Unabated growth in Iran's oil sector despite international sanctions
In the face of persistent US sanctions, Iran has managed to maintain and even increase its oil production and exports, according to a report by Bloomberg Opinion columnist Javier Blas, co-author of "The World for Sale: Money, Power and the Traders Who Barter the Earth's Resources."
Since the 1979 revolution, Iran has employed a sophisticated and evolving network of deceptive practices to bypass US oil sanctions. This network includes a "shadow fleet" of aging tankers, often registered in jurisdictions with low transparency, that frequently change their names, flags, and documentation to hide their Iranian origin. These vessels often disable AIS transponders to conceal their location and movements, employ ship-to-ship transfers multiple times outside territorial waters to obscure the crude oil’s origin, and falsify shipping documents such as bills of lading and certificates of origin.
Iranian oil is sometimes blended with oil from other countries, such as Iraqi oil, to further mask its origin. Networks led by intermediaries, like Iraqi-British national Salim Ahmed Said, blend Iranian oil with Iraqi oil, which is then sold as Iraqi oil using forged documentation, often paying bribes to officials to facilitate this.
The oil revenue is laundered through complex networks that also finance Iran’s nuclear and ballistic missile programs. These networks exploit correspondent banking relationships and use forged documents and opaque ownership structures to avoid detection by international authorities. Iran operates numerous front companies and special purpose vehicles in high-risk, low-regulation jurisdictions to carry out these activities covertly.
Despite these sanctions, Iran's oil production reached a 46-year high last year, totaling nearly 5.1 million barrels a day, with approximately 725,000 barrels a day of other liquids in addition to 4.3 million barrels a day of crude oil. The US sanctions on Iran's oil industry were eased in 1981 and reintroduced in 1987 and 1996, intensifying in 1996 and from 2010 onward.
China buys 90% of the oil Iran exports, having built a largely sanctions-proofed supply chain that includes oil tankers, ship-to-ship transfers, and entities operating outside the US dollar system. The US, concerned about keeping oil prices down while imposing sanctions on Russia, adopted a laissez-faire approach to the Sino-Iranian oil trade.
Iranian energy export revenue hit a 12-year high of US$78 billion last year, with NGLs, such as propane and butane, bringing in US$5.8 billion and US$3.4 billion respectively. The Iranian Ministry of Petroleum considers investing in NGL production as a strategic necessity to increase foreign currency revenue. The petroleum industry has emphasized the development of condensates and NGLs such as ethane, butane, and propane over the last 10 years.
The first six months of this year suggest an increase in Iranian oil production. However, the impact of the 12-day war between Israel and Iran was limited, with only a few petroleum assets suffering damage that was quickly repaired. The Iranian oil industry was also relatively unaffected by the COVID-19 pandemic, with energy export revenue falling to US$18 billion in 2020.
The US Department of the Treasury allowed a US oil trader named Oscar Wyatt to buy Iranian oil in 1991, demonstrating the complexity and sometimes inconsistency of the sanctions regime. Despite these challenges, Iran's oil economy has continued to fund critical state functions for decades.
The intricate network of deception in Iran's oil industry, including the use of intermediaries like Salim Ahmed Said, blending Iranian oil with oil from countries like Iraq, and complex financial structures, also extends to the realm of finance and energy, particularly in the oil-and-gas sector. China, a significant buyer of Iranian oil, has constructed a sanctions-proof supply chain that includes finance and energy transactions, expanding the reach of Iran's oil revenue beyond just the oil-and-gas industry.
