New U.S. sanctions against Iran went into effect in early February. The measures aim at severely limiting Iran’s ability to repatriate earnings from oil exports. However, the Iranian government has largely bypassed earlier sanctions by using innovative trade and payment practices. In fact, these sanctions have benefited China and other economic rivals of the United States, argues Behzad Yaghmaian.

Six years into the sanctions regime, mounting economic pressures seem to have failed to halt or slowdown Iran’s nuclear activities. These sanctions first targeted trade related to Iran’s nuclear program. As the pressure failed to produce results, they expanded to other sectors of the Iranian economy.

The Iranian government has managed to utilize ancient trading practices to bypass very modern and sophisticated financial and trade systems.

By 2011, Iran’s petrochemical and oil and gas sectors, along with the country’s entire financial sector, including its central bank, were under sanctions. Those particular sanctions were more effective.

They nearly paralyzed the Iranian economy and impaired the livelihood of ordinary Iranians through soaring prices, business closures, joblessness, nonpayment of wages and salaries and an array of social problems.

The Iranian government, for its part, used creative measures to minimize the effect of the sanctions by going around them. It used pre-modern and outdated methods of trade and money exchange to sustain, albeit at a much lower level, its participation in international trade and exchange. Meanwhile, Iran’s nuclear activities actually escalated.

Iran’s eclectic system of trade and money exchange has one foot in the past and the other in the present. Iran has managed to utilize ancient trading practices to bypass very modern and sophisticated financial and trade systems.

Its success would not have been possible without the new economics of globalization and competition between the dominant global economic blocs. Particularly, Iran tapped into China’s recent economic ascendance and its rivalry with the United States and the European Union. Sanctions have been a boost to China, the main economic rival of the United States.

Barred from the SWIFT system, Iranians have been engaged in barter trade with China, India, Russia and Pakistan. In return for exporting oil to China and India, Iran has been receiving metal cans, cardboard, wheat, soybean meal and other consumer products.

Six years into the sanctions regime, mounting economic pressures seem to have failed to halt or slowdown Iran’s nuclear activities.

For many years now, the Chinese have been trying to elevate the global standing of its currency, the yuan, and break the monopoly of the U.S. dollar as the currency of choice in settling international accounts. Using sanctions to its benefit, the Chinese helped Iran bypass the banking embargo and concluded billions of dollars of trade deals denominated in yuan.

The yuan payments for Iran’s oil exports are deposited into Chinese bank accounts. In return, Iran uses the money to buy washing machines, refrigerators, electronic goods, toys, clothes, cosmetics, toiletries and other consumer goods that dominate the Iranian market.

New and tougher sanctions will only strengthen China’s position. This is a showcase for yuan’s future possibilities as an international currency.

Iranians made similar deals with India, selling oil in return for rupees. Iran receives 45% of its oil sale to India in rupees deposited in India’s state-run UCO Bank. The rest is settled through Indian accounts at the Turkish Halkbank where funds are transferred from Indian to Iranian-owned accounts.

Iranian businesses have also been increasingly relying on an unconventional payment mechanism, using the ancient practice of hawala (an Arabic word for money transfer) through private exchange houses in other countries.

Typically, an Iranian importer would pay a hawaladar (broker) in Dubai in dollars or dirhams. The broker would call a trusted contact in the exporting country, and the contact would pay the exporter in the local currency. The brokers would later settle debts to each other.

Iranian expatriates have been sending large sums of money home through the same unregulated payment networks.

New and tougher sanctions on Iran will only strengthen China’s position. This is a showcase for yuan’s future possibilities as an international currency.

And when all means of payment fail, gold always rises to the top as the universally accepted instrument of settling accounts. Iran has been purchasing large amounts of gold from Turkey in return for petroleum exports.

Turkey makes Turkish lira deposits into accounts owned by NIOC (The Iranian National Oil Company) at Halkbank. Iranians then use the lira to purchase gold. Physical couriers carrying up to 50 kilograms (110 pounds) of gold in their suitcases take Iran’s gold out of Turkey and into Dubai. The gold is then shipped to Iran from Dubai.

Iran’s success in partially bypassing sanctions reveals the complexity of controlling international trade and finance, despite the application of sophisticated and modern monitoring methods. Responding to the most recent U.S. sanctions, the Iranian government announced the creation of a special commission to promote further expansion of barter trade.

There are many willing actors in the world markets that will help Iran achieve that goal.