Cryptocurrencies to evade U.S. sanctions and the yuan as an alternative payment system. These are some of Tehran’s options to avoid being “strangled” by the United States, which launched “Operation Economic Outcast” to pressure Iran financially and try to force concessions to end the conflict in the Middle East.
Washington has warned world leaders to stop doing business with Iran and has threatened to exclude from the U.S. financial system any companies that continue to trade with Tehran. At the same time, the United States is imposing a blockade on Iranian ports, choking off the regime’s main source of funding. But will it be enough? The Wall Street Journal notes that Iran has spent years building a complex, covert system for selling oil and conducting clandestine banking operations, hoping it can sustain its economy and armed forces long enough to withstand the economic offensive. There are numerous ways Tehran seeks to reduce U.S. pressure.
Tehran’s plan: from oil barrels to the yuan and cryptocurrencies
The U.S. naval blockade of Iranian ports, the U.S. financial daily notes, has cut Iran’s oil exports—its main revenue source—almost to zero. Tehran still holds millions of barrels stored offshore, mainly in waters near Malaysia. China buys over 80% of Iran’s oil exports and, despite the blockade limiting deliveries, data firm Kpler reported that Beijing imported more than 500,000 barrels per day so far in August. These supplies rely on an elaborate ship-to-ship transfer system in which sanctioned tankers transfer crude to other vessels in international waters off Malaysia to conceal the origin. The ships then carry the cargo to China, where the imports are recorded as non-Iranian. Vessel-monitoring firm Vortexa estimates Iran has about 80 million barrels of crude stored on tankers in Asian waters, representing potential revenues worth billions of dollars for Tehran.
The Chinese currency also provides an alternative for financial transactions. U.S. sanctions generally aim to cut targeted countries out of the American financial system, rendering them economic pariahs and threatening companies that trade with them. However, sanctions are less effective if adversary states avoid the U.S. financial system and the dollar entirely. Iran sells most of its oil to China, including roughly $6 billion during a brief summer truce with the United States, and those transactions are increasingly financed in Chinese yuan. Iran then uses yuan to buy goods and services from China or barters oil in exchange for Chinese-built infrastructure inside Iran. Such transactions evade U.S. oversight and mitigate the impact of American sanctions.
The yuan is not the only alternative. Iran also uses cryptocurrencies to sidestep U.S. controls. “Iran’s cryptocurrency ecosystem,” the WSJ writes, “has expanded rapidly in recent years as sanctions limited the regime’s access to traditional currencies like the U.S. dollar.” Researchers say the Iranian regime has used billions of dollars in cryptocurrencies for trade and to purchase weapons and raw materials. The Islamic Revolutionary Guard Corps has reportedly used crypto exchanges to receive payments from oil sales, particularly from China. In response, Washington sanctioned Iranian crypto exchanges and seized over $1 billion in digital currency tied to Iran, making transfers through these channels harder and more expensive. But policing the market is difficult because much of the sector is unregulated and transactions can be anonymous. According to researchers, the Iranian platforms sanctioned by Washington are only the most visible nodes in a much larger network.
Shell companies also help Iran access dollars. Western officials say Iran still needs U.S. dollars and other currencies to buy goods and weapons and to move money to its allies in the Middle East, such as Hezbollah and the Houthis. The WSJ reports that Tehran runs a network of shell companies in financial centers like Hong Kong and Dubai, operated by Iranian currency traders. These firms convert proceeds from oil sales and other exports into currencies such as dollars, euros, and UAE dirhams. The U.S. Treasury has used sanctions to target companies and individuals involved in this system, but it is a cat-and-mouse game: when Washington sanctions one cover company, Tehran creates another. Moreover, many jurisdictions have been reluctant to disrupt the Iranian network.
Iran’s clandestine system also allows Tehran to procure materials used to produce drones, ballistic missiles, and other weapons, mainly from Chinese companies that sometimes do not know the final buyer. Even when Chinese suppliers are aware the materials are destined for Iran, they are often too small to be concerned about U.S. sanctions or are already disconnected from the global financial system. For example, the Iranian Shahed attack drone, which contains Chinese components, has posed a threat to U.S. allies and helped erode America’s military advantage.
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