How Iran Avoids US Sanctions and Sells Oil with Cryptocurrency?
Date: 2024-10-02 Author: Oliver Abernathy Categories: IN WORLD
Iran and Israel are locked in a tense conflict that escalated on October 1, 2024, when Iran launched about 200 missiles. Israel was able to intercept most of them with its Iron Dome missile defense system, backed up by a number of American warships. The conflict has become even more intense since the assassination of Hezbollah leader Hassan Nasrallah on September 27. With ongoing US sanctions imposed on Iran in 2018 over its nuclear program, Iran has turned to Bitcoin mining as a way to solve its economic woes.
Bitcoin Mining as a Way to Circumvent Sanctions
The process of Bitcoin mining requires significant energy resources to run specialized computers. In exchange, miners earn Bitcoin, which is a boon for Iran, which has abundant oil and gas but is short on cash. Experts estimate that Iran controls about 4.5% of the Bitcoin network, earning hundreds of millions of dollars in the digital currency that can be used for sanctions-restricted purchases.
The policy has already become official for the Iranian government, with think tanks linked to the presidential office reporting plans to use cryptocurrencies to circumvent sanctions.
The Role of Chinese Companies
Iran’s Bitcoin mining industry has also received investment from China, which is the world’s leading mining industry. In July 2019, Iran legalized cryptocurrency mining, requiring miners to obtain licenses and pay higher electricity rates. Despite this, many unlicensed operations continue to operate, sometimes using free electricity from mosques.
Chinese companies are investing in Iranian mining, often with hidden ties to the Iranian military. One such large facility is located in the Rafsanjan Special Economic Zone.
Energy Conversion: From Oil to Cryptocurrency
The energy needs of Iranian miners are impressive. Their operations consume about 600 megawatts of electricity, equivalent to 10 million barrels of crude oil per year. This represents about 4% of Iran’s total oil exports in 2020. Bitcoin mining thus allows Iran to export its energy and circumvent trade sanctions at the same time.
Implications for Financial Institutions
This approach raises serious concerns for financial institutions dealing with cryptocurrencies. Since Iran mines Bitcoin, there is a possibility that 4.5% of any Bitcoin transaction could include fees paid to Iranian miners. This creates a significant risk of sanctions for financial institutions providing cryptocurrency services.
With the possibility of resuming nuclear talks, the position of Bitcoin mining in the Iranian economy could be a key issue for discussion.
Sanctions Risk Management
However, financial institutions can take steps to minimize the risks associated with sanctions. For example, using blockchain analytics tools, deposits from Iranian entities can be identified and prevented. Such approaches will help avoid sanctions violations through their services.
Bitcoin mining in Iran as a way to circumvent sanctions and convert oil into cash highlights how cryptocurrencies are intertwined with international trade restrictions. As the crypto industry continues to evolve, financial institutions must remain vigilant and respond to sanctions risks in a timely manner.
Bitcoin Price Reaction to Iran-Israel Conflict
Iran’s strikes on Israel have caused fears in global markets, causing Bitcoin to fall to $60,000 as investors began to flee to safer assets such as gold and oil. Bitcoin then fell from $64,000 to $60,315 before recovering slightly to $61,800.
A staggering 154,000 traders faced liquidation during the $4,000 drop, resulting in a total loss of $521 million.
