Iran’s Oil Exports May Be More Resilient Than Headlines Suggest

Iran is resorting to “Houdini tricks” to sustain oil exports as US sanctions loom. New data suggests the magic might be working. With new sleights of hand including disappearing oil tankers, the use of floating storage, and ship-to-ship transfers, tracking Iranian exports is getting harder than ever, leading to divergent estimates from oil analysts.

While S&P Global Platts has reported Iran’s September exports at about 1.7 million bpd, marking an 11 percent decline from August, data from TankerTrackers.com, a service which reports shipments and storage of crude oil globally, puts the export volume at just over 2 million bpd. The divergence in the datasets represents not merely 300,000 bpd, but also the difference between two narratives about the state of Iran’s exports in the face of returning US sanctions.

As part of S&P Global Platts’ announcement of the September figures, Paul Sheldon, chief geopolitical adviser at company, stated, "Iranian export losses have already accelerated faster than we expected.” On this basis, Platts is predicting Iran’s exports will fall to 1.1 million bpd by November, when U.S. sanctions on Iran’s oil industry are set to return. Similar analysis from Bloomberg and Reuters has contributed to the sense that Iran’s exports are dropping fast. But these assessments may be leaving a significant number of barrels uncounted by failing to properly capture tankers which have turned off their geolocation transponders.

Samir Madani, founder of TankerTrackers.com, emphasizes that such tactics are making life more difficult for those trying to measure Iran’s export volumes. "September was a very resource-demanding month from a vessel tracking perspective for not just us at TankerTrackers.com but at some of the other trackers in the industry,” he said.

For Madani and his team, properly tracking tankers laden with Iranian oil requires extensive use of satellite imagery. “The reason is because roughly half of the exports were cloaked, meaning vessel crews switched off their AIS geolocation transponders before arriving into Iran to arrange the collection of crude oil,” Samir explained. “Their transponders were switched back on many days later, once they were already out of the immediate Gulf area.”

To overcome these cloaking tactics, Madani uses daily satellite imagery to “factor in vessels that were no longer broadcasting their positions.” This methods helps explain the significant discrepancy between his September estimate of Iran’s exports to China and that published by Platts. According to Madani, Iran’s state-owned National Iranian Tanker Company is particularly adept at cloaking exports in this manner, drawing on a playbook perfected in the previous sanctions period.

Any underlying resilience of Iranian exports is particularly important following reports that the United States is “actively considering waivers on Iran oil sanctions.” The exploration of waivers represents a break with the Trump administration’s previously communicated intention that “exports of Iranian oil and gas and condensates drops to zero.”

The level of imports covered by such “significant reduction exemptions” or SREs is typically determined by looking to historical import levels and the level of imports that can be reasonably restricted by sanctions. In this context, that Iran has been able possibly sustain over 2 million bpd in exports just one month before the reimposition of US sanctions bodes well for the extent of the waivers that may be offered. In likely anticipation of waivers from US authorities, India has already announced that it plans to import at least 9 million barrels of Iranian crude in November.

In an interview conducted during the United Nations General Assembly, President Hassan Rouhani told NBC’s Lester Holt that “The United States is not capable of bringing our oil exports to zero” and describe the Trump’s administration's threats as “empty of credibility.” Despite hopeful signs, Iran’s oil exports magic show is still in its first act. Whether Rouhani can outdo the great Houdini is yet to be seen.

Photo Credit: Imaginechina

Over-Compliance on Iran Sanctions Can Lead to Discrimination

Ireland’s Workplace Relations Commission has fined an unnamed bank EUR 20,000 for discrimination against an Iranian couple. As reported by the Irish Times:

WRC Adjudication Officer Marian Duffy found that the bank did discriminate against the two on the grounds of race. Ms. Duffy said that ‘alternative methods to counter money laundering/terrorist financing and US sanction breaches were open to the respondent… These include the implementation of robust IT systems and procedures, customer advice/guidance and information systems and/or a helpline as part of the process to monitor account activities.’

The comission found that the bank’s policy was neither appropriate nor necessary to achieve its stated aims and therefore was not objectively justified. The bank fundamentally was racially discriminatory in their actions. The bank had stated previously that it has no appetite for dealing with Iranian affiliated customers over risks of sanctions and as a result of maintaining a small presence in the US.

In another example of discrimination, S&P Global Platts had banned Iranian nationals from attending a conference it was holding in London over sanctions fears. The company reserved this ban rapidly following a report in the Financial Times which sparked outrage.

