Sanctioned Iran turns to crypto to facilitate international trade

Iran’s semi-official news agency Tasnim reported on Tuesday that the country just made its first official import order using unspecified cryptocurrency.

An image of Bitcoin coin on Iranian Rial banknote.

“This week, the first official import order valued at 10 million dollars was successfully registered using cryptocurrencies,” Alireza Peyman-Pak, the head of the country’s Trade Promotion Organization (TPO), wrote on Twitter. According to the official, the use of crypto and smart contracts will be widespread in foreign trade with target countries by the end of September.

Peyman-Pak didn’t specify which cryptocurrency was used in the transaction, nor did he say who Iran was transacting with.

Until February this year, Iran has been the world’s most sanctioned nation, as its economic ties with the West were practically severed and it had to look for alternative markets. Most of its imports the country now gets from China, the United Arab Emirates (UAE), India, and Turkey. And the top destinations for Iranian exports are China, Iraq, UAE, Afghanistan, and South Korea, Trading Economics data shows.

However, to facilitate trade with new partners, Iran needed an efficient banking system. And that was quite a challenge for a country that saw its financial sector cut off from the rest of the global economy. That was when Iran started eyeing crypto as an alternative medium of exchange for settling international transactions.

In 2017, the Iranian government started developing infrastructure to use Bitcoin and other cryptocurrencies inside the country. In 2019, the country started issuing mining licenses to authorized crypto miners, who quickly captured a significant share of the global Bitcoin mining market due to Iran’s cheap electricity.

According to the 2021 report by blockchain analytics firm Elliptic, 4.5% of all Bitcoin mining takes place in Iran, allowing the country to pay for imports and circumvent the oil embargo. Such a share can generate close to $1 billion in annualized revenues.

“The prospect of cheap power for Bitcoin mining has attracted significant inward investment, particularly from China, a leader in the industry. Several Chinese businesses have been granted mining licenses and have established operations in the country,” the report reads. “These companies have described establishing good relationships with “the army in Iran”, and one particularly large facility in the Rafsanjan Special Economic Zone was reportedly built in collaboration with a “military organization”.”

At the beginning of the year, Russia overtook Iran as the most sanctioned nation following its invasion of Ukraine. Similar economic hardships facilitated closer relationships between the two pariah states. In April, Russia and Iran signed an agreement to expand economic cooperation, clearing a path for the free movement of goods through a common Caspian Sea border. At the same time, Russia started its own experiments with cryptocurrencies, developing a blockchain-based alternative to SWIFT, designed to facilitate transactions in national fiat currencies.

Given Russia’s interest in cryptocurrencies and close ties with Iran, there’s a chance that it was the recipient of the announced $10 million crypto transaction. Very big, if true, this may indicate the birth of an alternative economic system independent of transnational institutions, with profound implications for global politics.