The 2026 U.S.-Iran War and the Global Energy Crisis

Chapter 24: Sanctions' Self-Destruction

24.1 The Structure of Increasing Russian Revenue as Russian Sanctions Are Lifted

On the evening of March 5, 2026, U.S. Treasury Secretary Scott Bessent issued a statement. It announced a waiver (General License) permitting India to purchase Russian crude oil for thirty days. The measure was limited to volumes already aboard tankers and floating at sea before March 5. Bessent insisted that the action was "a narrow, short-term measure" and would not "provide substantial financial benefit to the Russian government."

A week later, on March 12, the Treasury Department expanded the scope of the waiver. Not only India, but other countries could now purchase Russian crude oil loaded before March 12. The measure was effective through April 11. Again, it carried the caveat that it applied only to "volumes already at sea." That evening, the Washington Post headlined the news: "Trump Administration Temporarily Lifts Russian Oil Sanctions to Curb Economic Fallout from Iran War."

Tracing the circumstances that led to this decision reveals the contradictory structure into which the United States had fallen.

By early 2026, the Russian economy was groaning under the pressure of Western sanctions. In January and February, Russia's oil and gas revenues declined 11.6 percent compared to the same period the previous year, and the federal budget deficit swelled to 3.5 trillion rubles (approximately 43 billion dollars). Russian Urals crude was bound by the Western price cap (a G7 measure limiting the maritime shipping price of Russian crude to 60 dollars per barrel), selling in Asian markets at a 10-to-13 dollar per barrel discount compared to Brent. Inside the Kremlin, warnings circulated that a financial crisis could strike before summer arrived. The Washington Post reported, citing sources, that Putin's inner circle warned of a possible crisis within "three to four months." Plans for a 10 percent cut to non-defense budgets were under concrete discussion.

On February 28, as Operation Epic Fury began and Iran effectively blockaded the Strait of Hormuz, all of this reversed.

Oil prices surged first. Russian Urals crude, which traded at 57 dollars per barrel on February 27, the day before the war, soared to 98.93 dollars by mid-March. A 70 percent jump. Bloomberg, citing Argus data, reported that this was the highest price since Russia began large-scale exports to the Indian market in 2022. The discount versus Brent narrowed to 4.80 dollars per barrel. The gap, which had been 10 to 13 dollars not long before, had nearly vanished. Sergey Vakulenko, a senior fellow at the Carnegie Russia Eurasia Center, told CNBC that Urals crude "currently stands at 115 dollars per barrel." Double the level just before the war.

The sanction waiver poured fuel on this trend. Once announced, the roughly 130 million barrels of Russian crude floating at sea suddenly became legal merchandise. Indian refiners who had previously shunned Russian oil purchases out of fear of sanctions violations rushed into the market en masse. Muyu Xu, an analyst at Kpler, reported that "Indian refiners have been actively seeking immediate Russian deliveries since last weekend." Tankers previously bound for China changed course, now heading to Indian ports. Tracking data from Kpler and Vortexa captured two tankers carrying some 1.4 million barrels altering their destination from East Asia to India.

Look at the money flows. According to data from the Center for Energy and Clean Air Research (CREA), based in Helsinki, Russia earned 7.7 billion euros (roughly 8.3 billion dollars) from fossil fuel exports in just 15 days, from March 1 through March 15. That is about 513 million euros per day. This represents a 14 percent increase from the daily average in February (472 million euros). The Financial Times calculated that surging oil prices were generating some 150 million dollars in additional daily revenue for Russia. Bloomberg reported that Russia's crude oil export revenues in the fourth week of March reached 2.48 billion dollars on a weekly basis. The highest since April 2022. A 120 percent increase from the end of February.

Research from an institute under the Kyiv School of Economics (KSE) illustrates the scale of this windfall by scenario. Even in the optimistic scenario where the war ends within six weeks and supply recovers quickly, Russia reaps an additional 84 billion dollars in export revenues and an additional 45 billion dollars in tax receipts. In the worst-case scenario, where the war drags on into autumn, oil maintains 150 to 200 dollars per barrel, Russia's total oil and gas revenues reach 386.6 billion dollars, and additional tax receipts reach 212.5 billion dollars.

Set one fact alongside these numbers and the contours of the contradiction become sharp. The United States had been using an intricately woven sanctions regime, built over more than two years since the invasion of Ukraine, to strangle Russia's war finances. At precisely the moment when that pressure began to take effect, the Iran war that America itself had started pushed oil prices higher, forcing the United States to lift sanctions to contain those prices.

