Iran's Tankers and Its Smuggling Tactics

October 2, 2019
Updated

By Alex Yacoubian

Smuggling in Persia goes back to ancient times, but the Islamic Republic has become increasingly adept at illicit trafficking in oil since the United States re-imposed economic sanctions in November 2018. Iran’s single largest source of revenue is from oil exports; by mid-2019, 70 percent of its income was from petroleum products. Iran has used its fleet of 54 oil tankers—the second largest state-owned fleet in the world—as a tool to game sanctions to continue selling its oil.

Iranian Tanker

An Iranian oil tanker approaching Rotterdam in the Netherlands in 2007 

Iran’s tanker fleet is vulnerable to attacks and sabotage. On October 11, Iranian state media reported that the Sabiti, a tanker owned by the National Iranian Tanker Company (NITC), was struck by missiles in the Red Sea. Saheb Sadeghi, the NITC head of public relations, said the missiles were “possibly” fired from Saudi territory. But the National Iranian Oil Company later dismissed that possibility. The Sabiti was reportedly 60 miles from the Saudi port of Jeddah when it was hit.  

The Sabiti stopped transmitting its position in August near the Iranian port city of Bandar Abbas. Its transmissions resumed on October 11, shortly after the incident. Iranian crews have often turned off their ships’ transponders to evade detection and illicitly sell oil. The Sabiti had previously delivered one million barrels of oil to Syria, according to Tanker Trackers in September 2019. Iran’s sale of oil to Syria violated E.U. sanctions against the Assad regime and U.S. sanctions on Iran’s oil industry.

 

Since 1995, Iran has faced three periods of sanctions on its petroleum industry:

First round: In 1995, the United States  banned all American involvement with petroleum development in Iran. In August 1996, U.S. Congress passed the Iran-Libya Sanctions Act that imposed tough penalties on companies found investing more than $20 million a year in Iran’s oil and gas industry. Foreign companies suspended contracts in Iranian oil and gas fields and deferred bidding on new investments. The National Iranian Oil Company (NIOC) had to offer greater incentives to negotiate contracts for supplies formerly sold to U.S. companies. But the sanctions had limited short-term effect on Iran’s economy.

Second round: In 2010, during the Obama administration, U.S. Congress passed the Comprehensive Iran Sanctions, Accountability, and Divestment Act, which targeted firms investing in Iran’s energy sector or selling refined petroleum to Tehran. The law also imposed sanctions on foreign banks conducting business with Iran. In June 2010, the U.N. Security Council adopted Resolution 1929, which tightened sanctions on foreign companies aiding Iran’s nuclear program. In 2012, the European Union implemented a set of targeted sanctions that banned the import, purchase and transport of Iranian crude oil and petroleum projects. It also froze the assets of Iran’s Central Bank in the European Union at a time that E.U. countries imported 20 percent of Iran’s oil. International sanctions were lifted in 2016, six months after a nuclear deal with the world’s six major powers limited Iran’s nuclear program.

Third round: In November 2018, the Trump administration re-imposed sanctions six months after withdrawing from the 2015 nuclear deal. The Europeans, China and Russia—the other partners to the deal—continued to honor its terms. The United States granted temporary six-month waivers to a few countries—China, India, South Korea, Turkey, Taiwan, Malaysia, South Africa, Singapore and Sri Lanka­—that had long depended on Iranian energy. The waivers were lifted in May 2019, when the United States launched its “maximum pressure” campaign to cut Iran’s oil exports down to zero. The Trump administration also threatened to sanction any foreign company or country that dared to buy from Iran.

Tehran soon struggled to find buyers for its oil. Traditional customers, such as South Korea, halted purchases of Iranian crude. Chinese companies appeared more hesitant to do business with Iran for fear of financial penalties. In June 2019, China imported only 210,000 barrels per day (bpd) of Iranian crude—the lowest in nearly a decade and 60 percent below imports from Iran in June 2018. Iran’s oil exports plummeted, from a high of 3.2 million bpd in 2016 (after the first round of sanctions ended) to a low of 160,000 bpd in August 2019—down 87 percent from 2016. 

Tehran has employed four tactics to circumvent sanctions so it can continue to peddle its oil:

  • It has stored oil on its tanker fleet at sea while it searched for potential buyers willing to risk U.S. sanctions.
  • It has disguised its ships—by renaming them while at sea, reflagging them under other countries, and changing the unique identification codes—to evade international tracking systems.
  • It has reportedly turned off transponders required by the International Maritime Organization (IMO) to monitor ship movements.
  • It has conducted discrete ship-to-ship transfers of oil by turning off the transponders on its tankers. Iranian ships used offshore transfers to covertly deliver its oil to ships owned by countries including China and Syria.  

