U.S. Widens Sanctions On Iran’s Energy Network That Is Key To Funding Terrorism

From the imposition of the first major international sanctions against its energy sector following the 1979 Islamic Revolution, Iran has been developing a vast network through which it continues to sell huge quantities of oil and gas to virtually anywhere it wants. Iran is so proud of its ability to avoid all sanctions thrown at it that in December 2018 at the Doha Forum, its then-Foreign Minister, Mohammad Zarif, stated that: "If there is an art that we have perfected in Iran, [that] we can teach to others for a price, it is the art of evading sanctions." However, last week saw the U.S.'s Department of Treasury's Office of Foreign Assets Control (OFAC) apply sanctions against Iran to a broader part of its international support network, especially to those entities and officials involved funding the Islamic Republic's proxy terrorist organisations - Hamas and Hezbollah. Whether these new sanctions will prove any more effective than the previous ones, given the omission of any notable entities and officials in Iraq or China, is highly questionable.

OFAC's new sanctions are focused on 20 individuals and entities for their involvement in financial facilitation networks for the benefit of Iran's Ministry of Defense and Armed Forces Logistics (MODAFL) and Iranian Armed Forces General Staff (AFGS), and the Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF). "The IRGC-QF and MODAFL continue to engage in illicit finance schemes to generate funds to fan conflict and spread terror throughout the region," said Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson.  "The United States remains committed to exposing elements of the Iranian military and its complicit partners abroad to disrupt this critical source of funds," he added. Interestingly for two reasons, among the long-suspected list of names and companies that have now been sanctioned, are companies in Hong Kong and the United Arab Emirates that are suspected of being part of the network that sells billions of dollars' worth of commodities to customers in Europe and East Asia. The first reason is that it is Hong Kong and not China directly that is being sanctioned by the U.S. - further evidence of the limited rapprochement between the two countries towards Washington's purpose of avoiding a widening out of the Israel-Hamas War, given Beijing's now extensive influence across the Middle East, as analysed in depth in my new book on the new global oil market order. The second reason is that, unlike China, the UAE is directly targeted - another signal of Washington's displeasure of its failure to play its role in the U.S.'s vision of the new global oil market order, as also delineated in my new book. Related: COP28: Arab Coordination Group Promises $10B To Assist Developing Nations

The key omittance in the U.S.'s new sanctions plan is any targeting of notable individuals and entities in Iraq. Iran wields enormous influence over its neighbour through a vast array of political, economic, and military proxies operating in both the north and the south of the country. Through these, Iran has long been able to send as much oil and gas as it wants to virtually anywhere it likes. All these methods are also analysed in full in my new book, but at the core of them all is the unalterable fact that Iran and Iraq share several of their main oil reservoirs. Some notable examples of shared reservoirs and fields are Iran's Azadegan oil reservoir (split into North and South fields) that is exactly the same reservoir upon which sits Iraq's Majnoon oilfield. The same feature applies to Azar (on the Iran side)/Badra (on the Iraq side), Yadavaran (Iran)/Sinbad (Iraq), Naft Shahr (Iran)/Naft Khana (Iraq), Dehloran (Iran)/Abu Ghurab (Iraq), West Paydar (Iran)/Fakka/Fauqa (Iraq), and Arvand (Iran)/South Abu Ghurab (Iraq). And there are many others. It is literally impossible to tell what oil has come from the Iranian side or the Iraqi side of these fields, which means that Iran is able simply to rebrand its own (heavily sanctioned) oil as (completely unsanctioned) Iraqi oil and ship it anywhere it wants.

Once in transit, additional sanctions-busting methods can be used to disguise its true place of origin further, as also analysed in depth in my new book on the new global oil market order. One very simple but effective tried-and-trusted method is simply to disable - by just flicking a switch - the 'automatic identification system' on ships that carry Iranian oil, which means it disappears from electronic maritime navigation plotters. Another equally simple but effective method is just lying about the place of origin, its destination, or what cargo is on board. A final well-used additional safeguard is ship-to-ship transfer of the oil cargo closer to the final destination, with Malaysia and Indonesia territorial waters having long been favourites for transfers of Iranian oil ultimately headed for China. Again, so proud is Iran of these methods that even its own long-serving former Petroleum Minister, Bijan Zanganeh, publicly highlighted this very practice when he said in 2020: "What we export is not under Iran's name. The documents are changed over and over, as well as [the] specifications."

Given that the U.S. government must know how Iraq is being used by Iran, one conclusion as to why nothing is being done about it is that Washington is still optimistic that it still has something of a future in the country. Having expended so much blood and treasure in Iraq, this is entirely understandable, as is the geopolitical reality that if the U.S. gives up on the country then it is unlikely ever to be able to reassert any true influence in the entire region, having now completely lost Saudi Arabia, the lead up to which is also fully analysed in my new book. In brief, it began when Saudi then-Prince Mohammed bin Salman was desperate to find a way to save face over his ill-fated idea to list Saudi Aramco (a failure would have ended his political career in Saudi Arabia), and it concluded when the Kingdom agreed to resume relations with historical enemy Iran, in a deal brokered by China.

Another conclusion, running alongside the former perhaps, is that the U.S. does not necessarily want to truly damage Iran's oil and gas exports - rather, it wants to be able to do so only if absolutely necessary. The U.S. wants Iranian oil flowing because it helps to keep oil prices lower. And lower oil prices reduce the chance of an economic downturn in the U.S. ahead of the Presidential Election in 2024 on 5 November 2024, and with it the electoral chances of the Democrats. As also thoroughly analysed in my new book on the new global oil market order, since the end of World War I in 2018, the sitting U.S. president has won re-election 11 times out of 11 if the U.S. economy was not in recession within two years of an upcoming election. However, sitting U.S. presidents who went into a re-election campaign with the economy in recession won only one time out of seven. And rising oil and gas prices have a dramatic effect on the U.S. economy. Historically every US$10 pb change in the price of crude oil results in a 25-30 cent change in the price of a gallon of gasoline. And for every 1 cent that the average price per gallon of gasoline rises, more than US$1 billion per year in consumer spending is lost. In addition to this, the new sanctions may also be aimed at appeasing Israel's calls for further help against Iran, and domestic U.S. voices urging such measures. These were led in the aftermath of Hamas's 7 October attacks on Israel by senior Republican Senator, Lindsey Graham, who suggested that the U.S. and Israel destroy Iran's oil infrastructure entirely.

By Simon Watkins for Oilprice.com

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