President Zelenskyy said this at a press conference with Macron in Paris on March 13: "This sanction relief alone could provide Russia with roughly 10 billion dollars in war funding. This does not help peace." He added, "It is not the right decision to lift sanctions and thereby enable more drones to fly toward us."

German Chancellor Friedrich Merz said the same day in Norway, "Six of the G7 nations have expressed their view very clearly that this is the wrong signal. The issue right now is price, not supply. In light of that, I would like to know what additional motivation led the U.S. government to make this decision."

Macron said that the Hormuz crisis did not justify "in any way the easing of Russian sanctions."

But the logic inside the United States was different. Oil prices climbed daily. U.S. gasoline prices raced toward 4 dollars per gallon. Brent crude surpassed 100 dollars per barrel on March 13, rising some 9 percent that week alone. The Trump administration was calculating the impact of surging energy prices on the midterm elections. White House spokesman Kushi Desai explained the measure in an email statement as "one of several tools to shore up global supply until Iran's threat is neutralized."

Emily Peck of Axios summarized the situation in one sentence: "Trying to manage a 'hot war' with Iran while simultaneously maintaining a 'cold war' against Russia has become more difficult."

Eddy Fishman, who handled Russia and European sanctions in the Obama administration, said, "This is the first major relaxation of the sanctions regime we built after the 2014 invasion of Crimea. There is a risk of dismantling this system."

Kori Heraman of the Brookings Institution pointed to the same structural dilemma: "The U.S. government must manage crises and set priorities. Right now there are three priorities at stake simultaneously. Low oil prices, the Iran war, and pressure on Russia to end the Ukraine war."

All three could not be achieved simultaneously. To contain oil prices, supply had to be increased. To increase supply, Russian sanctions had to be lifted. Lifting Russian sanctions meant giving Russia money for the Ukraine war. The war launched to strike Iran ended up dismantling, by America's own hand, the sanctions regime it had built to pressure Russia.

Vakulenko of the Carnegie Center summarized it this way: "Putin was mortgaging the country to finance his war. Now he no longer needs to."

Bloomberg reported on March 27 that Russia's Ministry of Economy had decided to maintain its 2026 GDP growth forecast at 1.3 percent as originally planned. Just weeks earlier, discussions of downgrading it to 0.7 percent had been underway. The plan for a 10 percent budget cut was withdrawn. The oil windfall was refilling the sovereign wealth fund and creating the capacity to absorb defense spending of 12.9 trillion rubles (approximately 157.4 billion dollars).

Alice Johnson of Geopolitical Monitor captured the structural meaning of this situation: "A sanctions system that can be loosened whenever another war disrupts the oil market begins to look like emergency measure rather than principle."

A letter sent to the Trump administration by U.S. Senators Tim Kaine and Ruben Gallego formally documented this contradiction: "According to publicly available reports, Russia began sharing sensitive information about U.S. military positions and movements with Iran's military from day one of the conflict. Your decision to ease sanctions is shocking in itself, based solely on Russia's direct military support for Iran. And yet Russia is already expected to earn up to 4.9 billion dollars from surging oil prices, and your sanction waiver will undoubtedly swell that amount."

The structural limits of sanctions as a tool are laid bare here. Sanctions work when the target nation is isolated and when the imposing party is not simultaneously fighting on another front. In March 2026, when both conditions collapsed at once, the Russian sanctions regime that the United States had painstakingly built up for twelve years starting in 2014 began to melt away in the flames of a war that the United States itself had ignited.

24.2 India and China's Deepening Dependence on Russian Crude

An Indian oil ministry official told CNN in early March, "We currently have access to some 100 million barrels of crude, which can meet roughly 45 days of demand."

Unpacking the numbers hidden behind that single sentence reveals India's predicament. As the world's third-largest oil importer, India sources over 80 percent of its crude from abroad. According to Kpler data, 2.5 to 2.7 million barrels of Indian-bound crude pass through the Strait of Hormuz daily. This volume comes from Iraq, Saudi Arabia, Kuwait, and the UAE. If this shipping lane closes, more than half of India's daily crude imports are cut off.

From the second half of 2025, India had been reducing Russian crude imports under U.S. pressure. In August of the previous year, the United States imposed punitive 25 percent tariffs on Indian exports as retaliation for purchasing Russian oil. India capitulated, scaling back Russian purchases and substituting Middle Eastern crude. By January 2026, Russian crude represented just 21.2 percent of India's total oil imports. Some 1.1 million barrels per day. The lowest level since the end of 2022.

