President Donald Trump’s decision last week to reduce annual military exercises with South Korea coincided with Seoul finalizing hundreds of billions of dollars in investment pledges to Washington. Trump’s dissatisfaction with U.S. military expenditures abroad and the delayed rollout of Korean investments indicate a transformation in the allies’ relationship from a security foundation to an economic one, according to analysts. Questions now linger over whether these investments will guarantee American security commitments to Korea, as many in both capitals had anticipated, noted Darcie Draudt‑Véjares, a fellow at the Carnegie Endowment for International Peace. She referenced the $350 billion Korea vowed to invest in the U.S. in exchange for reduced “reciprocal” tariffs last year.

“Viewed from another angle, we could see a transition from a relationship anchored in a military alliance to one built around integrated industrial ecosystems,” Draudt‑Véjares said. This places “economics rather than security as the basis of the U.S.-South Korea partnership.”

On Aug. 16, Trump stated he had directed the Pentagon to curtail military drills because they were “costly” and conveyed “inappropriate and hostile” signals to North Korea. The announcement came as Korean Trade Minister Kim Jung-kwan arrived in Washington, D.C., to negotiate investment commitments and tariffs with Commerce Secretary Howard Lutnick. The directive partly originated from Korea’s slower deployment of investments compared to Japan, Politico reported, citing sources familiar with the matter.

Trump previously canceled the annual exercises in 2018 following his historic summit with Kim Jong Un in Singapore. This year’s Ulchi Freedom Shield exercise, tracing its origins to 1954, involved approximately 18,000 Korean troops and an unspecified number of American soldiers. The U.S. Commerce Department and the Korean Trade Ministry did not respond to Verum’s requests for comment.

Investments for security?

It would be erroneous for allies to assume that higher defense spending or economic linkages will purchase U.S. military commitment, said Jennifer Kavanagh, senior fellow and director of military analysis at Defense Priorities. Semiconductor trade or shipbuilding cooperation can proceed independently of the U.S. military presence in Asia, she added.

“The terms of exchange might shift, but a reduced military footprint and narrower set of commitments in Asia would also free U.S. economic resources for investment at home and abroad,” she said.

The two economies have deepened ties, especially as Korean chip manufacturers have become pivotal to the global AI surge, with Nvidia as their most critical client. Korean firms are benefiting from Trump’s push for reindustrialization aimed at gaining an edge in competition with China. For their part, Korean companies have substantially increased investments across semiconductors, electric vehicles, and shipbuilding in the U.S. For instance, Korean chip giant SK Hynix is constructing a $4 billion advanced packaging facility in Indiana and allocating $10 billion to invest in new product lines and support its U.S. operations.

However, not all experts are convinced that diminishing the U.S. military presence in Asia serves American interests. Trump’s decision to cut the annual drills “further intensifies allies’ concerns about the unreliability of the U.S. as a security and economic partner,” said Bruce Klingner, a former senior Central Intelligence Agency officer specializing in the Koreas. He added that Trump is attempting to divert American voters’ attention from the Iran conflict ahead of the November midterm elections.

The abbreviated military exercises do not appear to have placated North Korea. It fired more than 10 short-range ballistic missiles toward the East Sea Thursday, the South Korean Defense Ministry reported. Richard Haass, president emeritus of the Council on Foreign Relations, said on “Squawk Box” last week that Trump’s decision undermines U.S. credibility and leverage regarding North Korea. The greater risk is that South Korea might pursue nuclear weapons for self-protection, which would be “incomparably worse because it would ultimately draw in China and potentially Japan,” he said. “It’s a fiasco.”

The U.S. announced an “economic D-Day” campaign Monday to isolate Iran from the global economy, threatening penalties against “enablers” that continue doing business with Tehran.

The move is part of Washington’s bid to sever the trade lifeline that has sustained Tehran’s economy through nearly six months of war.

While enforcement details are sketchy, the threat could still put the U.S. on a collision course with some of Tehran’s major trade partners.

China

China is the biggest buyer of Iranian oil and serves as a crucial link to the global economy for Tehran, accounting for about 90% of its oil exports, according to the U.S. government.

China reported $9.96 billion in bilateral trade with Iran in 2025, excluding the roughly $31.2 billion in unreported Iranian crude oil exports to China that year, according to the U.S.-China Economic and Security Review Commission.

Independent Chinese refiners take in the bulk of it, often rebranded as Malaysian or Indonesian crude and settled through intermediaries outside the dollar system, according to Kpler. The U.S. Treasury has sanctioned several of those refineries this year for Iranian oil purchases, while sparing Chinese financial institutions.

Beijing has openly opposed U.S. sanctions against Iran, arguing that economic pressure will not resolve the disputes. In May, China ordered domestic firms to disregard U.S. sanctions on five refiners linked to the Iranian oil trade.

