Grounding Iranian Crude to a Halt
Through the Comprehensive Iran Sanction Accountability and Divestment Act (CISADA), passed in 2010, the United States Congress has taken strong measures to check Iran’s ability to abuse the international banking sector and the refined energy space.
Despite this act, however, Iran is using its vast crude oil reserves to skirt financial sanctions and gain access to huge sums of hard currency. Nevertheless, there are additional methods that members of Congress should consider deploying to curb Iran’s access to much-needed funds.
Iran holds the third-largest known oil reserves in the world and the second-largest natural gas reserves. According to Oil and Gas Journal, as of January 2010, Iran had roughly 10 percent of the world’s total oil reserves, with approximately 40 oil fields—27 onshore and 13 offshore—that hold mid-grade-quality crude similar to that found in Saudi Arabia, Iraq, and Kuwait.
In 2008, Iran exported approximately $73 billion worth of oil, which represented half of its government revenue. Crude oil and its derivatives accounted for nearly 80 percent of the country’s total exports. Until now, international sanctions efforts have focused on refined petroleum and gas products.
Major oil companies are finally turning their backs on this energy giant. In addition, measures like CISADA have significantly curbed international investment in Iran’s energy infrastructure.
But CISADA does not cover crude oil and the Islamic Republic is still able to export this commodity to the tune of billions of dollars annually. The top four importers of Iranian crude are Japan, China, India and South Korea. Depriving Iran of the ability to sell this commodity in the international market or significantly curtailing this ability would likely show the ruling Mullahtocracy that the writing is on the wall.
The policy community has floated a variety of suggestions as to how the international community might curtail Iran’s ability to sell its crude. The most popular recommendation is to “mark” each country’s crude, but this type of effort is costly, lengthy, and not practical.
Marking technology is still in its infancy and furthermore, the international oil market is traditionally fungible—as soon as ships purchase and load crude onto tankers, it is mixed with oil from other countries.
Others have suggested embargoing Iran’s crude directly. While definitions in international law vary, most experts concede that such an embargo would approach an act of war, or at least provide Iran with a credible casus belli against the ships of countries involved in the embargo. Moreover, even with wide international support, such a step would dramatically increase the price of oil, and with it the costs of transportation across the globe. Few wish to be responsible for such increases because of their ramifications for the international economy.
What, then, can the US and likeminded allies do to stop Iran from selling its crude, without coming perilously close to declaring war?
US law currently prohibits American companies or entities from purchasing Iranian oil, but because crude oil’s origins are murky, law enforcement authorities have been unable to enforce this. Everyone knows that oil tankers bringing their goods to American shores are carrying Iranian oil.
The US government may wish to introduce a law requiring every oil tanker coming to the U.S. to declare that it has not docked in an Iranian port in the last 36 months and is not carrying Iranian oil, and to submit to an inspection to prove this. Failure to comply could result in serious fines and other penalties. Punitive measures might include the temporary seizure of the transporting vessel and “jailing” the boat for a set period, but confiscation of the oil without compensation should certainly be among these measures.
Using simple online tools, any intelligence agency, law enforcement official and even policymakers can track where oil tankers are docked. Some tools are available online for free (e.g., www.marinetraffic.com), while others require a subscription available through a Bloomberg financial terminal. All utilize the Automatic Identification System (AIS) that the International Maritime Organization requires every ship to have onboard to identify and locate other vessels electronically by exchanging data with them. This system prevents ships from colliding with one another, but it would also make it relatively easy to track which tankers are docking in Iranian ports.
Would requiring tankers to declare that they are not carrying Iranian oil and have not docked in an Iranian port really provide measurable policy impact? In short, the answer is yes. Non-Iranian tankers would need to choose between the US market and the Iranian market, and it is a safe bet that most would choose the American market. This would seriously impede Iran’s ability to export its oil using non-Iranian tankers, which would leave only Iranian vessels, which are aging and also blacklisted. This, coupled with Iran’s limited insurance and reinsurance options, is a significant one-two punch.
Going forward, lawmakers will need to close the crude oil loophole that enable the Iranian government to gain access to massive quantities of funds. Iran has yet to develop a nuclear weapon, but experts agree that sanctions have thus far only delayed their efforts, not crushed their ambitions.
We must strenuously utilize every peaceful tool we have available; going after Iran’s crude may very well be the last non-military option left.
(Avi Jorisch, a former US Treasury official, is president of the Red Cell Intelligence Group, and the author of Tainted Money: Are We Losing the War on Money Laundering and Terrorism Finance? He can be reached at: [email protected])