But when war broke out on February 28 and Hormuz closed, the Middle Eastern crude that India had substituted to comply with U.S. demands became trapped precisely within that strait.

India's oil ministry immediately requested that its foreign ministry obtain a waiver from the United States for Russian crude imports. Bloomberg, citing sources, reported that "India's current commercial and strategic reserves may amount to only two weeks of consumption." The moment the U.S. waiver came through on March 5, Indian refiners sprang into action.

The speed was remarkable. In February, before the war, India imported some 1.04 million barrels of Russian crude daily. In the first week of March, that jumped to 1.5 million barrels. A 50 percent increase. According to CREA data, India's daily average Russian crude imports for the first three weeks of March surged 82 percent compared to February. Sumit Ratholia, an analyst at Kpler, projected that March imports could reach 2 to 2.2 million barrels per day.

The figure Bloomberg reported on March 25 was the clincher. Indian refiners had contracted for 60 million barrels of Russian crude for April delivery. More than double February's volume. The price was a premium of 5 to 15 dollars per barrel above Brent. Not a discount, but a markup.

We must pause to consider what these numbers mean. From 2023 to 2025, India purchased Russian crude for one reason: the price. A 10-to-13 dollar per barrel discount versus Brent. This generated margins for Indian refiners. Yet in March 2026, India is paying a premium for Russian crude. The 6 million barrels Reliance Industries acquired traded near Brent prices. "The India World," an analysis site, captured this shift in one sentence: "What was once price optimization has become supply security under geopolitical stress."

One Kpler analyst identified the core issue: "The problem now is securing molecules,the crude itself,not the price."

China's moves operated on a different level. While India had to secure a U.S. waiver to purchase Russian crude, China had no need for such procedures. China already possessed its own payment systems and transport networks.

Analysis showed that in the first 15 days of the Hormuz blockade, 11.7 million barrels of Iranian crude reached Chinese refineries. This volume was transported not through the regular international maritime system but via shadow fleets (tankers operating independently without insurance or Western shipping services), and all transactions were settled outside the dollar system.

China swept up Russian crude alongside Iranian. Russian crude arriving via the Eastern Siberia-Pacific Ocean (ESPO) pipeline is supplied reliably, independent of the Strait of Hormuz. It does not cross the sea. The U.S. Navy cannot intervene. To expand this overland route, China explicitly included early construction of the Power of Siberia 2 natural gas pipeline in its 15th Five-Year Plan adopted in March 2026.

Once this pipeline is completed, 50 billion cubic meters of natural gas per year will flow from Siberia through Mongolia into northern China. This offers a permanent alternative to dependence on Qatari LNG crossing Hormuz.

Together, India and China represent roughly 36 percent of the world's population and about one-third of global oil imports. These two countries simultaneously raising their dependence on Russian energy is not a short-term crisis response but a structural shift.

One fact explains that structure. Indian refiners once faced punitive U.S. tariffs for buying Russian crude. Now the United States directly grants waivers and tells them to buy. America's war has nullified America's sanctions, and that nullification has etched energy ties between Russia and Asia's great economic powers so deeply as to become irreversible.

India's Press Information Bureau (PIB) stated in a statement. "The U.S. exemption was unnecessary. India was purchasing Russian crude oil even in February 2026." It meant India had no choice but to buy whether or not America approved.

Once infrastructure is laid, once long-term contracts are struck, once supply chains are switched, they do not return to their original place even after the crisis ends. When Indian and Chinese port facilities expand to carry Russian crude oil, payment channels are established, and refinery processing equipment is readjusted to match Russian crude grades, that becomes a permanent supply chain. Even if America ends the war and tightens sanctions again, it becomes much harder to remove the Eurasian energy corridor already in place.

24.3 The War Where Iran Earns Money in Yuan and Russia Breathes Relief from Lifted Sanctions

CNN reported on March 14, citing Iranian senior officials. Iran was reviewing a condition to allow limited passage for tankers transiting the Strait of Hormuz, but only when cargo was traded in Chinese yuan.

To understand the weight of meaning in this single sentence, we must go back to 1974.

