Iranian efforts to export oil in spite of sanctions have often been successful. That changed in 2020 when HawkEye 360, a new ship tracking service made it much more difficult for ships to conceal their smuggling activities. Since 2015 a growing array of sensors and software to track ships at sea, especially ships that don’t want to be tracked, have been developed. One of these new sensors appeared in 2019 when HawkEye 360 launched its own array of radar tracking satellites. This enables tracking ships via the signals their navigation radars produce. These can be spotted by a satellite. Other electronic signals can also be tracked, like those used by large ships to communicate with the port they are headed for to unload their cargo.
Iran and North Korea are two nations that have the most tankers and cargo ships that regularly avoid being tracked. Many other ships belong to smugglers who also seek to move without being tracked and sometimes work for Iran, North Korea or anyone else requiring their service. HawkEye 360 customers include shipping companies, maritime police, managers of major ports and coast guards. Shipping companies want additional ways to track their ships while coast guards now have an affordable and powerful tool to monitor their offshore waters for smugglers and poachers.
Iran has long been the largest (in number of ships) smuggler and ss recently as mid-2019, Iranian leaders openly boasted of selling its oil to foreign customers despite the 2017 sanctions. At the time of that boast, Iran was getting a million BPD (barrels per day) out to export customers. In contrast, before the sanctions, Iran exported two million BPD. A month later (July 2019) exports had been reduced to 365,000 BPD and in August it was a record low 160,000 BPD and that did not change much in September. What the Iranians don’t do is issue press releases about how well sanction enforcement efforts have been at reducing those illegal exports to record lows.
In July 2020 Iranian oil exports fell to 101,000 BPD. Because of that overall production fell to 1.9 million BPD, mostly for internal use. Without sanctions Iran ships 2.5 million BPD and produces up to 3.7 million BPD. For the first seven months of 2020 exports averaged 223,000 BPD. Iran has had to produce oil it cannot sell or use to avoid shutting down many oil fields. That has led to Iran storing over 120 million barrels ashore and on tankers offshore. There is no more room to store unsold oil and Iran has to start shutting down oil production facilities, which is expensive to do and even more expensive to restart. Worse, it puts a lot of Iranians out of work.
There have been conflicting expert estimates about how much oil Iran is getting past the sanctions. In early 2020 most estimates put the January exports at about half a million BPD while the high-end estimates were a million BPD. The reality turned out to be on the low side. Since late 2019 the decline in Iranian oil sales has been spectacular. Oil shipments were, in early 2018, 2.4 million BPD but that fell to 1.5 million BPD in November 2019 and a million BPD or less in early 2019. This decline is not disputed. What is less clear is how successful Iranian smuggling efforts have been.
Tracking services like HawkEye 360 have become a major problem for Iran and other smugglers. HawkEye 360 monitors just about every electronic signal coming from a ship, and uses a software system that does predictive analysis to get a good idea of where a ship is no matter how little it uses its electronics.
Turning off navigation radar most of the time and keeping electronic communications to a minimum apparently doesn’t work against HawkEye 360. Moreover, going completely dark (no electronic signals) is dangerous. Even on the high seas the navigation radar is essential for spotting other ships in bad weather. Monitoring AIS (Automated Identification System) signals from other ships does not guarantee avoiding collisions in bad weather. Going completely dark means staying away from coastal areas most of time and this is more expensive because you have to spend more time at sea to reach your destination.
Whichever way Iran wants to describe it the current situation is worse than it was before the sanctions were lifted in 2015. That is because the Americans have adapted to past oil embargo scams while Iran and its outlaw customers have been unable to adapt quickly enough. The lifting of sanctions in early 2016 was good to Iran. In 2016 oil exports increased to two million BPD, a level not seen since 2012. Overall oil production increased to 3.8 million BPD. Exports in general quickly doubled from 2015 levels. Iran made plans to quickly achieve annual GDP growth of eight percent. That was all cancelled in May 2017 as the U.S. announced revival of sanctions. At that point oil production was 4.5 million BPD but it rapidly declined because regular oil customers reduced or cancelled orders. Most Iranian oil was exported and by late 2017 that export income was rapidly disappearing. Even China and India, two major customers who said they would defy the sanctions, cut orders because sanctions increased shipping costs and also increased the risk of Iran going to war. Sanctions mean the cost of insurance rises and fewer shipping companies are willing to provide tankers that move sanctioned oil.
