On a Tuesday afternoon, a man enters a small currency exchange in Dubai. The moment doesn’t seem out of the ordinary. He asks for a clerk by first name while holding a leather folder and sporting a grey shirt. He writes down a phone number, deposits $50,000 in cash, and walks away. The equivalent has already been given to someone in Tehran by the time he returns to his hotel. The transaction was not handled by a bank. There was no notification to any regulator. It’s the kind of thing that shouldn’t be possible in 2026, but it still happens on a daily basis in ways that Western policymakers haven’t quite figured out how to stop.
When the official economy freezes, this one continues to function. The question that has been circulating in Asian capitals since the Strait of Hormuz was blockaded earlier this year and Washington tightened its sanctions regime once more is not whether the pressure is being felt, which it obviously is, but rather how precisely the money still gets through. The formal system seems to have never been the actual system in the first place. The unregistered tankers trading flags somewhere off the coast of Malaysia, the teapot refineries in Shandong, the hawala channels—these are the parts of the machine that hum quietly while the headlines center on presidential speeches and oil prices.
The best illustration of what preparation looks like is China. Xi Jinping declared the nation would handle its own energy supply while standing at an oilfield years prior to this conflict. It sounded like a catchphrase at the time. It now reads like a memo. Sanctioned crude from Iran, Russia, and, for a time, Venezuela was covertly absorbed by Beijing’s smaller, independent refineries, known colloquially as “teapots,” creating stockpiles that provided the nation with breathing room when the Strait closed. At two in the morning, the parking lot outside one such facility in Shandong is packed, with drivers waiting their turn and trucks idling under sodium lights. According to official figures, imports decreased in March. The unofficial image is probably more accurate, but it’s also messier.
One of the reasons no one has been able to crack hawala is that it is older than any sanctions regime. It is powered by individuals who have known one another for decades, even generations. A partner in Tehran receives a call from a broker in Dubai. The partner makes the payment. Later, they settle the balance, frequently through trade—a container of machine parts here, a shipment of pistachios there. If there are any records, they are burned by Friday after being scrawled on the back of receipts. American investigators found that al-Qaeda had been transferring money in this manner for years after 9/11. The Wall Street Journal tracked Iranian oil earnings from Dubai stores to Hezbollah in November 2025. The system continues to absorb the blows as the pattern repeats.
Observing this develop, it’s remarkable how little of it is dependent on Iran. The networks reside in Turkey, the Gulf states, and the more sedate banking areas of Hong Kong. They are able to operate because everyone in Iran permits them to. Clamping down would necessitate a degree of regional cooperation that is unlikely to occur. It’s difficult to ignore the fact that these unofficial channels appear to get wider the harder Washington pushes.
It remains to be seen if any of this is sustainable. More aggressive tracking is being done on shadow fleets. A few Russian tankers have already changed their course and are now headed for India. The cost of Gulf shipping insurance has tripled. Speaking with those who keep a close eye on this market gives me the impression that the system is straining but not quite collapsing. It could hold. Perhaps it won’t. In any case, the bags continue to move.
