US-Israel War Accelerates Erosion of Sanctions on Iran

For years, experts in political science and sociology have argued that economic sanctions often fail to achieve their intended goals. Rather than forcing political change, they tend to harm civilian populations while leaving governments largely intact. Despite this, sanctions have remained a central tool of foreign policy, particularly for the United States. However, the ongoing US-Israel war on Iran is exposing the growing limitations of this strategy.

The conflict is accelerating a shift away from traditional financial systems that underpin sanctions enforcement. One of the key foundations of US sanctions is the dominance of the US dollar in global trade. Since most international transactions are processed in dollars, restricting access to the currency can effectively block trade. But this system is now facing increasing challenges.

Iran and its partners have expanded the use of alternative financial tools, including cryptocurrencies. Digital currencies allow transactions to bypass traditional banking systems, making them harder to monitor or restrict. Reports indicate a sharp rise in cryptocurrency flows involving sanctioned entities, reaching record levels in recent years. Iran has also been converting these digital assets into other currencies, such as the Chinese renminbi, to facilitate trade with countries across Asia.

The growing use of the renminbi reflects a broader trend toward de-dollarisation. China, as a major buyer of Iranian oil, already conducts transactions in its own currency. Other countries are increasingly following suit, reducing their reliance on the dollar and limiting the reach of US sanctions.

In addition to digital currencies, informal financial systems are playing a crucial role. Networks like hawala, which operate through trusted intermediaries rather than formal banking channels, have become essential tools for moving money across borders. These systems allow businesses to continue trading without direct financial links to sanctioned entities, making enforcement more difficult.

Barter arrangements are also gaining traction. Countries are increasingly exchanging goods directly instead of using money, avoiding exposure to sanctions altogether. Past agreements, such as trading commodities like tea or agricultural products in place of cash payments, highlight how such systems can function effectively. The current conflict is likely to expand these practices further, drawing in more regional and global participants.

Control over strategic trade routes is another factor reshaping the economic landscape. Iran’s influence over the Strait of Hormuz, a critical passage for global energy supplies, has added a new dimension. By imposing transit-related conditions and accepting alternative forms of payment, Iran is reinforcing non-dollar trade systems and encouraging wider adoption.

Despite these shifts, the dominance of the US dollar is not expected to disappear overnight. A large majority of global oil transactions still rely on the dollar, and it remains the leading reserve currency worldwide. However, the trend is clear: the foundations of the sanctions system are gradually weakening.

The war has unintentionally encouraged the development of a parallel economic network that operates outside traditional Western-controlled systems. Instead of isolating Iran, these dynamics are integrating it more deeply into alternative global trade structures.

This evolving situation highlights a broader paradox. Efforts to pressure Iran through sanctions and conflict may be contributing to the very outcome they seek to prevent the erosion of the global financial order that gives those sanctions their power.