Tag Archives: Iran economic sanctions

By Hook or By Crook (or Both): How Iran Beats US Sanctions

Persian Gulf waters off Iraq have become a new, important waypoint for Iranian oil smugglers looking to avoid U.S. sanctions…Iranian tankers now regularly transfer crude to other ships just miles offshore the major Iraqi port of Al Faw, according to the officials. The oil is then mixed with cargoes from other places to disguise its origin, and it eventually ends up on sale in world markets, they say.


In one example from March 2020,  according to a shipping manifest reviewed by The Wall Street Journal, 230,000 barrels of oil from the state-run National Iranian Oil Co. were transferred to a vessel moored in Iraqi waters. The cargo was blended with Iraqi oil and passed to other ships, according to people familiar with the operation. The ultimate destination of the oil wasn’t clear.

The people familiar with the transfer said the operation was part of an increasingly common and lucrative business that involves transferring and mixing cargoes with other vessels multiple times and then selling the oil with documents that declare it is as Iraqi. Iraqi oil can be sold at a significant premium to oil of Iranian origin.

Iran has increasingly tried to find ways to get its crude to market despite the U.S. sanctions. Iran’s daily crude and condensates exports averaged 827,000 barrels a day in the first six months of this year, according to U.S. shipping-information company TankerTrackers.com. That is up 28% from the previous six months, but far below the level of 2.7 million barrels a day in May 2018 before the sanctions.

“We While some of Iran’s oil exports go to countries not aligned with the U.S., such as Syria and China, they often pass through allies such as the United Arab Emirates or Iraq, where their origin is being concealed, according to U.S. officials.

Excerpt from Sarah McFarlane and Benoit Faucon, Iraq Emerges as Hurdle to Enforcing Iran Oil Sanctions, WSJ, Oct. 24, 2020

Strangling China with Hong Kong: the Politics of Fear

The U.S. determination  that Hong Kong is no longer autonomous from mainland China, under the Hong Kong Policy Act of 1992, will have significant implications for the city’s exporters and businesses.  Sensitive U.S. technologies could no longer be imported into Hong Kong, and the city’s exports might be hit with the same tariffs levied on Chinese trade.

But the act doesn’t cover the far more extensive role Hong Kong plays as China’s main point of access to global finance.  As of 2019, mainland Chinese banks held 8,816 trillion Hong Kong dollars ($1.137 trillion) in assets in the semiautonomous city, an amount that has risen 373% in the last decade…. China’s banks do much of their international business, mostly conducted in U.S. dollars, from Hong Kong. With Shanghai inside China’s walled garden of capital controls, there is no obvious replacement.

While the U.S. doesn’t directly control Hong Kong’s status as a financial center, Washington has demonstrated its extensive reach over the dollar system, with penalties against Korean, French and Lebanese financiers for dealing with sanctioned parties. The U.S. recently threatened Iraq’s access to the New York Federal Reserve, demonstrating a growing willingness to use financial infrastructure as a tool of foreign policy.  Even though the U.S. can’t legislate Hong Kong’s ability to support Chinese banks out of existence, the role of an international funding hub is greatly reduced if your counterparties are too fearful to do business with you.

Putting the ability of Chinese banks to conduct dollar-denominated activities at risk would be deleterious to China’s ability to operate financially overseas, posing a challenge for the largely dollar-denominated Belt and Road global infrastructure initiative. It would also put the more financially fragile parts of the country, like its debt-laden property developers, under strain.  China’s hope to develop yuan into an influential currency also centers on Hong Kong’s remaining a viable global financial center—more than 70% of international trade in the yuan is done in the city.

Excerpts from Mike Bird, How the US Could Really Hurt China, WSJ, May 290, 2020

The Sanctions Busters: Iran and Friends

The past 15 months have been grim for Iranian businesses which trade with the outside world. America has tightened sanctions against Iran’s financial system; the European Union has put an embargo on its oil; and international traders are wary of dealing with the country.Iranian businesses are used to fighting for survival. The Islamic Republic has faced sanctions of one sort or another since its creation in 1979. Parts for Iran’s ageing civilian airliners trickle in from the black market. A host of sanctioned products, from industrial chemicals to anti-aircraft missiles, come from China. Almost any good can be found in Iran, at a price.  Amir, a manager in a mining business, says he regularly meets British and German suppliers in Turkey, to obtain the most advanced equipment to tap Iran’s mineral wealth. “Foreign firms are terrified of doing something illegal, but in the end they are businessmen,” he says. “The Europeans send our cargoes to Dubai, documented as the final destination. From there we are in charge.” Amir uses Gulf middlemen to change the documents, for a fee of 3-5%, before the goods are shipped to Bandar Abbas, Iran’s largest port.

Because few international banks deal with sanctioned Iranian institutions, Iranian importers have to find roundabout ways of paying suppliers. Amir uses a network of Iranian go-betweens who own companies in South Africa and Malaysia to pay his suppliers’ Western banks. He says 30% of his revenues are spent on avoiding sanctions—not counting the time involved.

The sanctions have hit Iran’s oil industry the hardest. Iran’s government depends on oil for more than half of its revenue, but exports have fallen and grown more volatile. The country’s total production is a quarter less than the 3.6m barrels per day it pumped in 2011.  One way of keeping sales going is to dress up Iranian oil as Iraqi. Another trick is to move Iranian oil onto foreign tankers on the open sea. Once crews have switched off their ships’ tracking beacons, this is all but undetectable. The oil is sold at a discount. Fujairah, in the United Arab Emirates (UAE), is a big market for Iranian oil. Business is down, says Sajad, but European firms still trade with Iran, using Swiss subsidiaries which broker deals with the Iranians and collect the crude using tankers under the flag of a third country.

The sanctions have been a fillip for the few institutions still handling Iranian money. One foreign bank charges 5% on cash moving in or out of Iran, says an Iranian shipping source. Normal business rates are a fraction of a percent, but Iranian firms have little choice.

Sometimes the fear of sanctions is more effective than the sanctions themselves. A customer in the UAE owed $1.3m to Sajad’s shipping firm but would only send it in costly small instalments. Sajad flew to the Gulf to pick up the balance in cash. “I was nervous about what I would say to customs from either country if they checked my suitcase,” he says. “I decided I would tell the truth. I am not a criminal.” But no one did.

Dodging sanctions in Iran: Around the block, Economist, Mar. 3, 2013, at 68