplomats to talk with Iranian officials. But that has changed. So in the past few weeks, Iran attacked Emirati tankers and it was accused of firing ballistic missiles at the territory. And the Emirates announced on August the 18th that it would stop all trade and financial transactions with Iran. So they are already getting ahead of this and America has praised them for doing so. But China will be a much harder country to deal with.

7:54So they are already complaining about America's threats to impose new sanctions on Iran. They view this as counterproductive. At the same time, America will be reluctant to push China too far, and it may well chicken out of imposing sanctions on big financial institutions in China. One of the things that President Trump has been working very hard on is trying to reset relations with China so that the two countries can, you know, avoid trade spats of the kind that we saw last year. He may well be unwilling to put all that at risk over this. And so how did Iran respond to these threats? The regime has been defiant in the face of all of these threats.

8:39There are real concerns inside Iran about the state of the economy. The leaders of the regime are under no illusions about the trouble that their country is in. You've had the Speaker of the Parliament saying that Iran will not survive without economic growth, no matter how strong its military is. They've been urging, actually, America to return to the Memorandum of Understanding that the two countries signed in June. That was a deal that was supposed to offer Iran the opportunity to kind of re-enter the global economy in exchange for ending the fighting and forswearing the pursuit of a nuclear bomb.

9:15But at the same time, none of that has deterred them from standing up and openly mocking America's threats to impose further sanctions. It's also quite possible that they see this as a reason to escalate. They are emboldened by what they see as America's military failure in the region. They view the pivot to imposing sanctions as proof that America no longer has any appetite for the military campaign. And they could launch retaliatory attacks on countries that cooperate with America's plans. They could restart attacks on military bases or energy facilities. And of course, they still control the Strait of Hormuz.

9:56They could tighten their grip on the Strait. So with all that in mind, America's plan to choke Iran's economy could well backfire. Fraser, thank you very much for your time. Thank you for having me.

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11:31Hi, Anna, good morning. May I speak with Brianna? Oh, yeah, we spoke last week and I just want to follow up because I sent her information about our office. And I think she mentioned that... Treza works in the offshoring industry in the Philippines. Sure. OK, my name is Treza. That's going to be T-R-I-Z-Z-A. This is an industry that includes call centres, IT work, lots of other tasks, carried out on behalf of companies, particularly in America and Europe. Josh Spencer is an Asian news editor for The Economist. The company's name is Injury Relief Chiropractic. All right, thank you, Anna. She works mostly for an American chiropractic firm, and a lot of her job involves calling up personal injury lawyers and speaking to them in a very crisp American accent that she's perfected over many years.

12:21Hi, Brianna, I'm just, this is Isa with Injury Relief Chiropractic, and I'm just going to follow you. Now, I went to meet Teresa at her office late at night in Manila, in one of the busy business districts. She starts work at 8pm. It's a tough job. She works quite long hours. But one thing lately has improved her work, and that's AI. It made it easier, actually, because I like my emails published and I could just adjust it. And I like it so much because it can adapt my conversation style. I was quite surprised to learn that Teresa was such a big fan of AI, given lots of people think that the technology will destroy her industry.

13:08Well, on the surface of it, Josh, it doesn't sound like it's eating the industry yet. It's not, Jason, yeah, which is a big surprise. And in theory, AI is actually capable of doing a lot of the tasks that the industry traditionally does. You know, transcribing notes for a medical doctor based in America, for example, or resolving a customer query over their product they've ordered online on Amazon. but business has actually held up a lot better than you might have expected. Around 1.9 million Filipinos worked in the industry at the end of 2025, which is 4 % more than the previous year and 20 % more than in 2022, which is when ChatGPT was launched.

13:48So profits are going up and this predicted mass destruction has not come to pass. So again, one of these stories like we've heard on the show so many times where the AI apocalypse failed to materialize. Pretty much, yes. I think it's particularly interesting because this was the one industry that people thought would be first to go or one of the first to go, given how some of its tasks are repetitive, seemingly AI could do them. But this is not proven to be the case. And the main reason for this is really that AI can't do a lot of the stuff that these workers like Treza actually do. Handling complaints from customers can be actually quite a complex and messy thing, and it can't be replicated.

