In an effort to navigate around the stringent economic sanctions imposed by the United States and international bodies, Iran has increasingly turned to gold as a financial lifeline.
Since as early as 2012, Iran has actively used gold to bypass sanctions, particularly through trade with Turkey. Iran paid for energy imports with Turkish lira, which was then converted into gold to avoid restrictions on dollar transactions.
This became evident when billions of dollars worth of gold were imported from Turkey after Iran’s exclusion from the global SWIFT banking system.
Iran has significantly increased its gold imports in 2024.
Reports indicate that the country imported over 43 tons of gold bullion in the first half of the current Iranian calendar year, valued at around USD$2.5 billion. This surge is part of a broader trend, as noted by the Islamic Republic of Iran Customs Administration (IRICA), which also highlighted the import of 12.26 tons of gold bullion worth USD$779 million between March 21 and June 22, 2024
This increase suggests Iran continues to use gold strategically to cushion its economy against sanctions.
This strategy raises questions about the effectiveness of sanctions as a tool to economically isolate Iran. It highlights the adaptability of sanctioned economies in finding alternative financial channels, part of a larger global trend where countries facing Western sanctions are increasingly turning to gold and non-dollar assets. However, this approach also risks further diplomatic tensions, as it directly challenges international sanction regimes and could invite legal consequences.
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Gold is perfect for sanction evasion
Iran is not alone in this shift towards gold; other countries, like Saudi Arabia, have also been quietly amassing gold reserves, reflecting a broader global trend of diversifying away from the dollar to hedge against economic uncertainties or future sanctions.
Gold serves as an effective tool for sanction evasion due to its physical nature, which bypasses electronic financial systems where sanctions are easier to enforce. Iran has used complex logistics, such as physically transporting gold, and has settled bilateral trade agreements in local currencies, often using gold to balance these trades.
By importing gold, Iran maintains a universally accepted asset, stabilizing its economy under sanctions by supporting both internal economic transactions and international trade with select partners.
Iran’s surge in gold imports could signal increased demand for gold globally, which may positively impact gold miners.
Iran has a long history of using gold in international transactions, often to circumvent restrictions on currency flows. In February, a hacking group exposed documents from Tondar Sahra, a company involved in drone technology and reportedly linked to the Islamic Republic’s military.
The hacked documents revealed that Russia paid Iran approximately USD$1.75 billion for Shahed-136 drones, with part of the payment made in several tons of gold ingots.
The leaked files also detailed the establishment of a production line in Russia for these drones, set up by Alabuga Special Economic Zone, a Russian state-backed entity. This arrangement enables Russia to manufacture Shahed drones domestically, reducing costs and dependence on imports from Iran.
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Sanction evasion activities could push up demand
The country’s efforts to use gold as a hedge against sanctions and economic instability could push up demand for physical gold, tightening supply and potentially driving prices higher. This trend is also reflective of a broader global shift towards non-dollar assets like gold, especially in regions facing economic uncertainty or sanctions.
For gold miners, these dynamics create an opportunity for growth in both production and profitability, as rising gold prices typically enhance margins. Additionally, miners operating in politically stable regions may become more attractive to investors seeking secure gold sources amidst the geopolitical turmoil influencing nations like Iran.
Technology has also arisen to offer more options than gold now.
The BRICS-based payment system, known as BRICS Pay, represents a strategic move by Brazil, Russia, India, China, South Africa, and new members like Iran, Egypt, Ethiopia, and the United Arab Emirates to establish an independent financial infrastructure.
This system facilitates cross-border transactions among member nations using blockchain technology and digital currencies, aiming to reduce reliance on traditional Western financial systems, particularly the dominance of the US dollar.
One of BRICS Pay’s primary purposes is to foster financial integration and economic stability among the BRICS nations by allowing transactions in local currencies. This initiative supports broader de-dollarization efforts, which seek to mitigate the risks associated with dollar dependency, such as currency fluctuations and economic sanctions.
By implementing a blockchain-based system, BRICS Pay offers secure, cost-effective, and swift transaction options, bypassing the need for intermediary currencies like the dollar.
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joseph@mugglehead.com
