The oil smugglers of Tehran

Let’s say you are Iran. You are either developing nuclear arms, or for whatever reason wish to convey the impression that you are. And you want to continue doing so. But now your main flow of cash — your oil export earnings — is jeopardized by Western concerns that it is the former: You pose the threat of becoming a new, activist nuclear power. For financial and insurance reasons, but mainly to avoid the wrath of the United States and Europe, many of your usual international customers want less of your oil, or none at all.

If you are Iran, you adopt a dual strategy: You start talking with the West (above, chief Iranian nuclear negotiator Said Jalili at talks over the weekend). And you act to make it possible for risk-takers to buy your oil.

To accomplish the latter, you go stealth — you set up a mechanism so buyers of your crude can hide that they are defying U.S. and European wishes.

In a scoop, Reuters‘ Christopher Johnson and Peg Mackey report one way this is happening: Iran’s oil tanker company, known for short as NITC, has switched off the tracking devices on most of its 39-ship fleet. By international maritime law, these GPS-based transponders are installed on all such ships plying the seas.

In order to figure this out, Johnson and Mackey took a list of the 39 ships (like this one), and put it up side-by-side against the constant reporting carried out on this web site) by MaritimeTraffic.com. Then they interviewed a lot of traders. The result is a must-read.

I pulled up the sites last evening and this morning, and saw just two of the 39 ships listed – the Afagh and the Amol. In their check, Johnson and Mackey found reporting for seven of NITC’s 25 very large crude carriers, and two of its nine smaller Suezmax tankers. You can take a look yourself.

As discussed, it has been clear that Iran, in line with historical norms, would act to evade Western sanctions through smuggling. (Several readers have objected to my use of the word smuggle to describe the marketing of Iran’s crude — is it smuggling, they have said, if actors in the game are violating no law or U.N. directive? Technically speaking, shutting off one’s transponders is illegal, but more substantively, sneaking around to hide the sale of a product is a dictionary definition of smuggling, according to the Free Dictionary).

Of course, Iran may be a ways at this point from the apexes of modern oil smuggling: The South Africa sanctions-busting in the 1980s by Marc Rich and John Deuss, who secreted up to 280,000 barrels a day into Durban by methods such as the mid-sea transshipment of oil from one tanker to another; and the 1990s subterfuge by a long list of venerable Western companies and individuals who helped Saddam Hussain sneak up to 140,000 barrels a day onto the global market against a U.N. embargo.

The down side for Iran is the smuggling tax — an unwritten discounting formula that accounts for a buyer’s risk in the conspiracy. We don’t know what that tax is on Iran at the moment, but suffice it to say that Tehran is not receiving the $115-plus list price per barrel for its crude oil type.

Yet today’s generally high oil prices lessen the pain. Going forward, Iran’s interest will be to calibrate international tension, so as to sustain nervousness and keep oil prices up, while at the same time maintaining nuclear dialogue so as to hold off any military attack by Israel or the U.S.