How the US-Israeli War on Iran is Backfiring by Undermining Sanctions

For years, experts have warned that sanctions often fail to topple regimes and instead punish ordinary citizens. Yet the US has doubled down on sanctions as its primary tool against Iran. Now, the US-Israeli war on Iran is exposing the limits of this approach and pushing Iran deeper into alternative financial ecosystems that evade US control.

The US sanctions rely heavily on the dollar’s dominance in global trade. By cutting off dollar-based transactions, the US aims to strangle Iran’s economy. But Iran has adapted, increasingly turning to cryptocurrency for financial flows. According to blockchain data from Chainanalysis, cryptocurrency transfers to sanctioned Iranian entities surged 694 percent in 2025, hitting a record $154 billion. The Islamic Revolutionary Guard Corps alone received $3 billion in crypto in the last quarter.

Iran converts these crypto holdings into Chinese renminbi to fund trade with Russia and other Asian markets. This process embeds Iran further into a financial architecture that sidelines the dollar and boosts China’s currency. The war has also led Iran to demand transit fees in Bitcoin or renminbi for vessels passing through the strategically vital Strait of Hormuz, signaling a growing acceptance of non-dollar payments.

Beyond cryptocurrencies and renminbi, Iran exploits informal transfer systems like hawala, which operate through networks of brokers enabling cross-border payments without moving physical money. These networks, often involving shell companies, allow Iran to continue trade while masking its involvement, recruiting regional economies into sanction evasion.

Barter deals further circumvent sanctions. Iran has struck agreements to repay debts with goods such as tea or rice, sidestepping dollar-denominated banking channels and secondary US sanctions. These mechanisms are expanding amid the conflict, drawing more countries into Iran’s orbit.

The US-Israeli war on Iran is thus accelerating the collapse of the sanctions regime by encouraging the proliferation of alternative financial systems and deepening Iran’s integration with non-Western economies. This undermines US geopolitical leverage and highlights the futility of sanctions as a blunt instrument of foreign policy. The conflict’s fallout is not just regional but a global shift challenging the dollar’s supremacy and US economic power.