How Iran Can Use Bitcoin to Avoid US Sanctions

Effective Nov. 4, Trump demands all trade with Iran to cease. Iran can potentially use Bitcoin as a workaround.

In case you missed it, Trump Effectively Declared Economic War on Iran.

Trump is pressuring the world to stop trading with Iran. And starting November 4, Trump will sanction any country or company that does.

The feature image is from Iran Bans 1,300 Imports, Prepares To Resist Threatened US Sanctions.

The order suggests the US sanctions threat is pushing Tehran back towards running a "resistance economy" designed to conserve foreign exchange reserves

The EU announced a "Blocking Statute" that would allow companies to deal with Iran but companies that do so will be cutoff from US markets. And any EU bank that skirts the rules will find it is quickly locked up.

Thus, Trump unilaterally decides sanction policy for most of the world.

However, India, a top Iranian oil importer, announced it Will Not Heed U.S. Sanctions.

This leads to a potential two-part sanction avoidance mechanism.

Sanction Avoidance Part 1

  1. India and or China refuse to honor the sanctions.
  2. Iran accepts payment in Rupees and Yuan.
  3. India and China convert Rupees and Yuan to Bitcoin, Ethereum, EOS, etc.
  4. Iran is paid in cryptos.
  5. Iran converts cryptos to dollars or Euros.

That is only half the puzzle.

Why?

Iran will have hard currency but will have no way to spend it.

Sanction Avoidance Part 2

  1. Iran buys US or Euro denominated goods but needs to get them into the country.
  2. Some country, Pakistan is the best choice, takes delivery of the goods and ships them across its land border to Iran for a fee (cheap oil).
  3. Alternatively, the goods are shipped to India, then Pakistan, then Iran. As another possibility, the goods are sent to China or India and travel by sea to Iran, again for a fee (cheap oil).

India has a trade surplus with the US, complicating matters. But what if India got a huge discount on the price of oil?

If India has oil importers that do little business with the US, then my avoidance idea is solid, at least through part 1.

Part two involves risk of confiscation on sea routes or destruction by drones on the land. Of course, that response from Trump would be an effective declaration of physical war on the countries involved.

Would Trump shut down India, a nuclear power? Pakistan a nuclear power? China, a nuclear power, even if China tells Trump to go to hell?

China Hardball

That last question is interesting. China can in theory demand tariff relief for honoring US sanctions on Iran.

There is obviously a huge risk of this getting out of hand if we start down one of these avoidance paths.

Mike "Mish" Shedlock

Comments (13)
No. 1-13
0123
0123

If so, I bet we'll get to see if the NSA is directed to block or otherwise interfere with distributed ledger traffic/processing and prevent Iran (or a proxy, perhaps in Belgium?) from successfully booking transactions.

2banana
2banana

Mish - you are playing checkers while Trump is playing chess. India is bitter enemies with both China and Pakistan. To the point of fighting some sharp border battles in relatively recent memory. Plus India has a trade surplus of a few billion dollars with America.

You think they are going to risk all that for some discounted oil?

SpiderPig
SpiderPig

I see crypto as being a solid not gonna happen with regards to India at least. The RBI has banned all banks from dealing with crypto exchanges, except for that one bank they are not allowed to regulate. Settling anything in crypto would be inconsistent with their policy I was reading on one more option yesterday. A European bank that does no business with the US begins clearing Iranian payments. There are enough zombies running around that carving one of them up to meet the specifics of the blocking bill could be doable. Iran accepts Euros cleared through that bank and maintains access to Europe at least. All settlements would need to be done through the bank and outside of SWIFT. The Europeans want the deal to remain in place and could do something like this to put egg on Trump's face. Trump would not be able to impose actual sanctions on an EU member without completely isolating the US in every way that actually matters. It would show the Iran sanctions are every bit as enforceable as the Cuban travel ban.

Tengen
Tengen

It's de rigueur to specify how many dimensions are in Trump's chess game on a given day. Is it 5D chess? 9D? Like most mere mortals, I've lost count so clarification would be helpful.

The whole Iran affair is lame. The only thing we can learn from it is the extent to which Riyadh and Tel Aviv are pulling Trump's strings. Maybe he figures if he's pliant enough he'll never find himself or his family hanging upside down, taking lashes like the other billionaires in the Ritz Carlton.

2banana
2banana

Interesting fantasy you have - can you expand? General uprising? Military coup? Kangaroo courts? Hanging minor children too?


"find himself or his family hanging upside down, taking lashes"

thimk
thimk

china is a big exporter of just about everything. They will be happy to supply iran. I think the problem for iran might be food commodities . China has have invested heavily in the country via the belt road initiative, reestablishing the old silk road .oh we need to add russia to the mix.

Tengen
Tengen

Not much of a news connoisseur, are we? Google Riyadh Ritz Carlton and go from there. Remember the billionaire hostag... er, guests? It was in the news for months until their release!

Stuki
Stuki

Not really sure what Bitcoin has got to do with it. Rupees and Yuan may be slightly inferior to USD as foreign reserves, but for the necessary dealings of a single country like Iran over a short to medium term, they are plenty accepted enough. If India, and/or China, doesn't prevent people from trading with Iran, Indians and Chinese will do so. Buying, either locally or abroad, whatever Iran can pay for in Rupees/Yuan....

From a Chinese POV, it's a gift from above, as building a "Chinasphere," of semi-dependent countries (particularly resource rich ones) has been a big push of theirs over the past decade. Heck, like Israel has been to their US counterparts, Iran could even serve well as a place for China's nascent arms makers to get some real life feedback on how their wares are performing...

ReadyKilowatt
ReadyKilowatt

Time to end the dollar-oil relationship. It had a good run when we were producing stuff, but now really only benefits farmers and Washington while bankrupting the rest of us. And of course creates an incredible risk for war in an area we have no business policing.

2banana
2banana

Except you are talking about the President of the United States. So please expand on your fantasy - how does the President of the United States and his family (to include minor children) find themselves hanging upside down being whipped?

I am confused - How would that happen?

Tengen
Tengen

See, if we just keep talking past each other, this gets nowhere. You didn't recognize a big news story, then keep insisting that I have a "fantasy". I've got news for you: Trump, Obama, and the rest don't care about you or me. We're a drop in the bucket of America, Inc.

It's in your interest to look past partisan biases, take a deep breath, and acknowledge the reality that US politics are a joke. Even if they weren't, we're so financially cooked that it wouldn't matter. All that you, me, or any of us can do is keep an eye on the Fed, make sure your affairs are in order, and ride this decline out the best you can.