This is How Iran Has Planned to Circumvent International Sanctions by Mining Cryptocurrencies

Iranian interest in the cryptocurrency mining sector is back again, after difficult economic conditions experienced during the last decade because of the internal economic crises, the conflict with the West escalated due to the Iranian nuclear file, and US and European sanctions which resulted from this.

On September 22, 2021, the ban imposed by the Iranian authorities on cryptocurrency mining will end, after the collapse of the electric power network during the past months as a result of illegal mining inside the country, in a move aimed at circumventing the sanctions imposed on it.

The United States imposes a near-total economic embargo on Iran, including a ban on the export of oil, which accounts for 70% of the country's revenue, in addition to banning the activities of banks and shipping.

 

Bitcoin Mining

The Iranian Presidential Center for Strategic Studies (IRCSS) recommended in a report in January 2021 the use of the cryptocurrency Bitcoin to increase government revenues and circumvent sanctions, according to “Iranware” website.

It stated that “cryptocurrency mining can be profitable in many economic fields. Estimates indicate that if the government enters this field seriously, it can earn two million dollars a day and 700 million dollars a year, in addition, the Iranian government will receive up to $22 million a year as a revenue from Bitcoin transaction fees alone.”

The Iranian Center’s study also indicates that “the shift to the cryptocurrency market and Bitcoin mining in Iran will increase job opportunities, cryptocurrency mining machines have a basic need for electricity, for every megawatt of electricity consumed, about 9 people have a direct job opportunity.”

The study points to the ability of “Bitcoin” in particular to circumvent the sanctions imposed on Iran, because it is not easily traceable, especially the newly mined ones because they are superior to traditional Bitcoin in terms of their use in international exchanges.

However, in May 2021, Iranian President Hassan Rouhani, in a cabinet meeting, announced a four-month ban on cryptocurrency mining activities, because of the huge stumble in the levels of electric power delivery, which reached the point of interruption for whole days in the neighborhoods of the capital, Tehran.

Obtaining cryptocurrencies is through a process that requires large amounts of electrical energy by competing with very powerful computers to solve complex mathematical equations, which is usually produced with fossil fuels, as Iran has abundant resources in this field.

Iran is among the countries with the cheapest electricity prices, which tempts Iranians and investors to mine Bitcoin. 

Whereas, the average kilowatt-hour tariff for household electricity is 80 Tumans ($0.005), the average industrial tariff is 300 Tumans (1.25 cents). As mining 1 Bitcoin consumes 72,000 kilowatts of electricity.

 

Iran's Needs

A “Reuters” report revealed that “in 2019, Iran officially recognized cryptocurrency mining as an industrial and financial discipline to provide cheap electricity for the extraction process and obliging its extractors to sell it to the Central Bank of Iran, which attracted many people from other countries to mine cryptocurrency inside Iran.

The Central Bank of Iran prohibits the trading of Bitcoin and other cryptocurrencies mined abroad, but the coins are widely available on the black market, according to “Reuters”.

On its part, a Blockchain analytics for crypto businesses “Elliptic” submitted a study based on data from Bitcoin miners, which had been collected by the Cambridge Center for Alternative Finance (CCAF) until April 2020. 

It pointed out that “Iran provides the energy needed to extract Bitcoin by allocating a portion of its crude oil that it cannot export, due to the cash it gets in this way, it can partially ease the trade restrictions imposed by the US sanctions.”

The study confirmed that “about 4.5% of all Bitcoin mining takes place in Iran, in this way, Iran earns hundreds of millions of dollars in these coins, which can help import goods from abroad and reduce the impact of international sanctions.”

“The electricity consumed to extract Bitcoin in Iran requires burning 10 million barrels of crude oil a year, that is equivalent to about 4% of Iran's total oil exports in 2020,” according to the study. 

“Therefore, the Iranian government is virtually selling its energy reserves on global markets, using the Bitcoin mining process to circumvent trade sanctions,” the study said.

On her part, Masoumeh Aghapur, a member of the governing board of the Iranian parliament’s Economic Committee, said: “The government should expand the cryptocurrencies infrastructure to bypass sanctions, and increasing its supervision of this type of currency to conduct transactions with other countries and bypass sanctions,” according to “Iranware” website.

 

Circumventing Sanctions

For many years now, the Iranian authorities have continued to use any means possible to circumvent international sanctions to finance the country's dictatorial administration. Such as: smuggling fuel, establishment of front companies, forging identities on the Internet, and finally using cryptocurrencies.

Where observers see that the nature of cryptocurrencies and the mechanisms for trading them constitute an opportunity for governments in general to confront international sanctions. The best proof of this is the Venezuelan experience, which culminated in issuing the “Petro” currency in order to circumvent US sanctions.

However, an article for the “New York Times” newspaper stated that “the Iranian government has been slow to realize the potential for evading potential sanctions for Bitcoin.”

But one of the Iranian officials, Abdolhassan Firouzabadi, recently said that “he is now considering the establishment of exchanges to facilitate the trading of cryptocurrencies,” according to the newspaper.

“Information indicates that the Central Bank of Iran is seriously considering launching an Iranian electronic currency, which will likely be called “Crypto-Rial”, the newspaper stated.

The newspaper also noted that the US Treasury, which is well aware of this threat, said in a statement that “it would prosecute any Iranian companies, exchanges and companies that attempt to exploit cryptocurrencies to help Iran to circumvent sanctions.”

Observers stress that in recent times, Iran is already trying to make cryptocurrency mining a major source of income for the country; but with crackdowns on unlicensed investors to prevent a repetition of the experience of damage to the energy sector in the country.