Is Iran’s Economy Surviving with Crypto?

About one and a half months have passed since the start of the US-Iran war. Still, Iran’s economy has not collapsed; it has survived.

This country had been under comprehensive sanctions imposed by the USA and some other countries and world bodies for the last decade and longer even before the start of this on-going crisis.

Comprehensive sanctions are the most stringent form of restriction applied by OFAC (Office of Foreign Assets Control), a wing of the US Treasury Department, to cut the country off from the US financial system. When any country is placed under the comprehensive sanctions, it does not have any option to conduct cross-border trade or transactions by using the US dollar.

So, any country placed under this restriction faces difficulties in keeping their economy running. But Iran, despite being under the comprehensive sanctions, has survived well and kept its economy afloat.

As soon as the US and Israel jointly started attacking Iran this time, people thought that Iran’s economy would collapse, which did not happen. One of the reasons that helped Iran’s economy survive the impact of war and sanctions is believed to be the use of cryptocurrency.

According to media reports, as the war broke out, Iran decided to realise transit tolls in cryptocurrency from the oil tankers that pass through the Strait of Hormuz, which may help Iran’s crypto market grow significantly. In fact, the use of digital tokens has enabled the Iranian authorities to continue transactions outside of the mainstream financial system. US media has reported, quoting one spokesperson of Iran’s Oil, Gas and Petrochemical Products Exporters’ Union, that Iran is collecting a tariff of $1 per barrel of oil for tankers passing the key shipping lanes and wants to receive the payment in cryptocurrency to ensure that they cannot be traced or confiscated because of sanctions. One professional bitcoin trader has reportedly commented that the IRGC (Islamic Revolutionary Guard Corps) has been one of the most active users of Iran’s cryptocurrency market.

As per media reports, Iran’s crypto market has grown rapidly in recent times and already reached the market size of $7.8 billion when the country has been severely struggling with currency devaluation and stringent sanctions imposed by the USA and other countries. Some industry analysts have opined that Iranian authorities have used billions of dollars in cryptocurrencies to conduct trades, purchasing commodities and building a reserve fund. Because of the rising use of crypto in Iran, these digital tokens have immensely helped the Iranian people meet their financial obligations and make payments for their everyday expenses, as they have been scrambling hard to survive high inflation and the depletion of their own currency, the rial. The situation in Iran is almost like Venezuela, where stablecoin, tether, has been used as a means for the state-run oil industry to evade sanctions and keep the Venezuelan people surviving against the rapid devaluing of their own currency.

It is obvious that for any country under the hardest sanctions, they have advantages in carrying out cross-border transactions through cryptocurrency. As learnt from a media report, one analyst in the field of crypto and intelligence has said, “In any comprehensively sanctioned jurisdiction, crypto is useful." He has further commented, “It is very easy to settle cross-border trades and transactions. It is fast; it is relatively easy to obtain, given the vibrant crypto atmosphere in Iran." Iran’s decision on collecting transit toll in cryptocurrency suggests that crypto operation is directly supported from the government level. Bitcoin is not the only cryptocurrency being overtly and covertly transacted in Iran, as there are other digital tokens in use, which are also on the list of active crypto trading in the Iranian crypto market. The central bank of Iran has reportedly acquired a substantial amount of the digital token tether, which is known as the world’s largest stablecoin pegged to the US dollar. The underlying objective of building a significant amount of digital tokens is to keep the intrinsic value of domestic currency up and settle international trade by bypassing the involvement of the US dollar. 

How the Iranian government’s decision to realise toll from oil tankers passing through the Strait of Hormuz will be enforced has not been made clear yet. Some crypto experts have opined that it would not be easy for shipping companies to obtain a large amount of digital tokens and then transfer them to the Iranian authority through complex processes and under stringent surveillance, because buying, retaining and transferring digital tokens of large value and frequent nature may pose serious operational challenges. Besides, US regulators and watchdogs will not sit idle, allowing Iran’s authority to channel an enormous amount of transactions in digital tokens; rather, they will try to resist and limit the flow of crypto in and out of the Iranian cryptocurrency market by applying various regulatory tools and intensifying the screening process. According to some media reports, US regulators are already in action, and OFAC has sanctioned two UK-based crypto exchanges, Zedex and Zedxion, in an allegation of facilitating about a $1 billion transaction having a connection with the IRGC.

Needless to say, the US will try to restrict the use of cryptocurrency for settling cross-border trade and payment, but the measure may not work like the US dollar because the cryptocurrency market has already taken global shape, including in Iran, where there is a crypto exchange. Moreover, cryptocurrency is not as well regulated as the US dollar. So, digital tokens have become Iran’s economic lifeline during wartime. Cryptocurrency, which has been created and developed in the USA without regulation, has counteracted and thus helped Iran’s economy survive.