In both the case of the Irish bank and the S&P conference, we see an an overreaction to Iran sanctions, which will only be exacerbated by the US withdrawal from the Joint Comprehensive Plan of Action (JCPOA). 

OFAC and the New Culture of Compliance

Compliance officers have a job to do. That job is not easy. Since the global financial crisis in 2008 a whole heap of new regulations have been introduced surrounding financial services on all fronts. Some industries, such as shipping, are plagued by fraud and corruption relating to banking and letters of credit. This leaves compliance officers with the fear of being held personally liable (as officers responsible for anti-money laundering often are) for even the slightest of mistakes. These mistakes can, of course, have serious personal ramifications.

The “take no chances” attitude now common among compliance officers looking to protect a banks from potential breaches and the resulting penalties, is only intensified when you add the factor of Iran.

On one hand banks see Iran as a nation with a large, successful patriotic diaspora who, regardless of what views they hold, have a deep connection to their country both sentimentally, physically, and often financially. Iran is a country with a huge consumer market and significant economic potential. But there is a catch—Iran is on the wrong side of the most powerful financial enforcement authority in the world; Office of Foreign Assets Control, known as OFAC.

For those who maintain connections to Iran—practitioners, businessmen, professionals and Iranians abroad alike—discrimination is unfortunately not uncommon. Bank accounts connected to Iranians or used for Iran related business have been regularly closed over the last ten years, including the accounts of students who rely fully on money sent by family in Iran.

The reason for these closures can be traced to OFAC, part of the US Department of Treasury. OFAC has issued fines ranging from hundreds of millions to billions of dollars against varying institutions—from RBS to Standard & Chartered, and even the Chinese telecommunications company ZTE. In fact, OFAC has generated so much income from sanctions penalties, that the UK decided to set up its own version, OFSI (Office of Financial Sanctions Implementation) in 2016.

From just a brief look at the scale of fines involved—USD 1.2 billion levied on ZTE alone—it is not hard to see why a compliance officer would not want to follow the law to the letter. But therein lies the paradox: which law?

Conflict of Laws and Regulation

We live in an ever-growing and increasingly interconnected financial market. United States is, and shall remain for this generation at least, the crown jewel at the heart of the global financial market. International companies make more money being present in the US market than in any other market, and this requires being on the “right side” of US laws. For this reason, many companies instinctively abide by US laws even in jurisdictions where these laws would seem not apply.

Since the implementation of the Joint Comprehensive Plan of Action (JCPOA) in 2015, the European Union has permitted its companies to invest in Iran by lifting most of the sanctions. But the United States had only removed secondary sanctions as part of the nuclear deal, not the primary sanctions which restrict “US persons” from trading with Iran. Following President Trump’s withdrawal from the JCPOA, and the announcement that secondary sanctions would be returning, many consider the deal to be doomed. But the remaining signatories remain in compliance with the agreement for now. 

This has left compliance officers at many multinational companies somewhat confused. What laws ought they abide by, those of the EU or the US? On international trade, the answer is simple. If you have connections to the US or a desire the conduct business in the US market, it is best you comply with US regulations.

However, it is also important not to breach local laws in other jurisdictions in which you operate. There can be a contradistinction between abiding by sanctions and breaking the law. For example, a compliance officer may advise against doing business with Iran, but he/she cannot take a broad brush approach and punish Iranian customers by virtue of their race. While the “take no chances” approach to sanctions may make it attractive to comply with US regulations absolutely, without considering local laws, companies are playing with fire and leaving their organizations at risk of unlawful activity that could have serious consequences.

On matters relating to human affairs, it simply does not matter at all if a company has a US presence, discrimination can and should have very severe consequences. OFAC guidance is vague on a whole range of matters, including instances where there is a conflict between EU and US law. But case precedent is building in Europe against acts of over-compliance. Regulators and judges may not be as harsh now, as there may be some understanding of the confusion stemming from a fluid situation. But the courts will be far harsher later, once their position has been established.

It is therefore imperative, before any overreaction has been made by the US withdrawal from the JCPOA, that local legal advice is taken. Remember, we are not back in the former sanctions era of 2006-2015. The EU is not participating in sanctions against Iran.

Finally, those on the receiving end of such discrimination should take immediate legal advice. The more cases which are pursued, the greater the chance that justice will prevail in the end. As relayed in the word’s of Arcesilaus, “Where you find the laws most numerous, there you will find also the greatest injustice.”

Photo Credit: Surrey Court