How Iran’s ghost fleet works against oil sanctions
To protect itself from international sanctions, Iran has a "ghost" fleet that allows it to clandestinely transport oil
Now that its troops deployed in the Middle East are in Iran's sights, America may want to cut Tehran's crude off the global market. If it wanted to, however, it would have to deal with the fleet of ghost ships that clandestinely transport Iranian oil to its final destinations. Here is what the Economist writes about an option that would certainly have its effects felt on the price per barrel.
The Dark Fleet
Iranian oil enters the market thanks to what is defined as a 'dark fleet' which today transports 1.4 million barrels per day to its destination (compared to 380,000 in 2020).
This trafficking continues undisturbed because the US has stopped enforcing its sanctions. Washington now aims to sign a new nuclear agreement with the Islamic Republic, but also to reduce oil prices in view of next year's presidential elections. The number of individuals and companies linked to Iran currently on the US blacklist has thus fallen to an all-time low.
The network through which Iran exports and sells its oil has become more sophisticated than the one that was in place when Donald Trump re-established the sanctions apparatus in 2018. Today 95% of Iranian oil is purchased from China but not from giant state companies (subject to Western sanctions) but from a group of refineries that hoard cheap oil that Iran sells at a 10-12 dollar discount compared to the global benchmark (against the 5 dollar Russian discount). Transactions are made in Chinese currency rather than dollars, thus protecting them from sanctions.
The journey from Iran
A fleet of old oil tankers, purchased by unknown intermediaries, are responsible for the deliveries and are thus experiencing a new life. Although these ships make very few voyages per year, the profits for the owners involved in this clandestine traffic are remarkable.
Iranian barrels predominantly begin their journey on Kharg Island, north of the Strait of Hormuz, although a small number of vessels instead set sail from Jask, a new port located south of the Strait. The ships travel with their transponders turned off and rarely make the entire journey, as most unload the oil at ports in Malaysia or Singapore where smaller ships pick it up and take it to China, often after mixing it with other types of crude oil of producers such as Venezuela.
New sanctions?
The Americans have so far put a good face on the bad situation, but after Hamas's October 7 attack on Israel – carried out with Iranian complicity – pressure has increased in Washington to take this illicit source of profit away from the regime.
The problem is that, to enforce the sanctions, the collaboration of the Chinese government would be necessary, which has no benefit from it. Targeting facilitators is more difficult today than when Donald Trump made no concessions and other countries such as India and South Korea were playing the American game.
Options on the table
The only option open to the US administration would be to seize and sink the ghost tankers, but this, in addition to endless legal problems, would draw the ire of the ayatollahs on the many American objectives in the Middle East.
And then there is the question of the price of oil, which is certainly destined to rise with the disappearance of Iranian supply. In the best-case scenario, the price would rise by five dollars a barrel.
But even in the presence of a catastrophe there would be a remedy, represented by the increase in production of the other OPEC members, which could cover any shortfall in abundance.
Much will depend on how the crisis in the Middle East evolves, and on Washington's actual desire to subdue Iran.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/mondo/iran-flotta-oscura-petrolio/ on Sat, 28 Oct 2023 06:06:32 +0000.