After Nixon ended dollar-gold convertibility in 1971, America needed a new anchor. In 1974, the Nixon administration signed an agreement with Saudi Arabia's King Faisal. Saudi Arabia would sell all its oil in dollars only, and invest dollars earned from oil exports (oil money) in U.S. Treasury bonds. America would guarantee Saudi Arabia's security. This agreement soon spread to all OPEC members and became known as the Petrodollar system.

The operating principle of this system is a self-reinforcing cycle. Because oil trades only in dollars, every country importing oil must hold dollars. Structural demand for the dollar emerges. Thanks to this demand, America can borrow money at low interest rates despite running massive trade and fiscal deficits. It is what former French Finance Minister Valéry Giscard d'Estaing called the "Exorbitant Privilege" in the 1960s.

Iran's yuan requirement was an attempt to drive a wedge into this 52-year-old circular loop.

The new order in the Strait of Hormuz operated by Iran's Islamic Revolutionary Guard Corps (IRGC) worked like this. Tankers wishing to transit the strait had to follow designated channels in Iranian waters. To receive passage permission, they had to pay tolls up to 2 million dollars per vessel. The payment method was yuan. The payment channel was not SWIFT but China's Cross-Border Interbank Payment System (CIPS).

CIPS is an independent international payment system that China's People's Bank has operated since 2015. Unlike SWIFT, which is under U.S. surveillance and control, transactions conducted within CIPS do not pass through foreign exchange banks in New York. The U.S. Treasury's Office of Foreign Assets Control (OFAC) cannot track or freeze these transactions. In 2025 alone, the volume of yuan-denominated transactions processed through CIPS totaled about 245 trillion dollars. A 43 percent increase from the previous year.

Above this infrastructure, a financial loop turned between Iran, China, and Russia.

China settles payments for Iranian crude oil in yuan. Bank of Kunlun, a subsidiary of Iran's Revolutionary Guard, serves as the main settlement hub. China also imports energy from Russia and settles in yuan. Iran and Russia, having obtained yuan, use that money to purchase Chinese military components, industrial machinery, and consumer goods. The yuan returns to China. There is no point for the dollar to intervene in this cycle.

Even India showed signs of joining this flow. Bloomberg reported in late March that Indian refiners had begun settling part of the payment for Russian crude oil in yuan and UAE dirhams. The dollar was completely excluded.

While America was militarily striking Iran, Iran was earning money within a financial system America could not touch. In the three weeks following the start of the war, Iran secured substantial revenues through crude oil exports via shadow fleets and yuan tolls. If 30 tankers passed through daily and collected 2 million dollars per vessel, that was over 20 billion dollars in annual revenue. As the U.S. Air Force was bombing Iran's missile factories, Iran was self-financing the war costs with the Strait of Hormuz as a geographic asset.

Russia reaped profits without directly joining this war. Oil price spikes increased export revenues, U.S. sanctions exemptions eased access to Asian markets, and as Western military attention shifted to the Middle East, pressure on the Ukraine front also decreased. The Patriot missile symbolically illustrated this structure. Military historian Richard Sherif pointed out: "In the first four days of the war, America fired four times more Patriot missiles than it had supplied to Ukraine in four years." Every missile fired at Iran was a missile that did not go to Ukraine.

The Peterson Institute for International Economics (PIIE) released a report analyzing this structure head-on. Titled "Russia and China Are Winning the Iran War." The report noted that Russia was providing satellite imagery and information on U.S. military movements to Iran's military, and that Iran's drone attack patterns resembled tactics Russia had used in Ukraine. The report's core conclusion was this: "America started the war to eliminate Iran's nuclear capability, but in the process, it once again proved that America's sanctions regime has no choice but to concede whenever domestic energy prices rise."

24.4 The Paradox: America's War Weakens America's Financial Hegemony

March 19, 2026, the day Brent crude hit 119 dollars per barrel. The same day, a different kind of alarm sounded in the U.S. Treasury market. Fortune ran an article titled "U.S. Debt Faces Weakened Demand in the Midst of the Iran War." U.S. Treasury bonds maturing this year amounted to 10 trillion dollars, and buying pressure was weakening.

Place these two numbers side by side and the cracks in the petrodollar system become visible.

The first pillar of the system, the principle that "all oil trades only in dollars," was shaking. Iran was receiving Hormuz tolls and crude oil payments in yuan. Indian refiners had begun settling part of Russian crude oil payments in yuan and dirhams. In June 2024, Saudi Arabia did not renew the 1974 agreement and declared it could also sell oil in yuan, euros, and digital currencies. In 2023, about one-fifth of global oil transactions were settled in currencies other than the dollar. In 2026, that proportion was rising faster.

