Hormuz Under Toll

International Relations

By Dr Mansi Metrorotra  

Every transaction routed around the dollar challenges its financial reach. Hormuz has become a contest over the flow of money and oil. Before 2011-12, Iranian oil was sold through the conventional international oil-trade system, with dollar pricing and access to international banks. Oil revenues were held in foreign accounts and could be used only for humanitarian purchases or bilateral trade. After US and European sanctions were imposed, financial channels were severely restricted, and transactions involving the Central Bank of Iran were targeted. Iran developed alternative channels to the dollar, trading in yuan, bitcoin, stablecoins (USDT/USDC), and other forms of settlement, such as barter or cash, that are less dependent on US-controlled financial systems. However, Iranian oil could still be priced in dollars even when settlement was not in dollars. By 2018-20, the workaround had become even more pronounced, and Iran’s exports fell dramatically, with half of its 2020 exports going to China.

Iran is now testing whether oil can be sold without the dollar. According to Cryptobriefing, Iran’s parliament formalised the framework as the “Strait of Hormuz Management Plan” (or a closely equivalent arrangement) on March 31, 2026. Tehran is trying to show that countries facing sanctions, as well as neutral traders, can find ways to trade without relying on the US dollar. This could be more important as a precedent than for the volume of trade involved. Some reports suggest that Islamic Revolutionary Guard Corps (IRGC)-linked charges are currently around US$1 per barrel, or up to US$2 million per Very Large Crude Carrier (VLCC).

Hormuz may be a strategic chokepoint, but the human cost is measured in lives and livelihoods. Widows, orphans, displaced people, and destroyed assets create long-term social burdens. Economically, the war has led to higher inflation, GDP contraction (5-6% in 2026), currency depreciation, shortages of imported goods, eroded purchasing power, and pressure on subsidies as oil revenues are utilised for regime priorities rather than broad welfare. The net effect for ordinary Iranians has typically been higher living costs, reduced real wages, and greater hardship – especially for the urban middle class, youth, and those outside IRGC-linked networks.

The cost of isolation is not only lost trade, but also lost talent, technological access, investment, and reduced choices. Even its strategic flexibility is beginning to look like strategic inconsistency. Tehran is moving from defiance to negotiation to confrontation. Each tactical reversal may win short-term concessions, but it also tells adversaries and citizens that red lines are negotiable under pressure. If Iran pushes Hormuz too far, it could turn leverage into an economic liability.

Meanwhile, Iran remains deeply reliant on Hormuz staying open enough for its crude exports to move, currency stability, inflation control, fuel and food subsidies, the government budget, and purchasing-power stability. Thus, a large share of the economy depends on oil revenues reaching Iran.

On the other hand, the US government has two major tools – military and financial power – to deal with Iran. If Iran manages to work around the US dollar, it could damage US credibility and its ability to exert influence through sanctions. Washington has to play a strategic trade-off game. It must respond aggressively by interdicting tankers, tightening sanctions, targeting yuan or crypto intermediaries, and increasing naval presence. This would demonstrate that sanctions have teeth but could also disrupt oil flows through Hormuz. At the same time, Washington needs to exercise restraint by allowing some oil flows, issuing temporary licences, and avoiding aggressive interdiction that could trigger an oil shock.

For the American economy and people, the transmission is mostly through oil prices and shipping risk. Escalation risk in the Gulf shows up in crude futures and insurance premiums within days and is reflected in gasoline prices within weeks – a regressive tax that hits lower-income households and transport-heavy industries hardest, regardless of who “wins” the settlement-currency contest. The dollar’s day-to-day value and its role in Americans’ savings and pay checks are not meaningfully threatened by this one dispute. The real cost to the average American is the inflationary pass-through of Gulf instability, not any near-term crisis of dollar dominance.

Mauritius Times ePaper Friday 14 August 2026