14:28People have unique questions depending on their specific country or local context. And Teresa, as I said, doesn't seem particularly worried either. I think I do get it. There are jobs that we can automize. So those jobs, probably, yes, 100 % are going to be replaced. But, you know, like those jobs where we get to like support, like technical support and all of that, I think we really need a person. So a lot of people don't trust AI still to handle queries on particularly expensive things. And the other thing is what customers actually want. People don't want to talk to AI chatbots all the time.

15:07They want to speak to human beings. And lots of customers are old as well and struggle to sort of navigate an online system and prefer to just pick up the phone. So rather than being wiped out by it, people like Teresa are making use of it. That's right. So companies are now potentially offshoring more work to people like Treza because they know that they can get more complaints resolved per hour with a worker that's using AI. It's also helping Teresa and people like her do more complex jobs that they might not necessarily have been able to learn how to do before. And that's actually allowed them to put up their rates.

15:43So they've been able to charge more in some cases and billing clients in different ways, for example, by the number of incidents they resolve rather than charging them by the hour, as they used to do. So at least for this industry, for the reasons you laid out, AI is not going to eat up any part of the workforce? No, Jason is going to eat up some of the workforce and it's already starting to actually, particularly the sort of tier one work they describe it, which is really basic tasks like data entry in a spreadsheet or answering a really basic customer question like, where's my order? A chatbot can answer those.

16:17there have been some indications that the number of jobs being added every year is starting to slow down the main industry body actually predicted that the number of people employed in offshoring will grow only by three percent this year which is down from the rate of growth in 2024 and 2025 as well so the industry has cut the number of employees that they project is going to be there in the coming years but these higher tier jobs slightly more complex ones like trees's which involve human-to-human relationships, they're not going yet. And some of them actually might become better paid and more highly skilled as a result of AI.

16:54No bad thing then. Yeah, I think that's a good thing. People are positive about the opportunities that AI could bring to some degree. But the big concern is if you've not already got onto the ladder and you're a young Filipino, you've just left university, how are you going to get there now when these tier one basic jobs aren't there. And then the other thing with AI is that as much as it's making people more efficient at their jobs and getting more done, it's not necessarily making it more pleasant or rewarding to do their jobs. And in some cases, it's making it harder and more stressful. So I went to an event that was run by a union for offshoring workers, where they were talking about some of these issues.

17:34I think the tagline from the event was humans are being forced to adapt to the speed of machines and people were feeling that they were basically being made to do more and they weren't getting any extra pay. They weren't getting any extra time off, even though they were more productive. And one of these people was Kyle, who's worked in call centers in Manila since 2018. And he told me about some of his worries. For example, as of the moment, there is an existing AI tool, as what we're discussing earlier, a tool designed to analyze the quality of your calls. And eventually, when this AI tool analyzes that your call handling is poor, then that would be a basis for you to eventually get terminated.

18:17So there's a situation where AI can flag mistakes you've made and potentially be responsible for you being fired if they make that known to your manager. AI doesn't recognize if you're not feeling well. AI does not recognize if you're having a bad time or if you're having issues with the family in such. Kyle is particularly upset that his targets for the number of calls he has to answer in an hour have recently been increased quite significantly since the introduction of AI because it's able to make you more efficient. So as much as he's getting more done, he's still working the same number of hours.

18:52He's not getting that time off. But it does start to look like maybe AI is running the show a bit, like who's managing whom here. Yeah, I mean, I think AI is definitely starting to take on a bigger role in the management, which is people like Kyle quite concerning. But as Teresa noted earlier, it's not necessarily always a bad thing. Having an AI manager might help you be more efficient. I think it's too early to tell for the offshore workers in the Philippines whether this is going to be a terrible thing for their industry or a good thing for their industry or something in between. Josh, thanks very much for joining us.

19:25Thank you very much, Jason.

