Trump on Monday signed an executive order to impose "hard-hitting" sanctions on Iranian Supreme Leader Ayatollah Ali Khamenei, whom he said was responsible for the "hostile conduct" of the regime.
While the new sanctions aim to deny top Iranian officials access to important financial resources, "the Ayatollah and most of the people closest to him don't really have bank accounts in their names ... in Europe or outside of Iran" that would be hit by the sanctions, said Amos Hochstein, who served as U.S. special envoy for international energy affairs under the Obama administration.
Washington's new sanctions come on the back of tense U.S.-Iran rhetoric after Tehran downed an American military drone last Thursday. The Trump administration has accused Iran of being responsible for a recent attack on six oil tankers in or near the Strait of Hormuz.
However, Washington may be treading into dangerous waters in its Iran policy, Hochstein told CNBC's "Street Signs Asia."
"When (U.S. Secretary of State Mike) Pompeo says that the United States has sanctioned more than 80% of the (Iranian) economy, that's the good news, but it's also the bad news," he added.
"What else do you have to do that will actually have to affect the Iranians' calculus?" Hochstein asked.
The former U.S. special envoy added that he doesn't know what the Trump administration is trying to achieve by unilaterally withdrawing from the Joint Comprehensive Plan of Action (JCPOA), in which Iran had agreed to certain nuclear restrictions with verification and monitoring.
"If now (the Iranians) go back to enriching and raise those levels outside of what was agreed to in the JCPOA — in the Iran deal — what are they in violation of that the United States has not already ripped up?" Hochstein said.
Currently, the American sanctions have "no articulated goal except for 'come back to the negotiating table.' But at the negotiating table, what is supposed to be achieved?" he added.
"There has to be some articulation of real goals, real lampposts that Iran can achieve or commit to, that would allow us to scale some of these back," Hochstein said.
When asked if a military confrontation is possible, Hochstein said it "really depends on what the Iranians' actions are going to be."
Shortly after Hochstein spoke with CNBC, Iranian foreign ministry spokesman Abbas Mousavi said on Twitter that the new U.S. sanctions mark the "permanent closure of the path of diplomacy" between Tehran and Washington."
"Trump's desperate administration is destroying the established international mechanisms for maintaining world peace and security," Mousavi tweeted.