The Strait of Hormuz crisis is revealing inherent cracks in the US's most powerful geopolitical tool: the weaponization of the dollar is least effective against the adversaries who most need to be pressured, and the overused sanction system has now become a force multiplier for US adversaries.
Recent developments show that after the announcement of a two-week US-Iran ceasefire, risk aversion has led to downward pressure on the dollar index. The ICE Dollar Index once plunged 1.2%, erasing its entire year-to-date gains, while the Bloomberg Dollar Spot Index fell 0.8%, marking its worst single-day performance since January.

Media reported on the 8th that Iranian officials stated they would require shipping companies to pay tanker transit fees in cryptocurrency, at a rate of $1 per barrel of crude oil transported. Prior to this, according to Lloyd's List Intelligence, some merchant ships had already paid Iran up to $2 million to ensure safe passage through the Strait of Hormuz.
In the view of Daniel Davies, Managing Director of Frontline Analysts and author of &#34;The Unaccountability Machine,&#34; Iran's move towards cryptocurrency pricing signals a structural challenge to the dollar-sanction system. When sanctioned countries can bypass dollar clearing channels and exert actual pricing power over international shipping, the geopolitical deterrence supported by dollar hegemony will be substantially weakened, and its long-term impact on the global financial order cannot be ignored.
He cited a maxim from the history of the Bank of England by David Kynaston as a warning: &#34;You can wave the big stick if you want, but never actually use it, it might break in your hand. A finger wag is better.&#34; In Daniel Davies' opinion, the Hormuz crisis may become a historical watershed – this big stick of the dollar is already precarious.
<h2>Two Historical Threads of Sanction Failure</h2>
Daniel Davies traces the loosening of this logic back to 2022. At that time, Russian banks were sanctioned and cut off from the SWIFT international payment system. Even then, it was widely predicted that this would be an &#34;inconvenience&#34; rather than an &#34;economic death sentence&#34; for Russia. However, Russia's sustained war capabilities and oil export revenues since then have continued to disappoint sanctions proponents.
The case of Iran is even more compelling. Daniel Davies stated that Iran is one of the few countries subject to nationwide sanctions by the US Treasury. However, this has neither prevented it from continuously selling oil during its conflict with the US, nor stopped it from collecting &#34;transit fees&#34; from international merchant ships intending to pass through the Strait of Hormuz. The existence of sanctions has not altered Iran's actual operational capacity.
<h2>The Intrinsic Paradox of the Dollar Weapon</h2>
In Daniel Davies' view, the root of the problem lies in a structural paradox: the deterrent power of dollar sanctions precisely stems from the convenience and profitability of the dollar economic system itself. This means that this weapon is most lethal to open economies deeply integrated into global supply chains – and these countries are precisely the ones who are rarely the true targets of pressure.
Long-term sanctioned countries are entirely different; they are often accustomed to &#34;making do with what they have&#34; and have built alternative networks to circumvent sanctions. According to research from the Atlantic Council, there are also a number of banks and shadow financial institutions willing to bear the risk of extraterritorial US enforcement, providing whitewashing channels for dollar payments – these counterparties are not as dependent on access to the New York dollar clearing system.
In today's world of increasingly diversified anonymous internet payment methods, these alternative channels are becoming normalized. It is difficult for the US to completely block virtual currency transactions or transactions linked to real assets conducted through decentralized networks, making cross-border payment flows more concealed. More ironically, due to the extremely cumbersome anti-money laundering compliance requirements imposed by the US on its allies, it has indirectly driven sanctioned countries to accelerate their shift towards regulatory vacuums.
He uses the history of OPEC as an analogy: Since OPEC's inception, member countries have long known that motivating users of their products to find alternatives is an extremely unwise strategy. The United States' excessive weaponization of the dollar system is repeating this mistake.
Daniel Davies points out that this trend has been predicted academically. He and political scientist Henry Farrell – one of the co-proposers of the concept of &#34;weaponised interdependence&#34; – clearly elaborated on this in a joint paper published earlier this year. They wrote: &#34;As the United States continues to increase pressure, other countries will seek to escape dollar power, which is likely to prompt the United States to increase its countermeasures in turn.&#34;
His core judgment is: after the dollar has been excessively weaponized, the global financial system has transformed from a geopolitical lever for the United States into a force multiplier for its adversaries. The big stick can be swung, but the day it is used may be the day it breaks.
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Iran claims the foundation for negotiations has been undermined, and the Strait of Hormuz has been closed again; the White House announced that the first round of US-Iran talks will be held in Pakistan on the 11th. The situation is drawing attention. Do you think the talks can proceed smoothly?

Iran claims the foundation for negotiations has been undermined, and the Strait of Hormuz has been closed again; the White House announced that the first round of US-Iran talks will be held in Pakistan on the 11th. The situation is drawing attention. Do you think the talks can proceed smoothly?

The Hormuz National Park closes again, leaving US-Iran peace talks in limbo.

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The weaponization of the dollar has failed in the Iran conflict, revealing its inherent cracks. Following news of a US-Iran ceasefire, the dollar index fell sharply, and Iranian officials are demanding cryptocurrency payments for oil tanker passage fees, signaling a challenge to the dollar-sanction system. Analyst Daniel Davies points out that the failure of sanctions may weaken the dollar's geopolitical deterrent power and affect the global financial order. Historically, cases like Russia and Iran show that sanctions have not achieved their intended effects, putting the dollar's hegemony in jeopardy

- The ongoing crisis in the Strait of Hormuz reveals flaws in the U.S. strategy of dollar weaponization, as it proves least effective against targeted opponents and amplifies their strengths.  
- Reports indicate Iran is demanding cryptocurrency for oil tanker transit fees, further challenging the dollar's dominance, and showcasing that sanctioning countries can bypass financial systems.  
- Daniel Davies argues this shift signifies a structural challenge to the dollar's geopolitical leverage, suggesting that excessive use of sanctions could backfire, fostering alternative networks to undermine U.S. financial influence.

Why Did Dollar Weaponization Fail in the Iran Conflict?