Iranian Oil Smuggling and Naval Piracy Fail to Blunt Sanctions

As Washington’s net of sanctions continues to tighten, Iran has mounted a campaign of naval and diplomatic brinkmanship toward America’s Arab and European allies. Despite these efforts — and a sophisticated Iranian oil smuggling campaign in Asia — American sanctions are dealing the Iranian economy a series of blows which are proving increasingly difficult to sustain.

 IRAN THREATENS EUROPE, IRAQ

Iranian President Hassan Rouhani issued an unusually blunt threat on Tuesday in a speech broadcast live on state TV. He reminded the audience that international shipping might not be safe in the Strait of Hormuz oil waterway: “Peace with Iran is the mother of all peace, war with Iran is the mother of all wars.” He also warned that Iran’s military would exact retribution from Western powers “a strait for a strait. It can’t be that the Strait of Hormuz is free for you and the Strait of Gibraltar is not free for us,” Rouhani said.

The statement followed the seizure by the Revolutionary Guard Corps’ naval forces of an Iraqi vessel in the Arabian Gulf. This marked the third such seizure in recent weeks, and a pointed threat at Iran’s Arab neighbors. “The IRGC’s naval forces have seized a foreign oil tanker in the Arabian Gulf that was smuggling fuel for some Arab countries,” said the paramilitary’s forces commander Ramezan Zirahi, according to state-run media. The Iraqi ship was reportedly carrying about 185,000 gallons of fuel, though the nationality of the crew remains unknown. Contrary to initial reports, the Iraqi oil ministry denied having ties to the seized ship.

As if to emphasize Tehran’s indifference to Iraqi sovereignty, this week a crucial Iranian proxy mused publicly about toppling the Iraqi government in Baghdad. Deputy Secretary-General Nasr al-Shammari of the al-Nujaba Movement remarked during a meeting with former secretary of the Iranian National Security Council Saeed Jalili, “If any Iraqi government takes a step against Iran, it will be toppled in some few ‎weeks.”

Tehran has also maintained a steady drumbeat of threats to exit what remains of the JCPOA unless Europe intervenes to provide more sanctions relief. According to Behrouz Kamalvandi, spokesman for Iran’s Atomic Energy Organization, “With the continuation of the inaction of the Europeans in carrying out their commitments [to the nuclear deal] ... Iran will take a third step [in reducing commitments] in approximately one month.” He added, “What is certain is that by putting aside or suspending our commitments we will increase the speed of our nuclear activities.”

 IRAN ATTEMPTS TO EVADE SANCTIONS

At the same time as Iran’s political echelon is attempting to push back against American containment through military threats or diplomatic maneuvering, massive smuggling efforts are underway to cushion the impact of the sanctions on the Iranian economy. According to efforts by the New York Times to track Iranian shipping, at least 12 Iranian tankers have unloaded oil in Asian and Mediterranean ports since May 2, indicating an ongoing effort to skirt sanctions through illicit smuggling. These efforts so far appear to be local and scattershot, however.

Meanwhile, where the U.S. has discovered sanctions violations, the punitive response has been swift. On July 22, Secretary of State Pompeo announced new sanctions targeting Zhuhai Zhenrong, a Chinese state-owned enterprise, and its senior corporate executive, Li Youmin, for “violating U.S. restrictions on Iran’s oil sector.” According to Mr. Pompeo in a July 25 interview with Bloomberg TV, “We have a pretty good bead on where these ships are moving around… Wherever we find violations, we will do our level best to enforce them completely and thoroughly.”

In the larger analysis, Tehran’s efforts appear to have accomplished little more than slightly mitigating the damage. The IMF estimates that the Iranian economy will shrink by 6 percent in 2019, an enormous contraction equivalent to the steepest decline in US GDP during the Great Recession. Average costs for residential housing in Tehran have soared 91.5 percent in the past year, according to data released by the Iranian Central Bank.  Perhaps most critically, the Iranian rial has lost some 60 percent of its value since President Donald Trump withdrew from the JCPOA and re-imposed economic sanctions.