Iran has bragged about beating the sanctions regime. “If there is an art that we have perfected in Iran, and we can teach it to others for a price, it is the art of evading sanctions,” Foreign Minister Mohammad Javad Zarif said, in December 2018, at the Doha Forum. Between May 2 and September 10, 2019, at least a dozen Iranian oil tankers delivered crude oil to China, Syria, and Turkey.

 

Iran’s Tanker Fleet

The National Iranian Tanker Company (NITC) transports Iranian crude exports on behalf of the National Iranian Oil Company. The NITC began operations in 1955 with one 35,000-ton tanker. In the early 1970s, it became the 19th largest oil company in the world, comparable to other medium-sized companies—Italy’s ENI or private U.S. companies such as the Atlantic Richfield Company and Occidental. The NITC expanded its operations to keep up with Iran’s increasing oil exports. By 1974, the fleet included four tankers.

In 1987, at the peak of the so-called Tanker War between Iran and Iraq, Tehran had a total fleet of 17 tankers. During the conflict, Iraq attacked tankers ferrying Iranian oil, mainly at the northern end of the Gulf. One ship, the 176,000-ton tanker Dena, was attacked by Iraq five separate times between 1984 and 1987. The war made it difficult for Iran to transport oil cheaply because of increased insurance rates on Iranian cargo. As a result, Tehran increasingly relied on its national fleet.

Iran Tanker Fleet Growth

In 2012, Iran purchased 12 additional supertankers from Chinese shipyards, which expanded its fleet from 39 to 51 tankers. Iran’s total shipping capacity increased from 61.5 million barrels to 85.5 million barrels. By 2019, Iran had 54 tankers, including 38 very large crude carriers, or VLCCs, and eight Suezmaxes, according to Lloyd’s List Intelligence. It had a total shipping capacity of 14.1 million tons, or 102 million barrels, the NITC reported.

Since 2018, Tehran has been dependent on its large fleet to export oil as international tanker companies cut back on transporting its petroleum products due to the difficulty in getting insurance to carry Iranian cargo. After the United States re-imposed sanctions in 2018, Iran used its fleet in two different ways— to ship to buyers and to store oil for future sales. In March 2019, Iran used 12 tankers, over a fifth of its fleet, for floating storage of unsold stocks, according to MarineTraffic. In August 2019, with exports plummeting, Iran needed only 42 of its tankers to ship oil.  

Before sanctions, Tehran leased idle vessels to major oil companies. Between 2015 and 2017, the brief window when U.S. sanctions were lifted, the NITC signed 215 contracts to lease its tankers. The contracts were either for single voyages or time-charter agreements, which permit companies to charter ships for a set period of time. Tankers were leased to France’s Total, Royal Dutch Shell, Spain's Cepsa, Dutch energy firm Vitol, Hanwha Total of South Korea, India's Essar, Turkish refiner Tupras, and China's CNPC. Many of these companies terminated contracts with the NITC after the Trump administration reinstated sanctions on Iran’s shipping industry in November 2018.

In 2019, Tehran faced another problem: It needed to modernize its aging oil tanker fleet; 16 of Iran’s 54 tankers were at least 19 years old, according to international shipping records. Oil tankers typically have a lifespan of around 15 years to 20 years in the industry. In November 2019, Brian Hook, the U.S. Special Representative for Iran, described Tehran’s ageing tanker fleet as a “floating liability.” U.S. sanctions crippled its ability to buy new ships. Iran’s talks with South Korea about the purchase of 10 new supertankers were delayed by U.S. sanctions. An Iranian official said that Tehran was looking at “all options,” which included finding new ships in Vietnam and Greece.

Ownership of the NITC has been murky. It was originally run by the state under both the monarchy and the theocracy. It was privatized in 2000 after a consortium of three Iranian pension funds purchased its shares. But Western officials claimed that the company was still tied to the regime. The privatization was purportedly a fictional scheme to shield NITC from sanctions.

 

The Wandering Tanker  

In 2019, the Adrian Darya-1—originally named the Grace 1—became the most infamous case of tanker deception. The United States accused Iran of transporting 2.1 million barrels of crude for the financial gain of the Islamic Revolutionary Guard Corps (IRGC), which had been separately sanctioned. As the Grace 1, the tanker was originally flagged as a Panamanian vessel; it was seized by Gibraltar on July 4. British authorities claimed the ship was attempting to smuggle oil to Syria in violation of E.U. sanctions on Syria. Iran denied the claim but refused to name the buyer. 

