Not by drones alone: Iran is bypassing Western sanctions, making it a standalone business. And it seems to be actively teaching russia this
What two "terrorist countries" have in common as for their economic and political development and what this can bring in the future.
After the invasion of Ukraine, Iran became russia's main military ally. Since August alone, Tehran has supplied moscow with hundreds of drones that are used for attacks on Ukrainian energy infrastructure, which is a particularly sensitive target during the winter cold season.
Ukrainian President Volodymyr Zelensky did not ignore this problem during his visit to Washington this week. "When russia does not reach our cities by its artillery, it tries to destroy them with missile attacks. More than that, russia found an ally in this genocidal policy: Iran. Iranian deadly drones sent to russia in hundreds – in hundreds.became a threat to our critical infrastructure. That is how one terrorist has found the other," he said speaking before the US Congress.
Iran was not slow to respond. Yesterday, December 22, threatening warnings came from Nasser Kanaani, Foreign Ministry spokesman. He once again rejected accusations of supplying Iran with kamikaze drones, and added that Zelensky should "draw a lesson" from the fate of some other political leaders "who contended themselves with the US support."
Despite the harsh sanction pressure that has been in force for decades, Iran, known for its large hydrocarbon reserves, continues to receive revenues from petroleum exports and develop cooperation with russia. Western intelligence reports indicate that every barrel sold by Iran finances its regime's support for the kremlin's war in Ukraine. The two countries have begun building a 3,000-kilometre new transcontinental trade route to the Indian Ocean that will allow them to be less dependent on foreign sanctions.
Based on numerous reports by The Washington Institute for Near East Policy and foreign media, Mind examined how grey schemes have transformed Iran's economy from what was once a wealthy nation to a state labelled a sponsor of terrorism. Russia may follow similar patterns in the near future.
Curiously, U.S. investigators have come across a "vast network of hidden companies" for petroleum smuggling, created by Viktor Artiomov, a Ukrainian citizen born in the Donetsk Oblast and based in Switzerland. After the Joe Biden Administration returned to strengthening measures of compulsion against Iran this year, he found himself on the U.S. Treasury Department's sanctions list as a person associated with the Islamic Revolutionary Guard Corps and Hezbollah terrorist organisations. This indicates not only the complex shadow relationships in the global oil market, but also the more resolute intentions of Western allies to block them in order to fight terrorism.
"Bypass" schemes
According to The Washington Institute for Near East Policy, Iran continues to export significant volumes of oil, thus securing an important source of income for its regime. In recent months, the country has increasingly violated UN resolutions and international norms, ranging from sending weapons to russia for deployment against Ukraine to brutally suppressing mass protests at home and advancing its nuclear programme.
Iranian oil receiving countries
Although Western governments have responded to these actions through imposing new sanctions and attempts to diplomatically isolate Iran, so far they have not significantly increased the pressure. A more decisive approach could inflict more damage on Tehran and limit its ability to finance its aggressive policies. One possible area for this is the energy sector. The Biden Administration has maintained the "maximum pressure" sanctions imposed during Donald Trump's presidency, but has not enforced them too strictly. This allowed Iran to increase oil exports over the past two years.
Oil lifeline
Over the past three months, Iran's oil exports have averaged between 810,000 and 1.2 million barrels per day, according to estimates by consultancies TankerTrackers, Vortexa and Kpler. Most of this flow went to China, with some volumes also going to companies in Syria, the United Arab Emirates and Venezuela. The oil sent to the UAE is probably also re-exported to Asia.
These figures are significantly lower than the approximately 2.7 million barrels per day that Iran exported in early 2018 (i.e. before the Trump administration withdrew from the nuclear deal with Iran and imposed additional sanctions). But they are much higher than at the peak of maximum US pressure, when Iranian exports fell below 500,000 bpd in May 2019.
Hidden cash flows
These export figures tell only part of the story, as they do not include shadow transactions. The gap demonstrates how much the hidden oil trade is worth.
In the current fiscal year (March 2022 – March 2023), Iran expects to export 1.4 million barrels per day for $70 per barrel. Part of these revenues go directly to military organisations, in particular the Islamic Revolutionary Guard Corps (IRGC).
While the Iranian government only periodically publishes budget data, the available information allows to some extent estimate how much it actually earns from petroleum. Thus, from April to July 2022, the income of about $ 6.2 billion was reported, but, according to expert estimates, the amount could be twice as much and reach $ 13.5 billion, if not for sanctions.
Due to Western constraints, Iran has lost half of its oil revenues. It is forced to sell oil at a discount to encourage buyers who are risk-averse to engage in secret deals to conceal the origin of the oil, and to be guided by banking restrictions that reduce the final income. In addition, the IRGC takes part of the money for providing oil smuggling services to support the activities and finance its foreign proxies.
Corruption and other effects
Back in the 2010s, in the face of increasing sanctions, Tehran was forced to reorient its imports and exports from Europe to Asia, and China became its main economic partner. Now, more than ten years later, experts have reached several conclusions about the effects of Western pressure on Iran's economy.
First of all, the sanctions have exacerbated the issue of the country's budget's "oil dependence" in the situation when the possibilities for exporting hydrocarbons have sharply decreased. Therefore, Iran has directed its efforts to diversify export products.
Under sanctions, the Iranian government (i.e., the state) has tightened control over foreign exchange earnings in the country to the point that the use of "grey" schemes was the only way for small companies to stay afloat.
To bypass the sanctions, Iranian business has developed many non-standard trade options, often involving formally foreign enterprises in Turkey and the UAE. Those Western companies that benefit from trade with Iran are able to turn a blind eye to such deals if they themselves are not threatened.
The evasion of sanctions in import-export operations has become a source of enrichment for certain segments of the Iranian society, despite the fact that in general sanctions hinder the development of the economy and reduce the incomes of the majority of its population.
Iran is actively promoting the purchase of technical and engineering services for the implementation of projects in Iraq, Central Asia and Africa.
Bypassing sanctions is a standalone business
The existence of imports of goods and products to Iran from abroad amid sanctions demonstrates that the system anyway comes to equilibrium in open markets: some look for semi-legal ways to meet demand, others turn a blind eye to shadow schemes if they do not face fines and other penalties.
A standalone business has long been created and has been developing around sanctions in Iran, involving law enforcement agencies, corrupt officials and the local mafia.
Those who make use of the sanctions through organising the import of foreign products into the country, build luxurious mansions for their families in Tehran's richest areas, send their children to study in the United States and spend time in the Caribbean with Western models. Meanwhile, a third of Iranians live below the poverty level, meat production is falling in the country because people cannot afford to buy it. It is sanctions and related corruption that fuel this state of affairs.
When journalists ask Iranian officials about the ways to circumvent sanctions, they refuse to answer. They say we cannot give away our secrets – otherwise the enemies will learn them! But things are much more prosaic: they do not want to reveal their own corruption schemes.
At the same time, the spread of corruption, religious restraints and aggravation of economic stratification in the society creates preconditions for social unrest. This is what is happening in Iran now. However, there is no guarantee that such a course of developments is going to lead to a change in the political system in the country and its Western-style democratisation.
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