If you spend enough time in Tehran, you’ll notice a certain type of street scene. A pharmacist who takes saffron instead of money for imported medications. A car parts dealer quotes prices in gold grams instead of rials, then shrugs and dismisses the inquiry. Specifically, these transactions are not desperate. They are commonplace. And economists have begun, a little uneasily, to refer to this practice, which is carried out millions of times throughout a nation whose currency has lost more than nine-tenths of its value in less than ten years, as the barter state.
The concept of sanctions is fairly simple. A nation’s economy will eventually collapse due to the frustration of its own citizens if it is cut off from the dollar, its banks are barred from SWIFT, and its oil exports are restricted. That was the reasoning behind Washington’s decision to back out of the nuclear agreement in 2018, and it was reiterated—albeit with some modifications—to Moscow following 2022 and to Caracas much earlier. The problem is that economies, like rivers, have a tendency to circumvent the challenge. They do not perish. They change.
| Subject | The Barter State — Sanctioned Economies and Currency Collapse |
|---|---|
| Primary case study | Islamic Republic of Iran |
| Trigger event | US withdrawal from the JCPOA, May 2018 |
| Estimated currency depreciation since 2018 | Over 90% against the US dollar |
| Annual inflation (recent) | Consistently above 40% |
| Primary export commodity | Crude oil, condensate and petrochemicals |
| Main destination for discounted oil | China (via intermediaries) |
| Financial workaround systems | Hawala, barter, shadow banking, cryptocurrency |
| Banking system excluded from | SWIFT (Society for Worldwide Interbank Financial Telecommunication) |
| Other economies showing similar patterns | Russia, Venezuela, North Korea |
| Land borders enabling informal trade | Iraq, Turkey, Pakistan, Afghanistan, Armenia |
| Common barter goods at borders | Fuel, food, electronics, construction materials |
| Tracked behaviour at sea | Ship-to-ship transfers, AIS transponder blackouts |
Iran is the cleanest example, in part because it has had more time to adjust. Even though the rial is a joke and inflation is running high, factories continue to operate, universities continue to produce, and engineers are graduating. How? The answer is that an unofficial, decentralized, sometimes criminal, and remarkably resilient parallel infrastructure has emerged alongside the official one. In the Strait of Hormuz, tankers turn off their transponders. A few days later, they reappear off the coast of China carrying oil that appears to have come from somewhere else. The savings are substantial. Billions are being left on the table by Tehran. Money, however, continues to flow.
Observing this unfold, it’s remarkable how antiquated the techniques seem. Hawala networks, which transfer money across borders using a phone call and trust, are centuries older than contemporary banking. The earliest known economic technology is barter. When you take away the hustle and bustle of cryptocurrency wallets and front companies in Dubai, you’re essentially looking at the same arrangement that a merchant in Isfahan might have used four hundred years ago. The only difference is that now the goods being traded are microchips, and blockchain plays a role in enforcing the trust.
Western analysts believe that this type of adaptation has been subtly undervalued. Sanctions are predicated on a counterparty’s continued desire to abide by the rules of the international financial system. It is not necessary for a barter state. It creates its own regulations, finds buyers who are prepared to ignore it, and acknowledges the inefficiency as a necessary cost of maintaining sovereignty. The price is real: a generation of entrepreneurs discovers that opacity is the best business strategy, corruption grows, and regulatory oversight fails. All of that is detrimental to long-term growth. However, it is sufficient for survival.
It’s difficult to ignore the fact that similar patterns are now showing up in other places. A shadow fleet of aging tankers flying convenient flags transports Russian crude. Turkish refineries receive gold from Venezuela. For years, North Korea, the original outcast, has been surreptitiously developing an economy based on cryptocurrency theft and border trade with China. The barter state is no longer of interest. It’s evolving into a category.
Policymakers in Washington and Brussels are reluctantly beginning to publicly question whether sanctions still function as intended. Thus far, the evidence points to something less fulfilling than success or failure. These economies are not destroyed by sanctions. They transform them into something more difficult to observe, quantify, and possibly even fully restore to the light.