Gibraltar released the oil tanker on August 15, after Tehran provided written guarantees that the ship would not deliver oil to Syria. On August 18, the Grace 1 changed its name to the Adrian Darya-1 and raised an Iranian flag before departing the Gibraltar port. After its release, the tanker wandered the Mediterranean as Iran looked for a buyer and a location to offload its oil.

The tanker changed its destination several times between August 15 and September 3. Its first destination was listed as Kalamata, Greece, but the Greek government said it had no contact with the ship, nor did it have the capacity to host a tanker. The ship then headed for Iskenderun, Turkey, but it went dark off the coast of Syria. On September 8, Iran’s foreign ministry announced that it had finally sold the tanker’s oil but did not name the buyer. The ship was tracked off the coast of Tartus, Syria. Britain claimed that Iran had sold the cargo to Syria. 

 

 

Smuggling Tactics

When Washington blocked one route Iran used to export oil, Tehran found another. “In future months, the Americans themselves will see that we will continue our oil exports,” Iranian President Hassan Rouhani said in April 2019.

Going “Dark”

Tankers are equipped with an Automatic Identification System or A.I.S. that continuously broadcasts their location. An International Maritime Organization treaty, overseen by the United Nations, requires all ships of 300 tons or more to turn on their A.I.S. when traveling international routes. The system was designed to avoid collisions and aid in search-and-rescue operations. It also allows local maritime authorities to monitor traffic around their border using on-shore receivers. In 2012, ships smuggling Iranian oil began turning off tracking signals and stopped reporting positions when they neared ports to mitigate buyers’ anxieties. In 2012, only seven of Iran’s 25 supertankers operated on-board transponders. The rest of the fleet traveled in stealth mode.

Between May and August 2019, at least six Iranian ships turned off their A.I.S. transponders when crossing the Suez Canal to hide their positions before they offloaded cargo in Syria and Turkey, The New York Times reported. Each tanker reemerged with a change in draft­­, the measurement of a ship’s depth in the water. In all six cases, the Iranian tanker left the Eastern Mediterranean riding lighter, which indicated that the ship had unloaded its cargo. During the same period, at least six other Iranian ships were tracked using similar tactics for covert deliveries to China.  

Reflagging and Renaming

Under international maritime law, merchant ships must be registered with a country. Tehran has registered the majority of its ships under flags of convenience, including countries such as Panama, Bolivia, Liberia, Togo, and Tanzania. These states maintain an open registry, which allows ship owners to register vessels without ties to the country. Most flags have nationality or residency requirement for ship registration. Countries that offer so-called flags of convenience typically have lax shipping regulations conducive to smuggling operations.

Some countries removed Iran’s tankers from their registries after the United States tightened sanctions. Between January and July 2019, Panama delisted over 50 Iranian tankers. Iran was forced to relist ships under its own flag, which in turn led foreign companies to be less willing to accept deliveries. Foreign maritime officials were also more likely to search ships with an Iranian flag.

To disguise ship identities, Iran also reflagged some of its tankers on the open waters to add an extra layer of protection to smuggling operations. Once a ship registers under the flag of a new country, that country’s laws apply to the vessel. Each country is responsible for the activities of the ships flying its flag and must ensure they abide by international maritime law. Reflagging tankers allowed Tehran plausible deniability for smuggling oil and breaking sanctions under the cover of foreign flags.

Iran also changed the names of its tankers to confuse global ship-monitoring systems. Iranian ships engaged in smuggling regularly changed their names—notably the Grace 1 became the Adrian Darya 1—to obfuscate illicit activities. In September 2019, Iran changed the names of three supertankers smuggling Iranian oil to China. The Sea Dragon was renamed the Nexo; the Ming Zhu was renamed the Artemis; and the Gas Infinity was renamed the Echo Star, according to data from Kpler. Each ship was assigned a unique IMO code, which made it possible for maritime intelligence companies to track the ships despite their name changes.

Ship-to-Ship Transfers

Iran used ship-to-ship transfers to conceal oil sales. In the shipping industry, transfers are commonly used to break up large shipments into smaller cargoes. Iran used the practice to transfer crude oil from its tankers—either stationed near a port or out at sea—to a non-Iranian vessel “to mask the fact that the true origin of the oil is from Iran and to introduce it into the global market as if it were non-Iranian oil,” according to the U.S. Treasury. The cargo, disguised as non-Iranian, was then sold to buyers.

In April 2019, Iran shipped as much as 300,000 bpd of oil using ship-to-ship transfers. Large VLCC tankers linked to China’s National Petroleum Company reportedly conducted ship-to-ship transfers of Iranian crude off the coast of Malacca. The oil cargo was then covertly delivered to China.

