Iran is using oil to find gaps in international sanctions

September 5, 2012

By Kristen Silverberg and Dr August Hanning. The opinions expressed are their own.

The case of Standard Chartered Bank has demonstrated that there are still gaps in the international sanctions regime concerning Iran. In the financial sector, the existing regime can be improved. However, the European sanctions targeting the Iranian oil and gas sector also have significant weaknesses. It is necessary to identify these   weaknesses and to close them as quickly as possible.

In January and in July the European Union implemented an important new sanctions regime prohibiting the importation of oil from Iran. These sanctions are significant, and provide a real opportunity to increase pressure on Iran to make meaningful concessions on its nuclear program. However, past experience with Iran has demonstrated that government’s skill at evading international sanctions. To make these sanctions meaningful, the international community needs to continue to work to close off any avenue that would allow Iran to support its nuclear program through oil revenues.

To counter the European oil ban, Iran is already setting up private companies through which it aims to sell its oil. This move, although anticipated, confronts the EU with a new challenge to secure enforcement of the oil sanction. If Iranian oil is routed through several layers of private oil traders, it will generate complex paper work making it very hard if not impossible for European customers to trace the oil back to Iran.

To better enforce the sanctions, some proponents have suggested the EU set up arrangements for chemical testing of incoming oil at the point of delivery. Every batch of oil has a unique chemical composition tantamount to a fingerprint of its origin. Such a process would be very expensive; all the more so since no such testing facilities currently exist in European ports. It also has to be recognized that testing is only foolproof if the oil is not blended before delivery. Any blending would change the chemical composition and make it impossible to identify the oil as Iranian. Without additional steps, the European ban on Iranian oil might only last as long as it takes Iran to set up its circumventing measures.

Another way to limit Iranian oil sales is to focus on efforts to disrupt Iran’s tools for oil deliveries – its tankers. Earlier this summer, the U.S. Treasury announced sanctions against the National Iranian Tanker Company (NITC) and the vessels that it controls. This is a positive step, however, concentrating on tankers will only be partially effective. Iran has already begun the process of reflagging, repainting, and renaming the ships to disguise their origin, then transferring their official ownership to Iranian and non-Iranian front companies. As a consequence, these vessels will continue to operate in large parts of the globe while the international community is trying to catch up. This is a difficult and expensive endeavor, delivering only partial success at best. As long as these tankers are allowed to operate, they continue to serve as the financial lifeline of the Islamic Republic.

To fully enforce the EU sanctions, and cut off avenues for Iranian deception and circumvention, UANI-ISD Iran Initiative advocates measures to ban sales of spare parts for Iranian tankers. By denying access to spare parts, Europe can make it considerably more difficult and certainly more expensive for Iran to sell its crude. The majority of Iranian tanker engines are manufactured by a small group of European companies. The highly specialised nature of these engines, along with the fact that multiple tankers are often ordered and produced at once, means that many of the vessels share the same diesel engine design. The Sulzer RTA84T engine for example, powers at least nine different Iranian tankers. This means that targeting even a small number of engine spare parts could impact on a comparatively large proportion of Iran’s oil transport fleet.

Measures against tanker spare parts will result in substantial, sustainable pressure on the oil flow of the Iranian regime, potentially cutting it off from billions of dollars in proceeds and compelling Iran to at last agree to meaningful and concrete concessions on its nuclear programme. If the current negotiations were to make some progress they could open the way to a peaceful solution. If they fail, the Persian Gulf is likely to be further, dangerously destabilised. It is in Europe’s interest to do everything possible to ensure a successful conclusion of the talks with Iran.

Kristen Silverberg is a former U.S. ambassador to the European Union and Assistant Secretary of State for International Organization Affairs. Dr August Hanning is a former German State Secretary in the Federal Interior Ministry as well as the former head of the German Federal Foreign Intelligence Service (BND). The two authors are members of a transatlantic initiative by the U.S.-based group United Against Nuclear Iran (UANI) and the U.K.-based Institute for Strategic Dialogue (ISD).

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