19:38All over the world, every year, people move in and out of cities. Some relocate for love or other family reasons. Others are chasing new experiences, a better work-life balance, or the job of their dreams. But let's be realistic. A lot of them are after something rather more fundamental. So people move to a new city usually for one big reason, to increase their wages. Vishnu Padmanabhan is our Asia correspondent. It might seem simple that you choose the place with the highest salaries, but in fact, it's not as straightforward because there are two distinct factors that determine how much of a wage you get in a particular city.

20:25So what are those two factors? How do I choose which place can drive up my wages the most? The first is the people. So cities that attract more skilled people or smarter people will have higher wages because these smarter people, skilled people, turn to earn more wherever they are. And of course, if you have a few high earners in a city, they can pull up the average wage. But that doesn't mean the entire city benefits from that. There's also a place-based effect. So this is when cities benefit from something economists call agglomeration. These are the benefits that you get from having a lot of businesses densely packed next to each other, good transport infrastructure.

21:04So all of these things come together to lift up the wages of everyone. So the average wage in a city is determined basically by both the people and this place-based premium. So Vishnu, if I'm choosing which city to move to, how do I know what type of city it is? How do I differentiate? So research by Gaurav Karna of University of California in San Diego tried to disentangle this effect between place and premium. And their findings were really interesting. They do this by looking at the job histories of 500 million users on LinkedIn. And because they looked at their career moves over time, you can adjust for their talent because you're looking at the same person as they move from city A to city B.

21:45Then you look at the difference in their wages through these moves. And so then after adjusting for the talent, you can look at what the premium they get just from moving cities. And through that exercise, they get an estimate of what we can call a place premium. So what did they actually find? Their findings were quite interesting. They found, for example, within a country, 45 to 73 percent of the wage gap between cities in a country was down to place. Across borders, of course, the gap increases even more. Over 90 % of the wage gap between city and country A and a city and country B is down to the differences in the place.

22:19And so that allows you to calculate the city-based premium between cities. So for example, someone moving from Delhi to London would increase their salary by nearly 300 % just from the differences between the two cities. And so they find different cities at different location premiums. So in their database, they find Vaduz, the capital of Liechtenstein, has the biggest premium. But generally, among the bigger countries, cities in America tend to have the highest premium. It's not that surprising. And these cities tend to be bigger, denser, more industrially diverse places like San Francisco and New York.

22:51And interestingly, all of this is after adjusting for cost of living. But if I'm a worker, how do I know about this so-called place premium? Yes, so if you're a worker, you really don't know what it is, unless, of course, you read the study and go on the Converse website. But in rich countries, actually, it matters less because what happens is the cities with the highest wages also tend to have the highest location premium. But that's actually not the case in poorer countries where this sort of relationship breaks down slightly. So Bangalore is a good example. It's a city where there's a high average wage, which reflects the fact that some people earn a lot in the city and that draws a lot of people to the city.

23:28But in reality, it doesn't have as much as a place-based premium as some of the smaller towns around it. And so for someone who's looking to get the biggest pay bump, they might actually benefit from moving to some of those other places instead of moving to Bangalore. So we've talked about how this affects the lives of workers, but what about the companies in those cities? The study also finds that the same factors that constrain people in cities also hurt firms in these cities. As a result, there's less efficient allocation of employment. So they find fewer productive workers are matched to the more productive firms.

24:07To quantify this, they show how countries would fare if they matched their workers to productive firms the way America does. So if India were to do that, its average wages would rise by 2 % across the entire country. And a similar reshuffling would increase Mexican wages by 5%, Nigerian wages by 8%. And where does any of this get us in practice? In an ideal world, if people could move around the world without border restriction, that would increase wages for everyone. But of course, we can't do that. But one thing that governments can do is to make moving within countries much easier. And this is really true in poorer countries where it's quite hard often to move between cities.

24:45And so governments could do more in terms of establishing transport infrastructure or creating affordable housing so that it's easier for people to move between cities. and the key point here is that increasing wages in one city benefits the whole economy. Vishnu, thank you very much. Thanks for having me.

25:24That's all for this episode of The Intelligence. We'll see you back here tomorrow.

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