Offshore Storage

In 2019, Iran had insufficient on-shore space to store excess oil while searching for buyers, so it stored oil on large tankers that either sailed in circles around the Persian Gulf or docked in Iran’s territorial waters. In August 2019, Iran’s tanker storage capacity was full, with more than 111 million barrels stockpiled offshore on 12 tankers, a fifth of its total fleet. The large percentage of tankers devoted to storage reduced Iran’s export capacity.

 

International Maritime Coalition in the Persian Gulf

On July 22, the United States announced Operation Sentinel, an international maritime coalition to protect vital shipping routes in the Persian Gulf. The Pentagon said the mission would be “to increase surveillance of and security in key waterways in the Middle East to ensure freedom of navigation” in the Gulf, through which roughly one-fifth of the world’s oil passes. Britain also announced its own European-led “maritime protection mission” to safeguard international shipping lanes. London claimed it would coordinate with the United States’ Operation Sentinel campaign but launched its own initiative to include European countries that would not contribute to a U.S.-led force. On August 5, Britain formally said it would join the United States in a “new international maritime security mission” to protect shipping in the Persian Gulf.

The U.S. and British initiatives followed attacks on six foreign tankers between May and June outside the Strait of Hormuz in the Gulf of Oman. Operation Sentinel will escort flagged vessels of participating nations in coordination with European, Asian and Middle Eastern allies. The following countries have committed to work alongside or collaborate with the U.S.-led maritime mission: Australia, Bahrain, Britain, Israel, Saudi Arabia, and the United Arab Emirates.

 

Historical Cases

The following are documented cases of Iranian ships engaged in oil smuggling operations. The dates given for each ship represent the period of illicit activity.

 

The Tour 2: March 2012 –April 2013

Iran used multiple deceptive tactics to cover the tracks of the Tour 2, which discreetly shipped oil to the Assad regime in Syria. In 2007, Tehran reflagged the tanker from Iran to Malta; it also changed the tanker’s name from the Tour to the ISIM Tour to preemptively avoid U.S. sanctions. In September 2008, the United States announced sanctions on Tehran’s shipping industry, which prompted Iran to use foreign front companies to mask ownership of its tanker fleet. Tehran used a Maltese front company to disguise the Tour’s ownership and hide its connection to the Iranian government. In April 2012, Iran again reflagged the tanker to Bolivia while it was carrying smuggled oil through the Suez Canal. In June 2012, the ship appeared in a report by the U.N. Panel of Experts on Iran, which described specific instances of Iranian smuggling operations using its tanker fleet. After the report, the Tour 2 was listed under different names and flags, including the Sierra Leone and the Togo, but it remained in the service of Iran. The tanker delivered oil to the Assad regime at least three times between March 2012 and April 2013, according to the U.N. report.  

 

The Iran Astaneh: July 2012

The Iran Astaneh was an Iranian oil tanker registered to the NITC. In July 2012, Iran changed the vessel’s name to the Neptune to conceal its identity as an Iranian vessel and make finding a buyer easier. The tanker was anchored off the coast of Bandar Abbas and served as a storage facility for hundreds of thousands of barrels of Iranian crude in the Persian Gulf. In December 2013, the U.S. Treasury sanctioned the ship for its role in facilitating the illegal sale of Iranian oil.

 

The Millionaire: December 2012

The Millionaire was owned by the NITC but was flagged to Tanzania. Iran programmed the tanker’s GPS system to send incorrect satellite signals that confused global tracking systems. The falsified signals disguised the identity of the Millionaire as a Syrian-owned ship, the Lady Rasha. The tactic was used to confuse tracking systems and conceal the vessel’s destination. The Millionaire changed its MMSI—a code that provides information on a ship’s identity and position—to match the Lady Rasha’s number. One international tracking signal showed the Millionaire sailing the Lady Rasha’s course through the Mediterranean. Another satellite signal showed the tanker sailing though the Indian Ocean to sell its cargo in East Asia before returning to Iran.

 

Timeline

1908

Oil was discovered in Khuzestan province in the southwest of the Islamic Republic of Iran. The Masjid-i-Solaiman was the country’s first oil well. It was also the first well in the Middle East.

1912

The Anglo-Persian Oil Company built the Abadan oil refinery on the Persian Gulf. At the time, it was one of the largest oil refineries in the world and significantly increased Iranian crude oil production.

1920s

Iran became one of the top five oil producers in the world. It accounted for five to six percent of global production.

1951

Tehran nationalized the oil industry after a series of disputes between the Iranian government and Anglo Iranian Oil Company, which had been administered by the British government. Tehran formed the National Iranian Oil Company (NIOC) to manage its oil exports.

