Hormuz Safe: Iran’s newest Bitcoin-backed insurance shipping scheme

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In the latest string of developments surrounding Iran and its grip on the Strait of Hormuz, a new solution has emerged on how to provide safe passage for ships that want to go through one of the world’s most critical maritime chokepoints. The choice of asset used to make this possible is a very volatile one: cryptocurrency.

Ships and vessels can now take advantage of Hormuz Safe—a newly introduced Bitcoin-backed insurance scheme—for guarantee of safe passage.

The insurance provided by Iran gives protection from the point in time at which confirmation is received, according to Bloomberg.

The new development deepens the connection between Iran and an asset class which has provided strong price growth over the last 15 years, though with significant volatility and drawdowns over that period. 

The situation in the Middle East has created an opportunity for Iran to benefit financially and they’re leaning on Bitcoin and its capabilities along with multiple methods including tolls to monetize the Strait of Hormuz. 

According to blockchain analytics firm Elliptic, Bitcoin mining has reportedly enabled Iran to sidestep U.S. sanctions (Elliptic, 2021). Iran’s first use of Bitcoin on a national level goes back to 2019, when the country legalized Bitcoin mining. The main condition for any Bitcoin mining enterprise was that the proceeds gained from cryptocurrency mining had to be handed over to the government.

The reason? The asset class could be used as an import currency in an attempt to evade U.S. sanctions which have curbed Iran’s position in international trade, not allowing them to access imports of important resource through official trade deals. 

The IRGC also charges for oil and gas passing through the Strait of Hormuz at a $1 fee per barrel, a levy they’ve imposed since the beginning of the conflict.

Geopolitically, Iran’s usage of cryptocurrency has been viewed as problematic by key countries in the West, mainly the U.S. with whom the country remains embroiled in major conflict.

Bitcoin’s price behavior compared to other conventional asset classes makes it a more volatile and less predictable currency. Created in 2009 using Blockchain technology, it is considered the first and oldest cryptocurrency. 

Final outlook

Iran occupies a critical position on the Strait of Hormuz, giving it a strong competitive advantage to gain revenue from the Strait. However, the attempts to monetize the Strait of Hormuz remain exposed to considerable geopolitical risk, namely the possibility of encouraging more conflict with the U.S. due to current state of negotiations. 

Research references

• Iran Starts Bitcoin-Backed Ship Insurance for Hormuz Strait - Bloomberg
• How Iran Uses Bitcoin Mining to Evade Sanctions

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