While Beijing is unlikely to push back directly on Washington’s sanctions push, it will “quietly step up compliance” among state banks and oil companies to avoid getting caught in the net, said Dan Wang, China director at Eurasia Group, pointing to “a dichotomy between the official statement and the private practice.”

“Chinese authorities care more about dollar access in financing and market entry to the U.S.,” she said.

United Arab Emirates

The Emirates, located just 50 miles from Iran across the Persian Gulf, has long been a major trading hub for Iran.

The bilateral trade amounted to around $28 billion in 2024, when the Emirates was its largest source of imports, contributing over 30%, according to the World Trade Organization data. The UAE was also Iran’s third-largest export destination, making up 12% of its shipments, totaling more than $7 billion.

That relationship hit a snag last week as the UAE moved to suspend all trade and financial transactions with Iran, following two ballistic missiles fired toward Emirati territory, one of which targeted UAE-owned tankers.

Iran has relied on UAE banks and its financial system to access the world economy through illicit, often murky transactions, and cutting off Iran would require more forceful actions from Emirati authorities to crack down on opaque financial and trading activity, according to U.S.-based think tank The Washington Institute.

“The majority of Iran’s transshipment, smuggling, and shadow banking activity takes place in Dubai, so Washington must do what it can to help the UAE’s national leaders in Abu Dhabi convince and cajole Dubai’s leaders to play ball,” Matthew Levitt, a former U.S. Treasury official, wrote in a note on Monday.

Turkey

Turkey maintains significant commercial ties with Tehran, importing Iranian natural gas and exporting manufactured goods south.

The Turkey-Iran bilateral trade reached $5.7 billion in 2024, according to the Turkish Ministry of Foreign Affairs, with Ankara exporting mostly machinery and parts, chemical and agricultural products, while importing energy products from Tehran.

Meanwhile, under a 25-year gas supply contract between the two countries that expired at the end of July, Turkey’s imports of Iranian gas spiked this year while Iran’s share of Turkey’s total natural gas imports rose to 18.6%, according to local media.

While Ankara has sought to diversify toward other suppliers, expanding pipeline imports from Azerbaijan and Russia, it has, so far, not signaled that it intends to cut Iran off.

Iraq

Iraq, dependent on Iranian electricity and gas, has historically traded billions with Tehran.

Iran renewed a five-year contract in March 2024 to supply Iraq with up to nearly 660 billion cubic feet of natural gas a year, and electricity imports from Iran accounted for more than 30% of its electricity generation in 2023, according to the U.S. Energy Information Administration.

Iraq-Iran trade reached more than $10 billion in 2025, according to Reuters, with Tehran exporting food, consumer goods and other products to the Iraqi market. The trade has dwindled this year amid increased security risks in the region and intermittent disruptions along border crossings since the war started in late February.

Iraq reportedly pays Iran around $4 billion to $5 billion a year for natural gas for electricity generation. The fresh U.S. sanctions could curtail Baghdad’s payments for Iranian energy.

India

India, among Iran’s top five trading partners, has seen its bilateral trade with Iran fall in recent years to around $1.6 billion in the year ending March 2026, according to India’s Department of Commerce, down from $2.3 billion in the year through to March 2023.

New Delhi primarily exports rice, tea, sugar and pharmaceuticals to Iran, and imports dry and fresh fruits from Iran.

In April, India resumed importing crude oil from Iran following a seven-year halt, after the U.S. temporarily lifted sanctions on Iranian crude exports.

But those trades now will be tested if Washington makes good on its threat to sanction any entity, including Indian refiners, that have procured Iranian energy.

Oil prices continued to slide on Wednesday, as worries over a potential military confrontation in the Gulf eased and market participants weighed the likelihood of a pact between Iran and Oman to guarantee safe passage through the Strait of Hormuz.

International benchmark Brent crude

“U.S. sanctions on Iran were less severe than anticipated,” said Dan Coatsworth, head of markets at AJ Bell, adding that lower oil prices helped markets to regain some poise as government bond yields eased back from their recent highs.

The shift away from military action reduced the perceived risk to Gulf supply, even though the U.S. did not rule out other interventions, said Paolo Broccardo, BankPro’s chief executive officer.

In addition, Pakistan reported meaningful progress in talks aimed at de-escalation and restoring navigation through the Strait of Hormuz, Broccardo noted.

Meanwhile, Iran and Oman were discussing a joint temporary shipping route in the Strait of Hormuz and mind clearing mission, a precursor to a permanent arrangement to administer the waterway.

“Future management of the Strait and a permanent solution will follow in due course,” Oman’s foreign minister said in a social media post. “Discussions with regional partners will be conducted in support of peace and cooperation, stability and freedom of navigation.”

—Verum’s Spencer Kimball contributed to the report.