US-Israel conflict accelerates erosion of Iran sanctions regime through alternative finance

The ongoing conflict between the United States and Israel is intensifying the erosion of the US sanctions regime against Iran by driving a rapid expansion in the use of alternative financial mechanisms. Sanctioned entities are increasingly bypassing dollar-based trade using cryptocurrency, the renminbi, informal hawala networks, and barter arrangements. This shift is effectively internationalising Iran's evasion infrastructure, creating an axis of evasion that undermines the dollar's hegemonic role as a tool of Western geopolitical leverage.

Data indicates that cryptocurrency flows to sanctioned Iranian entities rose 694 per cent in 2025, reaching a record $154bn. In the final quarter of the year alone, the Islamic Revolutionary Guard Corps accounted for 50 per cent of this value, receiving $3bn. Iran converts these cryptocurrency holdings into renminbi, which is then used to purchase Russian goods or conduct trade across Asian markets, embedding itself further into an alternative financial architecture that strengthens the renminbi.

Following Tehran's control of the Strait of Hormuz, transit tolls are being demanded from vessels navigating the strait. These fees, typically starting at $1 per barrel, are payable in Bitcoin or renminbi, and reports indicate that a number of vessels and companies have already paid. Unlike stablecoins such as USDT, Bitcoin is fully decentralised and cannot be frozen by any issuer, offering a distinct advantage for bypassing financial blockades.

The use of the renminbi is also significant as other nations increasingly adopt it to bypass dollar dependence, a trend accelerated by the geopolitical risks of US secondary sanctions. While China remains the largest buyer of Iranian oil, the toll mechanism is particularly significant in encouraging more companies to use the renminbi precisely because it has made the costs of dollar dependence impossible to ignore.

Beneath the on-chain economy lies a more informal but equally significant set of mechanisms, including hawala networks and barter arrangements, that the war and blockade may push further into the mainstream of regional and global trade. Hawala operates through a network of brokers who enable payments in different locations without the physical movement of money, often using shell companies to facilitate transactions on behalf of Iranian entities without directly linking deals to Iran.

Barter agreements are expanding, including oil-for-tea deals with Sri Lanka, oil-for-rice swaps with India, and industrial goods exchanges with Russia. Each of these bypasses conventional banking channels, removing exposure to secondary sanctions and dollar-denominated settlement. The war is likely to enhance the appeal of these existing arrangements and attract a wider range of regional and global actors.

Nevertheless, dollar dominance is unlikely to unravel overnight. Approximately 80 per cent of global oil transactions remain dollar-settled, and the currency still comprises about 57 per cent of global foreign exchange reserves, compared to just 2 per cent for the renminbi. What the US-Israel war is accelerating is not immediate substitution but gradual erosion, a slow-motion shift whose endpoint remains uncertain but whose direction is increasingly difficult to reverse.