Iran and the use of cryptocurrencies to evade US sanctions

The recent death of the now former president of Iran Ebrahim Raisi, nicknamed “the butcher of Tehran” due to the numerous executions of opponents ordered in the 80s, raises not a few concerns for the future evolution of the cryptocurrency landscape within the country.

Until today, in fact, Iran has been known for exploiting cryptocurrencies in an attempt to evade US regulations and sanctions, and for supporting the growth of the Bitcoin mining industry.

In the Middle East, cryptocurrencies have taken on a particularly important value even for what concerns the daily life of citizens, unable to maintain exchange value after the heavy inflation of the Iranian Rial.

Let’s see how the disappearance of Raisi may have compromised the ongoing scenario and how Iran will face political instability.

The death of President Raisi creates uncertainties for the development of the cryptographic sector in Iran

The unexpected death of President Ebrahim Raisi in Iran, who passed away in a helicopter accident in a mountainous area of the Tabriz region on the border with Azerbaijan, greatly complicates the political and economic landscape of the country, especially concerning the approach to the cryptocurrency sector and the evolution of local regulations.

With an economy already difficult to manage due to increasingly intense US sanctions, the loss of President Raisi could increase the country’s instability by igniting internal conflicts and social pressures.

In the short term, the chaos could directly lead to the interruption of oil supplies, with the country still being the third-largest OPEC exporter in the world, just as happened in the past during the Iranian Revolution of 1979 according to Forbes.

As for Iran’s economic strategy, it is clear that the incident raises questions about the future direction to pursue, particularly on the technological front.

Just a week ago, the pilot program for the enhancement of digital assets and CBDC was approved by the Central Bank of Iran, with the debut scheduled for June 21, marking the beginning of the Iranian calendar month of Tir, but now all plans might be suspended.

Furthermore, being one of the most influential figures in Iranian politics, Raisi’s death not only disrupts the internal dynamics of the nation but also affects its foreign relations and economic strategies, with international regulations likely to become stricter on the country.

What is certain is that its decay, ends an era of repression of dissent, which has seen thousands of political opponents and prisoners of war being brutally sentenced to death and subjected to physical and psychological torture.

As reported by the Washington documents, in 2019 the US Treasury sanctioned Raisi for:

“his administrative supervision over the executions of people who were minors at the time of the crime and for the torture and other cruel, inhuman or degrading treatment or punishment of prisoners in Iran, including amputations” .

The throne of Supreme Leader passes to Alī Ḥoseynī Khāmeneī, a well-known religious politician who held the position of president from 1981 to 1989. 

Iran bypassed US regulations with cryptocurrencies: focus on mining

Iran is famous for having repeatedly bypassed the long-standing sanctions and US regulations, which oppressed the trades and commerce of the Persian Gulf country, thanks to the use of cryptocurrencies.

Western sanctions have been putting Iran’s autonomy to the test for years, damaging oil exports, financial exchanges, and key industries.

To mitigate the negative effects, the country has started trading abroad with P2P crypto exchanges, which do not involve a central banking entity and are therefore exempt from potential international censorship.

As reported by the blockchain analysis company Chainalysis, Iran has been the protagonist of a strong campaign of terrorism financing and drug trade financing precisely thanks to cryptocurrencies, which have allowed free exchange worldwide.

The Iranian Government, noting the positive economic effects for the country, has supported (albeit with ups and downs) the cryptographic industry in the country, approving cryptocurrency mining as a legitimate commercial activity in 2019 and issuing over 1,000 licenses to bring capital into the heavily sanctioned country.

Having become a hub for Bitcoin mining thanks to the very low energy cost, the Middle Eastern nation has followed in the footsteps of Russia, also compromised by the oppressive regulations of the United States.

In any case, we point out how in recent years the Iranian extraction of Bitcoin has been downsized, both due to energy turbulence following advanced illegal extractions, and due to the growth of other international markets.

According to the Cambridge Center for Alternative Finance (CCAF) currently the mining of Bitcoin in Iran represents 0.2% of the supply chain, down 7% since 2021.

We will see how the mining sector will evolve after the death of Raisi, and if this type of market supported to alleviate the unstable internal economic conditions.

Bitcoin as a safe haven in Iran after the increase in inflation

In such a complex context, which sees the political instability due to the death of Raisi compete with the weakening of the economy due to stringent Western regulations, the state currency of Iran can only take the hit.

All these events have led to a significant devaluation of the Iranian Riyal, which has faced heavy waves of inflation, pushing citizens to resort to the use of cryptocurrencies to mitigate the damage.

In particular, Bitcoin, as has happened in the past in other countries such as Nigeria, Argentina, El Salvador, and others, helps the population to maintain economic value by acting as a true safe haven like gold.

Unlike physical gold, it is however more complex to seize as it lives in a cryptographic digital environment, and it has also achieved higher returns in recent years.

As a decentralized digital currency, Bitcoin offers unique attributes that make it an interesting option during periods of geopolitical tension, especially when inflation in a country like Iran exceeds double-digit percentages, risking ruining the sacrifices of millions of inhabitants.

Once again, Bitcoin “fix the problem”!