Iran’s Tactics to Evade the Sanctions on its Oil Sector

Iran will continue evading sanctions as long as it does not have other viable options to further its interests.

Having been under different sanctions regimes on and off since 1979, Iran has employed an array of tactics to bypass them. This is something the Iranian officials do not deny. When commenting on the economic pressure the Trump administration was applying to his country, the Iranian foreign minister Mohammad Javad Zarif told reporters in April, 2019 that Tehran had a “Ph.D. in sanctions busting”. These techniques are not unique to the Islamic Republic. They are widely applied by other state and non-state actors that wish to defend their national interests and disguise the nature of their activities. Some practices can be conducted for legitimate purposes as well, which makes them even more difficult to detect.

The international sanctions imposed on Iran in relation to its nuclear program did not encompass only one sector of its economy. They were designed to inflict financial losses to the West Asian country in order to make it reconsider its nuclear ambitions and provide evidence that they were exclusively for peaceful purposes. The UN sanctions on Iran were lifted following the signature of the Joint Comprehensive Plan of Action (JCPOA) in July 2015. In May 2018, the US withdrew from the agreement and started gradually re-imposing unilateral restrictive measures on major Iranian industries, including the oil sector, as part of Trump administration’s strategy of “maximum pressure” that was designed to force Iran to renegotiate what President Trump himself called “the worst deal”.

Since petroleum trade, transportation and finance are interconnected, the US did not limit its national sanctions only to Iran’s energy sector (for example, the Iranian Ministry of Petroleum, the National Iranian Oil Company – NIOC, and their executives and affiliates) but has blacklisted other key actors that are vital for the oil trade cycle, such as the National Iranian Tanker Company, the Islamic Republic of Iran Shipping Lines, and Iran’s Central Bank, which receives Iran’s oil payments worldwide. Additionally, non-U.S. persons that knowingly own, operate, control or insure a vessel that transports crude oil exported from Iran after the expiration of some exceptions could be subject to secondary sanctions. In fact, U.S. sanctions on Iran are primarily secondary, which means that they are designed to block Iran’s opportunities to conduct transactions in certain areas not only when U.S. subjects are involved but practically with persons from any country in the world. The extraterritorial reach of the U.S. punitive measures restricts tremendously Iran’s options to conduct business in the energy sector and to attract investments to modernize it.

Throughout the years, Iranian officials have sought creative ways to evade the multinational and unilateral sanctions. Since 2011, as a way to limit their negative effect on its energy sector, Iran has started to reduce its dependence on oil and gas revenues. More recently, in December 2019 and December 2020, President Hassan Rouhani proposed budgets that were planned to “resist U.S. sanctions” by calculating less earnings from oil sales. The situation became particularly challenging since May, 2019 when Washington confirmed that it would not extend the waivers for those countries that continued to purchase Iranian oil and which Iran tried to keep as customers by offering discounted prices and other favorable conditions for buyers at the Iran Energy Exchange.

When this did not work, Iran started showing defiance by overtly not complying with the U.S. restrictions by transacting with friendly countries that are also under U.S. sanctions, such as Venezuela and Syria. In 2020, on a number of occasions the Islamic Republic sent tankers carrying Iranian fuel to help Venezuela cope with gasoline shortages.

There are other tactics of going around the sanctions and they are more in the grey area because some of them have legitimate use, while others are deceitful. One such practice is the manipulation of the automatic identification system (AIS) of the vessels carrying Iranian oil exports. The AIS is designed to avoid collision at sea and for this reason it transmits certain details – the vessels’ identification and navigational and positional data – via very high frequency radio waves. According to the International Convention for the Safety of Life at Sea, certain classes of vessels (passenger ships irrespective of size and all cargo ships above 300 tons) travelling on international voyages are required to keep their AIS on at all times with some admissible exceptions related to the protection of navigational information. Vessels usually turn them off when sailing in busy areas, like the South Asia Sea, or for commercial reasons.

Although AIS is not devised for tracking purposes, its data is captured by clusters of satellites and terrestrial receivers. It is subsequently used by vessel tracking companies whose clients can be from the public and private sector. Tankers, carrying oil from Iran, are known to have disabled or manipulated the AIS systems in order to prevent detection, specifically when approaching the Strait of Hormuz, and on other locations as well. Iran successfully utilized this method before the signature of the JCPOA, however, in recent years, the number of satellites and their capabilities have increased, which has made the water a more difficult place to hide. Millions of images of the Earth are taken by these devises and are then collated with data from the AIS systems to draw a very detailed picture of where a ship is located and how it looks. Technology is so advanced that it can be used to determine when a tanker is loaded, when it is sailing empty and what its “normal” sailing routine is.

Another detection avoidance technique is vessel name change. This can be a legitimate measure undertaken when the vessel has a new owner but it can also be a sign that past activities of a ship are intended to remain hidden. Adrian Darya 1, IMO 9116412, is a crude oil tanker, which was designated by the Office of Foreign Assets Control (OFAC)  in August 2019 because it had been used by the Iranian Revolutionary Guard Corps – Qods Force (IRGC-QF) to transport Iranian oil to Syria. By that time, the entire IRGC had already been added to the U.S. list of foreign terrorist organizations. In July, the same vessel was seized by British authorities in Gibraltar under debatable circumstances on suspicion of carrying Iranian oil to Syria in violation of EU sanctions. This tanker was known in the past as Grace 1, Overseas Meridian and Meridian Lion and flew the Panamanian and Marshal Islands flags. Today (at the time of writing), a tanker with the same IMO number is sailing under Iranian flag and its name is Arman 114.

If a vessel cannot be camouflaged behind a new name, it can be used for a ship-to-ship operation. This is a legitimate practice to transfer crude oil, petroleum products, liquid chemicals, and liquefied gas between sea-going ships and Iran has relied on it during the previous round of sanctions, as well as in more recent times. Such movements are hard to trace because tracking systems can be turned off in order to conceal the fact that two vessels are positioned close to each other, especially if they are subjected to restrictions. In January 2021, the Indonesian Maritime Security Agency seized the Iranian-flagged crude carrier Horse and Panamanian-flagged China-owned crude carrier Freya, while they were in the middle of a ship-to-ship fuel transfer. Neither vessel was flying a flag. Both vessels had their AIS systems disabled and the objects were hanging out to obscure their names. It is worth mentioning that Horse was sent to Venezuela in 2020 to deliver the Iranian condensate and returned to Iran loaded with Venezuelan heavy oil for NIOC. These two cases clearly demonstrate that Iran is determined to pursue its economic interests and it will do so as long as it has partners that are willing to trade with it, despite the risks involved.

The approach of the new U.S. president towards Iran is different from the one of his predecessor, however, it is yet to be seen whether Joe Biden and his administration will agree to lift the sanctions before any negotiations between the two nations begin - which is the condition of the Islamic Republic – or he will postpone his decision to a later stage. This development will have a direct impact on Iran’s sanctions evasion policies, which are not likely to be rescinded if the US continues to block the options of the West Asian country to export its crude oil and petroleum products.

JCPOA, Sanction Evasion, Oil Sector, NIOC, IRGC, OFAC

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