1955

The National Iranian Tanker Company (NITC) began operations with one 35,000-ton tanker. The NITC was formed to transport Iranian crude exports on behalf of the NIOC.

1974

The NITC had a total fleet of four tankers.

                                                                   1979  Revolution                                                                          

 

1984 – 1988 Iran-Iraq Tanker War

In 1980, Iraq invaded Iran. Saddam Hussein wanted to take advantage of the chaos following Iran’s revolution and weaken his top regional rival. Iraq attacked Iranian ships in the northern Persian Gulf starting in 1981, but Iran did not respond with similar attacks for three years. The so-called Tanker War was launched in March 1984 by Iraq’s airstrike on Iran’s Kharg Island oil terminus and several Iranian ships. Two months later, Iran began to target ships ferrying oil for Iraq. Between 1984 and 1988, a total of 451 ships were hit in the Gulf.

1987

At the peak of the war, Tehran had a total fleet of 17 tankers. The war made it difficult for Iran to transport oil cheaply because of increased insurance rates on Iranian cargo. As a result, Tehran increasingly relied on its national fleet.

1996

Aug. 5 - The U.S. Congress passed the Iran-Libya Sanctions Act to deter foreign investment in Iran’s energy sector. The act imposed tough penalties on companies found investing more than $20 million a year in Iran’s oil and gas industry.

2010

June 9 – The U.N. Security Council adopted Resolution 1929 which tightened proliferation-related sanctions on Iran. It banned Tehran from testing missiles capable of carrying nuclear warheads and imposed an embargo on the transfer of major weapons systems to Iran. Major players in Iran’s energy sector were liable to be sanctioned for supporting nuclear or ballistic missile development.

June 24 – The U.S. Congress passed the Comprehensive Iran Sanctions, Accountability, and Divestment Act, which targeted firms investing in Iran’s energy sector or selling refined petroleum to Tehran. It also imposed sanctions on foreign banks conducting business with Iran.

2012

Iran purchased 12 additional supertankers from Chinese shipyards, which expanded its fleet from 39 to 51 tankers.

Jan. 23 – The European Union adopted a set of targeted sanctions that banned the import, purchase, and transport of Iranian crude oil and petroleum projects, effective July 1. It also agreed to freeze the assets of Iran’s central bank in the European Union. E.U. countries imported 20 percent of Iran’s oil at the time.

July 12 – The United States first designated the NITC. “The Treasury Department is also identifying today the National Iranian Tanker Company (NITC) as a Government of Iran entity and, for the first time, the NITC fleet and various front companies belonging to NITC,” Treasury said in a press release.

Aug. 1 – The U.S. Congress passed The Iran Sanctions, Accountability, and Human Rights Act. It targeted companies conducting business with Iran’s national oil company and tanker fleet, such as insurers and shippers.

2016

The NITC owned 66 total oil tankers. Its fleet was very old, with 21 tankers built in 2000 or earlier.

Jan. 16 – The 2015 nuclear deal went into its implementation phase. The United States, European Union, and United Nations lifted or suspended certain sanctions. Iran also regained access to the international financial system, repatriated billions of dollars in frozen assets abroad, and returned to the oil market.

2018

May 8 – President Trump announced the U.S. withdrawal from the 2015 nuclear deal, known as the Joint Comprehensive Plan of Action (JCPOA), and reimposition of sanctions on Iran. Britain, France and Germany moved to salvage the accord. Iran stated its intent to continue with the deal if its economic benefits could be guaranteed. Both China and Russia said they intended to observe the JCPOA and continue to trade with Iran. Foreign companies began withdrawing from Iran rather than risk running afoul of U.S. sanctions. 

2019

Iran’s fleet totaled at least 54 tankers, including 38 VLCCs and eight Suezmaxes, according to Lloyd’s List Intelligence.

April 22 – The United States announced that it would stop granting sanctions exemptions to eight countries that imported Iranian oil: India, China, Turkey, Italy, Greece, South Korea, Taiwan, and Japan. “We will continue to apply maximum pressure on the Iranian regime until its leaders change their destructive behavior, respect the rights of the Iranian people, and return to the negotiating table,” said Secretary of State Mike Pompeo. He noted that oil sales accounted for up to 40 percent of Iran’s revenue. The Trump administration's stated goal was to bring Iranian exports down to zero. 

 

Photo credits: Dena tanker in 2007 by AlfvanBeem [CC0], from Wikimedia Commons; Home page photo of Dena by AlvanBeem [CCO], from Wikimedia Commons
Updated