A bad situation got worse in January2020 because of the coronavirus outbreak in China. This disrupted economic activity in many parts of China. The reduced the need for oil and China already has several large tankers stuck off their coast waiting for permission to unload. Until that is done, the oil producer does not get paid. The economic recession inside Iran got worse and anti-government demonstrations increased. Suddenly more Iranians were talking about the good old days of the 1970s.
The Iranian religious dictatorship leaders don’t like to dwell on the fact that before they took over after the 1979 revolution oil production was over 6 million BPD and closing in on seven million. The clerics have mismanaged the economy for over thirty years now and that is one reason they can no longer blame foreigners for all the problems. Even the failure of the oil smuggling effort was partly the fault of the Iranian government. For example, one major investment in their oil smuggling operations was the expansion of the Iranian fleet of tankers. Iran had learned that lesson during the 1980s Iraq war in which both nations attacked tankers moving their oil exports. This meant tankers could not get insurance and Iran had to rely on their own tankers. Since the 1990s Iran expanded its tanker fleet so that it could handle all its oil exports and ignore the insurance companies. By 2019 Iran had 54 large tankers with a total capacity of 102 million barrels. That was enough to handle normal exports of two million barrels a day to customers in Asia and Europe. Now the sanctions enforcement efforts have reduced that fleet to more of a liability than an asset. This was done by documenting Iranian violation of the terms by which it has its tankers operate using foreign registration. This is a common practice for all merchant ships but to be a legally recognized registrar nation there must be a minimum of rules that must be followed. Otherwise, insurance companies won’t deal with outlaw ships and many ports will not allow such outlaw tankers to enter. That, plus a shortage of cash means that Iran cannot get its aging tankers refurbished or repaired at more efficient foreign dockyards. Iran itself cannot refurbish most of their own tankers, as these ships are too large for Iranian shipyards to handle. Some repairs can be made but obtaining some large engine or hull components is difficult and often impossible because of the sanctions. Time is not on Iran’s side.
Iran has proved resourceful in the past when it came to finding new ways to smuggle oil, but the Americans now have decades of experience dealing with Iranian ploys and it has become more difficult to come up with new ideas, given that so many of the most effective sanction evasion methods have been neutralized or made much more difficult and expensive to use. Then along came HawkEye 360, which used some of the tracking techniques American intel agencies used to locate Iranian tankers. The intel agency techniques were no secret and HawkEye 360 simply took advantage of commercial satellite technology and developed their own tracking software. There was a huge commercial market for this degree of tracking and it was only a matter of time before something like HawkEye 360 came along.
Details of these Iranian schemes and American countermeasures are generally kept out of the news. Not just because the Iranian methods were usually illegal, but also because the U.S. and its allies didn’t want Iran to know the full extent of the new countermeasures. That veil of secrecy eventually fails because so many nations are involved and the details eventually get into trade journals and then the mass media. Some of the scams involve using foreign tankers taking on oil from an Iranian port. This is suspicious and means that tanker is now under surveillance. If that tanker then “ghosted” or “ran dark” by turning off its AIS, laws are broken. AIS allows ship owners and their customers, as well as any nearby vessels, to track the progress of large ships. Messing with AIS means a non-Iranian tanker carrying Iranian oil is an outlaw and probably illegally smuggling Iran oil to somewhere. This scrutiny of tanker activity has forced Iran to be more resourceful. That’s because more and more nations and international trade groups, not to mention insurance companies, will not deal with the Iranians or anyone who does.
Iran has also become aware that American surveillance of economic activity in the oil business is more thorough and robust than anticipated. For example, while few nations will openly cooperate with American sanction enforcement efforts, so as not to offend Iran or Iranian allies like China, many nations cooperate unofficially. Now the Iranians spend more time worrying about what their sanction enforcement adversaries are up to because, since 2017, the Iranians have found themselves the ones on the receiving end of unexpected developments.
