News : Sanctions

Iran Claims to Complete Illicit Oil Sale, but Only After Much Difficulty

Adrian Darya 1 Iranian oil tanker

On Sunday, Iran’s Foreign Ministry claimed that a supertanker carrying an estimated 2.1 million barrels of Iranian oil was finally able to unload its cargo despite pressure from the United States on prospective buyers.

The ultimate destination of that oil was not disclosed, as both the Iranian government and the ship’s operator noted that this information could lead to consequences for the buyer in the form of the enforcement of secondary sanctions by the US. But in July it was widely suspected that the ship in question, then known as the Grace 1, was on course to sell its merchandise to refineries affiliated with the Syrian regime of Bashar al-Assad. Sanctions relating to Assad’s human rights violations led to the ship being seized by British Royal Marines and detained at Gibraltar.

The tanker was released, still laden with oil and now renamed the Adrian Darya 1, in mid-August, after six weeks of political discord between Iran and the United Kingdom which apparently spurred the seizure of a British flagged vessel in the Strait of Hormuz, by the Islamic Revolutionary Guard Corps. The release of the Adrian Darya was apparently justified to Gibraltarian authorities on the basis of written assurances that the ship’s cargo would not be delivered to Syria. Tehran denied that that was the intended destination in the first place, but the British government insisted that the initial seizure was based on ample evidence.

Tehran’s denials are arguably even less plausible in the wake of the regime’s claim to have successfully unloaded the ship. Its statement to that effect was accompanied by public rejection of the UK’s claim to have received binding assurances from the operators of the Adrian Darya. This would seem to suggest that Iranian officials are deliberately leaving open the possibility that that was the destination for the oil in question, and that they have violated EU sanctions in spite of having been previously caught in the act of trying to do so.

In any event, it may be difficult for the Iranians to deny that Syria was the recipient, even if they wanted to. Although the ship variously turned off its transponder and altered course in an effort to hide its origin, movements, and destination, it has been tracked by satellite imagery and other means. As such, the US government and shipping logistics analysts were able to confirm that the Adrian Darya was within two nautical miles of the Syrian coast as recently as Saturday. More specifically, it was photographed near the port of Tartus shortly before Tehran claimed to have emptied the ship of cargo.

However, as of Monday, it had not been independently confirmed that the ship was still laden when approaching that port, or that it had been unloaded afterward. A number of other scenarios have been presented for what might become of the more than two million barrels after departing Gibraltar. The ship’s operators may have had some alternate ideas themselves, which were undermined by the US pressure. The Adrian Darya initially set sail for Greece, but was denied entry to the port of Kalamata, and proceeded further east in the Mediterranean, apparently without making landfall.

Even if the ship never did find a friendly port outside of Syria, the possibility remains that it unloaded its cargo via ship-to-ship transfers, a tactic that has been used on numerous other occasions to evade sanctions enforcement. If other vessels took on such merchandise, they could then transfer it to its intended destination in Syria while masking the origins of the sale, or they could re-sell it to other markets, possibly while concealing the source even to the buyer.

The danger of this latter situation was underscored last month when an Australian company called Quantum Fertiliser, a subsidiary of the multinational Incitec Pivot, admitted that it had been deceived into accepting 15 million dollars’ worth of cargo from Iran, after it was transported to China and then loaded onto a second ship to mask its origins.

It is perhaps in the interest of impeding further such deceptions that the US State Department announced new measures last week aimed at impeding the operation of an “oil-for-terror” network associated with the Revolutionary Guards. As part of this effort, Washington announced that it is prepared to pay up to 15 million dollars for any information that aids in disrupting the IRGC’s financial operations.

Although Brian Hook, the State Department’s special representative for Iran, declined to specify a type of scenario that might lead to a payout, one journalist at his briefing offered the example of a dock worker in some third country noticing that cargo is being moved from ship to ship after possibly originating in Iran.

While seemingly encouraging the international community to help expose Iran’s illicit transfers, the US government is also urging prospective oil buyers to be on guard against such deceptions, lest they incur penalties for doing business with the Islamic Republic. On Sunday, Sigal Mandelker, a Treasury official in charge of enforcing sanctions on terrorist financing, reiterated that the US is prepared to sanction any buyers of Iranian oil and that no further waivers on such sales will be offered. Previous waivers for eight top importers of Iranian oil expired in May, leading to a precipitous drop in Iran’s oil sales, and knock-on effects upon the entire economy.

But the Foreign Ministry’s claims regarding the successful sale of the Adrian Darya’s cargo raised new questions about the extent of the past few months’ declines. It is widely acknowledged that public compliance with the US sanctions has led to Iran losing somewhere between 80 and 90 percent of its petroleum export opportunities. But this does not necessarily account for the mitigating effects of illicit sales, and the extent of those sales is difficult to determine.

According to a recent report by SF Gate, shipping logistics companies have been following the various techniques employed by Iranian operators to deceive international tracking infrastructure. In some instances, analysis of those tactics leads to the exposure of sanctions-busting efforts, but inevitably some illicit merchandise slips through the cracks. As such, estimates for the actual average export of Iranian oil ranges from no more than the officially-recorded output of roughly 300,000 barrels per day, all the way to more than one million.

However, the same report also notes that in many cases, ongoing sales only constitute credit-based purchases which place the petroleum into bonded storage, where it is still technically owned by the Islamic Republic, potentially until such time as US sanctions are lifted. Consequently, much of the Iranian oil that is currently being transported secretly around the world are filling up storage both on land and at sea, thereby allowing Iran to continue producing oil, but only temporarily.

Once this storage is all filled up, Iranian exporters will truly be limited to those few entities, largely in Syria and China, that are willing to engage in secretive cash transactions with the Islamic Republic while accepting the risk of new American penalties. In this way, the full effects of US sanctions on the Iranian oil industry have not yet been incurred, and the country’s overall output may be on the verge of another sharp decline, regardless of occasional sales by ships like the Adrian Darya.

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