The second pillar, trust in the promise that "America guarantees Middle East security," collapsed. On March 5, twelve insurance companies belonging to the International Group of P&I Clubs, which provide protective insurance for 90 percent of global maritime cargo, withdrew coverage for vessels transiting the Strait of Hormuz. The U.S. Navy's Fifth Fleet was stationed in Bahrain, but that alone could not reassure insurers. According to Lloyd's List Intelligence data, only 77 vessels transited the Strait of Hormuz in the first half of March. In peacetime, hundreds would have crossed during the same period.

The third pillar, the cycle that "oil revenues from oil-producing nations flow back into U.S. Treasury bonds," was also weakening. As dollar-denominated transactions declined, the dollars held by oil-producing nations declined, and money available to invest in U.S. Treasury bonds declined.

All three pillars shaking simultaneously is an existential problem for America, which carries 39 trillion dollars in national debt. Federal Reserve Chair Jerome Powell said America's debt was "not at an unsustainable level" while warning that "its trajectory will not lead to a good outcome." If foreign central banks and oil-producing nations no longer purchase U.S. Treasury bonds as they once did, America's annual interest costs would exceed 1 trillion dollars.

At the foundation of all this lies a structure known as the "Sanctions Paradox."

America repeatedly used the tools of expulsion from the dollar payment system (SWIFT blocking) and freezing of foreign assets to force rogue nations into submission. Russia, Iran, Venezuela, North Korea, Afghanistan. Countries on the U.S. Treasury's sanctions list account for one-third of all nations on Earth and 60 percent of low-income countries.

Sanctioned countries sought alternatives outside the dollar to survive. CIPS grew. mBridge (a multilateral central bank digital currency platform) began operating. China established yuan swap lines with more than 40 central banks. In 2018, the Shanghai International Energy Exchange launched yuan-denominated crude oil futures contracts. All this infrastructure was already in place before the war started on February 28, 2026.

The war was a moment to test whether this infrastructure worked in real conditions. And it did. Iran received tolls in yuan through CIPS. Shadow fleets transported Iranian crude oil to China without Western insurance or Western shipping services. India settled Russian crude oil payments in non-dollar currencies. Professor Kashif Hassan Khan of Asia Times wrote: "Iran's Hormuz yuan policy is not creating a new direction for global finance, but accelerating a direction that already exists."

The dollar does not lose its status as the global reserve currency overnight. As Asia Times points out, "The yuan is not yet ready to shoulder the burden of a global reserve currency. China still maintains capital controls, and the openness and credibility of its financial markets fall short of the United States." According to IMF data, the dollar still holds a dominant share of global foreign exchange reserves. It took about 30 years, from the 1920s to the 1950s, for the British pound to withdraw from its position as the world's reserve currency.

But there is a trend. And the 2026 Iran war was an event accelerating that trend. European Business Magazine assessed it this way: "Previous discussions of de-dollarization were theoretical. This time there is a chokepoint, there are shadow fleets, there is a functioning yuan payment system, and there is a geopolitical crisis with no sign of resolution."

The structure of the paradox America faces can be summarized like this. America used sanctions to protect the strength of the dollar. When it overused sanctions, adversary nations created infrastructure to bypass the dollar. With infrastructure in place, America started a war. To manage the energy crisis created by the war, sanctions had to be lifted. When sanctions were lifted, money flowed to adversary nations. The adversaries earned that money in non-dollar currencies and spent it in non-dollar currencies.

Senators Cain and Gallego wrote in a letter to the administration: "Lifting sanctions on adversary nations while simultaneously conducting active conflict is another example of inconsistent and disorderly policy. Economic relief for the American people begins not with continuing the chosen war, but with ending it."

You cannot destroy an adversary's payment system with bombs. A B-2 bomber cannot strike CIPS servers. Tomahawk missiles cannot sever yuan swap lines. What the 2026 Iran war revealed is the limits of military power in twenty-first century great power competition. America deployed a military stronger than any nation in the world to Iran, but the economic shockwave created by that deployment was returning to erode America's own financial hegemony.

America has the military power to physically open the Strait of Hormuz. But the currency in which ships crossing the strait settle their payments cannot be forced by military power. There is no force in an aircraft carrier that can compel merchants to keep specific ledgers.

Kim Kyung-jin, AI Policy Expert and Attorney

Specialist in AI Legal Policy, former member of the National Assembly, author of numerous works

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