Some of the new smuggling countermeasures include monitoring the nations that provide ship registry services while maritime insurance companies have their own array of regulations regarding who can have access to insurance coverage and who cannot. This is about more than shipowners being covered against accidents at sea or in port. Ships without proper coverage, especially for vessels carrying dangerous cargo like petroleum and natural gas, cannot enter many major ports or the territorial waters of most nations if they do not have the proper insurance. By mid-2019 Iran found it more difficult to conceal what its 61 tankers and dozens of cargo ships were doing which meant more shipping companies and nations refused to do business with Iran. For a while, Iran tried to rely on Chinese tankers using Iranian techniques. For example, the U.S. caught a Chinese tanker in the Indian Ocean using ghosting and, while its AIS was off, changed its ship registration to hide delivery of Iranian oil to a banned customer. Now the Americans are threatening to seize Chinese tankers if China does not enforce the terms of the Iranian sanctions.
Relations with China took a major turn for the worse when Iran staged a UAV attack on a Saudi oil export facility in September 2019 and unconvincingly tried to make it look like the work of Iran backed Shia rebels in Yemen. This disrupted Saudi oil exports for several weeks and that angered the Chinese. The largest oil importer in the world is China and most of that oil comes from the Persian Gulf. China said nothing publicly but canceled a multi-billion-dollar oil and gas field development project it had planned for Iran. Several other forms of Chinese cooperation with Iran were also suspended or cancelled. China moved the oil/gas development investments to Iraq.
Another smuggling technique, which is more expensive, is to illegally move oil to Iraq by truck. This activity is more difficult to monitor because there are many inland locations where the large (often-tractor trailer) tanker trucks can take on cargo and many roads that cross the border. There the Iranian oil becomes Iraqi oil and tanker ships can load Iraqi oil and deliver it anywhere. This form of smuggling is very expensive because your average tanker truck carries only 5,000 gallons, which is 120 barrels. It’s relatively easy, using photo-satellites, UAVs and local informants, to monitor the six ports equipped to load or unload oil tankers. Three of these ports are high capacity and capable of loading the supertankers that move most oil by sea. One of the three smaller terminals is on the Caspian Sea and could be used to smuggle oil via other nations but that does not appear to be happening. Monitoring all the road crossings from Iran to Iraq for tanker traffic is more expensive but can be done. That was how Iran was caught illegally smuggling oil to Syria. That was a desperate move but Syria itself is constantly monitored for the many items is cannot bring in legally because of sanctions against Syria.
Another major change in the oil business since the 1980s is that there are more suppliers because of fracking in North America and elsewhere. Because of fracking there has been a world oil glut since 2010. The OPEC oil cartel has restricted production to try and drive the oil price up but that only worked for a while and only partially. Even before Iranian oil sanctions were revived the oil price was declining again. There are plenty of oil producers willing and able to replace Iranian exports. Illegal Iranian oil exports are sold at a lower price because of the risk (financial costs if caught) and that also contributes to keeping oil prices low. If scrutiny is too intense the smugglers find they cannot reach many customers.
Since mid-2019 Iran has been threatening to close the entrance to the Persian Gulf (the Strait of Hormuz) and the Red Sea entrance as well. The Hormuz threats were a bluff because Iran would be hurt more than anyone else in the short term as well as going forward. A more immediate problem was Iran losing the cloak of secrecy that had long kept its smuggling methods out of the news. But if the oil smuggling does appear to be stymied for a long period Iran may well try desperate measures. That is also dangerous because Iran has an Arab minority, whose homeland is where most of the Iranian oil production is. There has been sabotage there by angry Arabs in the past and now those “accidents” appear to be happening again. A covert war against Iranian oil facilities is not inconceivable. That would do long term damage to Iranian oil facilities which are already in bad shape because so much maintenance has been delayed for years because of sanctions.
North Korea and maritime smugglers in general have had a bad year because of covid19 and HawkEye 360. While the virus will pass, as they usually do, tracking services only get more efficient and capable of detecting new Iranian smuggling techniques.
News Monitors – Strategy Page