How Iran Gets Paid For Selling Oil And Petrochemical Products Worldwide

ncovering Iran’s globe-spanning oil trade Matthieu Favas Commodities editor In the past few years I have spent a lot of time tracking the clandestine fleet of vessels that carry oil exported by countries under Western sanctions, such as Iran. These “shadow” tankers use an impressive range of tactics to hide their tracks. They turn off their transponders. They carry fake documents suggesting their cargo is from Iraq or Oman. They transfer their load, in the high seas, to other tankers off Malaysia. Eventually most deliveries make it to China, which buys 95% of Iran’s crude. Last month Iran sold more crude than at any time since the Trump administration reimposed super-strong economic sanctions in 2018. But shipping oil to China is just one part of the journey. Repatriating the proceeds is the other. This made me wonder: how is Iran being paid? And how does it move the money? With Iran and Israel on the brink of war, these questions are becoming increasingly important. My assumption was that Iran was largely being paid in yuan, which it recycled into imports from China, and that this money most often passed through Chinese banks that were too local to fear America’s wrath. After speaking to former sanctions officials, Iranian sources and intelligence professionals, however, it became clear that Iran’s laundromat was much cleverer and much bigger than that. Documents I obtained from sources, and others held by WikiIran, a website that solicits leaks from the country, confirmed this information. As I report this week, in just a few years Iran has built a shadow banking system that evades financial sanctions on a cosmic scale. Iran’s secret financial channels span the globe. The finance arms of its oil firms have set up thousands of front companies that pose as legitimate businesses but are in fact disposable vehicles for receiving and transferring money. These are scattered widely, though they cluster in certain hubs (see map below). Covertly using bank accounts in Asia, the Gulf and many other places (including Africa, Turkey and sometimes Europe), they move oil revenues to wherever Iran needs them to pay for crucial imports, sponsor armed groups or source weapons parts. The huge treasure pile mostly stays offshore. Its existence explains a number of puzzles. Even though Iran exports vast amounts of petroleum, its currency is struggling, because most of the dollars or euros it earns never make it back onshore. Iran’s households and small companies suffer from constant shortages, but state firms and regime loyalists manage to import everything they require, since they use currency stashed abroad. For this they can thank the central bank, which orchestrates the crazily complex array of fake firms and fund flows. This week America blacklisted a few Iran-linked tankers, shortly before the EU slapped sanctions on three of the country’s airlines. Our investigation suggests it would take a much bigger move to vanquish Iran’s money-laundering hydra. Send us your thoughts at moneytalksnewsletter@economist.com. → We calculate that, based on official data, Iran exported $50bn-70bn worth of oil and petrochemical products last year.