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Game of Tankers in Persian Gulf

Updated: Apr 29, 2023

Tensions between Iran and the United States have increased as a result of Iran's recent arrest of the oil tanker Advantage Sweet, which was sailing under the flag of the Marshall Islands. This happened days after the US confiscated Iranian oil on a tanker at sea in a sanctions enforcement operation.

The US military has demanded the oil tanker's immediate release, claiming that Iran's actions are against international law and detrimental to the security and stability of the region. However, Iranian media reports that the ship was impounded after colliding with a fishing boat and breaking maritime laws.

This event is the most recent in a string of US and Iranian vessel seizures. The US has a history of arresting ships carrying Iranian gas and oil under the guise of enforcing unilateral sanctions. A vessel that was confiscated close to the UAE was used by the US government to sell 2 million barrels of Iranian oil for $110 million in 2021. Venezuela was to get Iranian gas that was auctioned off by the US during the Trump administration.

For both countries, the persistent animosity has had a substantial economic and political impact. The US has lost its hegemony as a result of countries being forced to trade in non-dollar currencies to escape US sanctions and asset seizures like Iran, while Iran has struggled to keep its oil income and access to global markets and banking systems. In between, Iran’s Arab neighbours have made the most of it.

While the US can use sanctions and asset freezes to accomplish its foreign policy objectives, they sometimes have unintended repercussions. One of the key effects is that they reduce foreign nations' faith and confidence in the US financial system. As more nations come under US asset freezes and penalties, they search for alternatives to the dollar-based financial system. They also try to avoid trade with Iran by any means possible.

The use of asset freezes and sanctions has at the same time prompted the creation of alternative payment methods that do not rely on the conventional US-dominated banking system.

The Cross-Border Interbank Payment System, for instance, was introduced by China to enable transactions in Chinese yuan without passing through the US financial system. The SWIFT international payment system, which is used to transmit money between banks, also has an alternative that Russia has created.

Finding a method to reduce tensions and work towards a peaceful resolution is crucial for Iran and the United States. The protracted conflict's economic and political repercussions would only get worse if hostilities continue between the two countries amid the global downturn.

Under the current atmosphere, it is hard to believe that the foreign policy establishments of Iran and the US would be prepared to find diplomatic means to reduce tensions and encourage understanding and collaboration.


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