Why are Iranian oil vessels vanishing at sea?

In  2014 an oil tanker coming from the United Arab Emirates (UAE) carrying diesel fuel disappeared from global tracking satellites in the Arabian Sea on its way to a Pakistani port. 

When its transponder—which signals the vessel’s location—was switched back on, it showed the ship had made a stop at a port in Iran, which was under international sanctions at the time.

Trading in Iranian oil, sold at a steep discount, could have invited stifling US sanctions on all the parties involved in the trade, prompting the banks to refuse payment for the shipment. 

The Pakistani middleman who arranged the cargo was arrested shortly after in Dubai as the banks feared they could be penalised and refused to clear his checks. But the matter was hushed up, and no investigations followed. 

With the US sanctions targeting Iranian oil exports coming into force once again from November 5, vessels carrying Iranian oil have started to, once again, go dark in the open seas. 

Data analysts who keep track of shipping lines have noted dozens of instances where the transponders of the vessels had been switched off, making it difficult to ascertain where the Iranian oil is headed. 

Such reports began emerging in September but by late October all the Iranian vessels had vanished from international tracking systems, according to TankerTrackers.com.

"Iran has around 30 vessels in the Gulf area, so the past ten days have been very tricky, but it hasn't slowed us down. We are keeping watch visually," Lisa Ward, a co-founder at TankerTrackers.com, told AFP. 

Traders are now using satellite images to follow the path of such vessels. 

US President Donald Trump announced re-imposition of sanctions in May this year after pulling out of a 2015 nuclear deal. 

The move is opposed by Britain, China, France, Germany and Russia, the other signatories to the deal, as well as the European Union, who all say that Iran is keeping its promise of not developing the nuclear weapons.

The Trump administration has published a sanctions list of 700 Iranian companies, individuals and entities including more than a hundred shipping vessels and 67 aircraft. 

Any company dealing with a sanctioned entity or individual is liable to face US financial penalties such as a ban on transactions in US dollars, the benchmark currency of international trade.

No easy way out

Oil is central to Iran’s economy, making up half of its government revenue and 70 percent of the export earnings. 

Iranian oil exports, which jumped to 2.8 million barrels a day in April have slid to 1.8 million bpd last month - but still not close to the US intended level of near zero. 

“The impact of the sanctions is stronger than last time,” James Rickards, an American lawyer and economist, told TRT World. “We are seeing the same symptoms of high inflation, extreme depreciation of the currency and a lot of social unrest.” 

The US Department of Treasury has also imposed sanctions on 70 Iranians banks and financial institutions such as Bank Milli and The Export Development Bank of Iran, cutting them off from the global payment system. 

Under pressure from Washington, the Belgian based Swift, Society for Worldwide Interbank Financial Communications, announced on Monday suspending Iran’s access to its messaging platform.  

Swift is used by 11,000 banks in more than 200 countries to carry out financial transactions. If you’ve ever done an international transaction, you’ve probably encountered the “swift code”. When Iran was banned from Swift in March 2012, Tehran wasn’t able to participate in international trade using euros. 

Technically, US foreign policy measures, like economic sanctions, are not obligatory for other countries, but because of the US's strong influence in the financial world, many nations tend to follow its line for fear of an economic blowback. 

Every dollar-denominated transaction, be it a payment for imported oil, or remittance being sent home from another country, has to go through New York’s dollar clearing system. 

That’s the reason even companies in the EU, which has opposed sanctions and assured executives of its official support, have pulled out of Iran. For many, such as France’s Total and Germany’s Siemens, losing the much more valuable  American market a bigger risk than doing business in Iran. 

To circumvent sanctions in the past, Iran has used gold to receive payment for its oil exports and import of manufactured goods. 

However, the US is not taking any chances this time around. 

In October, the Financial Crimes Enforcement Network, an arm of the US Treasury, asked international banks to carry out additional due diligence of gold-related transactions even if there is no obvious connection with Iran.

Better intelligence gathering than six years ago and the threat of secondary boycotts would discourage foreign firms to take the risk, says Rickards. 

“There’s always going to be smuggling; there’s going to be somebody who is trading in Iranian oil. But the question is how big is that relative to the Iranian economy.” 

At this stage, it's hard to gauge the impact of sanctions on Iran, but at current prices, Iran’s inability to sell oil could cost it more than $25 billion a year.