Iran's answer to US-imposed sanctions is the grey market. But what is it?

Facing renewed economic sanctions from the US, Iran has once again turned its focus on grey markets to dodge Washington-imposed trade restrictions and export its oil to foreign buyers.  

So what's a grey market?

A grey market is an unofficial but not completely illegal trading system, which legally bypasses authorized routes of distribution. Contrary to black markets, grey markets follow legal guidelines and provide an alternate trading platform, in which products are usually sold at lower prices. 

“As far as we understand, [because of the US sanctions] Iran wants to sell its oil to private sellers, who will sell that oil to other states in the mechanisms of grey market,” said Turkish hedge fund manager Deniz Akguner, who works at Ferox Advisors. 

According to Akguner, BTC, Monero and Zcash are the most common cryptocurrencies used in such trade interactions, where the identities of sellers and buyers are mostly withheld.

Iran, he said, will most probably sell its oil through grey market channels using different cryptocurrencies, and bypass the US sanctions.

Tackling the US-imposed sanctions in several phases since the 1979 Iranian Revolution, Tehran has learned the art of resisting the American pressure and managing its vulnerable economy.  

“We certainly won’t sell 2.5 million barrels per day as under the [nuclear deal],” Iranian state media quoted Deputy Oil Minister Amir Hossein Zamaninia as saying on Sunday.

“We will need to make serious decisions about our financial and economic management, and the government is working on that. We have mobilized all of the country’s resources and are selling oil in the ‘gray market’.”

Zamaninia added: “This is not smuggling. This is countering sanctions which we do not see as just or legitimate.”

Fragile diplomacy between the US and Iran fell apart after US President Donald Trump withdrew from the critical nuclear deal. The Trump administration told international buyers to stop buying oil from Iran by May 1. 

Iranian options to flout the embargo

In addition to the grey market option, Iran aims to protect its economy against US threats by rearranging its trade relations with its neighbours Iraq, Turkey and Syria. 

Iran recently opened an office for its oil ministry in Iraqi capital Baghdad. The aim is to tighten up relations and coordinate oil sales better between the two countries, according to Mehmet Bulovali, an Iraqi Kurdish political activist, who served as an advisor to Iraq's former vice president Tariq al Hashimi.

“Iraqis and Iranians are looking for ways to flout the US embargo. But Iraq can not go against the US embargo in the long term,” Bulovali told TRT World. 

The current government, led by Prime Minister Adil Abdul-Mahdi, is willing to cooperate with Tehran, but its days are numbered, Bulovali said. He predicts Abdul-Mahdi’s government will lose power in September, opening a window for Iraq's former prime minister Haider al Abadi, who's known for his pro-US stance.  

For Bulovali, Syria is another grey market for Iran, since Tehran has gone to great lengths to help Bashar al Assad survive the eight-year civil war and maintain his grip on power.

Another option, Bulovali said, is to sell Iranian oil to smugglers in international waters, which could however increase the risks of a large scale military engagement between Washington and Tehran. 

The situation has turned grim with the US recently deployinga carrier strike group and a bomber task force to the Middle East to respond to what US National Security Adviser John Bolton called Iran’s “troubling and escalatory” actions.