Iran has set up schemes to smuggle its fuel oil through neighbouring Iraq and is selling at least a billion dollars in fuel to circumvent the US sanctions. The scheme emerged after Mohammed Shia al Sudani took over as prime minister in 2022.
This was reported by Reuters with reference to five sources.
Iraq supplies fuel oil to asphalt plants at heavily subsidized prices and involves a network of companies, groups and individuals in Iraq, Iran and the Gulf states.
From 500 000 to 750 000 metric tons of heavy fuel oil (HFO), equivalent to 3.4-5 million barrels of oil, are exported from the factories to Asian countries every month.
Fuel oil is exported via two main routes to Iraq. For one of them, fuel oil is mixed during transportation from ship to ship and sold as pure Iraqi. This is how Iran circumvents sanctions on the export of energy resources.
When transported by other means, fuel oil, which was originally intended for the subsidy program, is exported. At the same time, they use fake documentation to hide its origin.
Iran has more to gain from the first path, writes Reuters. Iranian fuel oil is usually sold at a discount due to sanctions, but it can be sold at a higher price if it is passed off as Iraqi. Meanwhile, the second route benefits Iranian-backed militias in Iraq who control the smuggling scheme.
The Iraqi city of Basra has become the center of blending operations, while the ports of Khor Al Zubair and Umm Qasr are key export points.
With reference to the assessment of sources, the information agency notes that the profit from the sale of fuel oil can reach from one to three billion dollars a year.
Central to the smuggling operation is the Iraqi Shia group Asaib Ahl al-Haq (AAH), a paramilitary group and political party that initially supported Prime Minister Sudani and was a key member of the bloc that nominated him to office.
With the support of the Islamic Revolutionary Guard Corps (IRGC), in 2018 AAH became part of the Iraqi security apparatus and now has 16 members in parliament.
Also, one of the key roles in the smuggling scheme belongs to the State Mining Industry Company, which manages asphalt factories together with private companies.
One Western intelligence report noted that this state-owned firm was under the tight control of AAH during the administration of Prime Minister Sudani. It was used to export large volumes of fuel oil. AAH uses one of the state-owned enterprisesʼ plants to store fuel oil.
Oil Products and Distribution Company processes fuel movement requests that include vehicle numbers, cargo volumes and specifications, and identification information for each driver and truck.
And the PM-NOC firm inspects the fuel oil and approves the documents that allow the trucks to pass through the various checkpoints operated by the Iraqi Oil Police.
What preceded
In an earlier attempt to crack down on the illicit trade, Sudanʼs predecessor, Mustafa al-Kadhimi, ordered a review of the actual operating capacity of asphalt plants, cut their allocation and raised the price of subsidized fuel from $70 to $220 a tonne.
In January 2023, a few months after Sudani came to power, the price was lowered to $100-150 per ton, far below the market export price of $300-500. The lower the price of subsidized fuel, the higher the profit when exporting it to the international market.
In July, the Sudanese government raised the price of subsidized fuel oil to $369 per ton, recommended that asphalt plants be reduced to about 60% of capacity, and ordered a review of their actual capacity.
Reuters could not determine why the government launched the review or verify its findings. Subsidized prices have been gradually decreasing since August and are now between $228 and $268 per ton.
The Sudanese government also expanded licensing for asphalt plants to include 37 new projects, nearly doubling the industry overnight. Some of the projects were fictitious.
The reaction of the United States
The illicit trade potentially puts Iraqi institutions and officials at risk of US sanctions over aid to Iran. Some Iraqi officials are concerned that the administration of US President-elect Donald Trump may impose sanctions against them.
However, Iraqi leaders rely heavily on the support of influential Iranian-backed Shiite groups to stay in power. This complicates the fight against fuel oil smuggling.
The US is aware of the smuggling scheme.
"While we do not comment on specific discussions, we can confirm that the Department has emphasized to our Iraqi counterparts the harms of illicit trade and our support for a transparent supply of oil to the market," a State Department official said.
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