The Islamic Republic of Iran is experiencing wide-ranging, crippling international sanctions at a time when a significant portion of its budget still depends on oil revenues. The Center for Strategic Studies, which falls under the Office of the President of Iran, has published a report on potential methods to circumvent sanctions so as to keep selling oil.
Iran holds about 10 percent of the world's crude oil reserves. US and EU sanctions on Iran have become more widespread and severe in recent years, targeting amongst other things the state’s oil exports, and upstream and downstream oil and gas industries.
These sanctions have reduced Iranian officials’ leverage with other countries, but also with their own subjects. Deepening poverty, corruption and unemployment, and a now-marginalized population of 20 million people, are just some of the visible effects of the sanctions program. In turn the Iranian regime’s continued stubborn, bellicose stance with the West on nuclear negotiations is weakening the legitimacy of the system in the eyes of Iranians.
While the deadlock continues, the Islamic Republic’s ruling clerical caste and paramilitary wings are scrambling to find new ways to keep selling oil and making money. The new study by the Center for Strategic Studies, published in its quarterly journal Strategic Studies and Public Policy and entitled Identifying and Prioritizing Iran's International Crude Oil Marketing Strategies Under Sanction, outlines some suggestions for how it might achieve this.
The study lists 11 potential strategies the regime could deploy – or in some cases, already has – to keep at least a trickle of oil revenues coming in. One of the most important was forming “a consortium of non-governmental companies”: the Chamber of Commerce has reportedly set up three separate groups of firms with the shared aim of facilitating "transactions of crude oil and hydrocarbon products and their derivatives".
"One of the strategies effective in circumventing international sanctions is to use the capacity of trust (cover) companies," the report goes on. Trust companies are legal entities set up outside Iran whose function is to act as intermediaries. There have been reports going back decades of the Revolutionary Guards and other state entities setting up puppet companies around the world. In the US, some people have been identified and prosecuted for helping Iran circumvent sanctions.
The Center’s report also recommends confusing the paper trail by combining Iranian crude with oil from different sources. “Changing the characteristics of exported oil by mixing oil from different reservoirs or regions makes it very difficult to identify the source,” it says. “The world’s oil refineries refineries currently operate below their nominal capacity and a combination of oil from various reservoirs can be prepared and offered to them."
In a similar vein, other strategies suggested in the report include "oil swapping" with other states, the "construction of small refineries" inside Iran, and "investment in refineries in developing countries" – which, presumably, it is hoped would be subjected to less scrutiny. It also cites the views a group of experts apparently active in Iran’s petrochemical industry, who said: “The main concern of the oil sanctions is the transfer of money from the sale of oil... The use of trust (cover) companies should be the first priority in the Islamic Republic's strategies to circumvent sanctions.”
Elsewhere, the report warns this activity comes at the risk of asset loss: “If trust in these people turns out to be misguided, there is a possibility that capital will disappear. Finding people who, on the one hand, are trusted by the country and, on the other, have the necessary experience and expertise in the field of international trade, makes the implementation of this strategy much more difficult." Babak Zanjani, for instance, is one of the individuals currently imprisoned in Iran on charges of "corruption" and "debt to the Ministry of Oil".
The study also recognizes that some of Iran’s past sanctions-dodging exploits created fresh inroads for corruption in the system. Abbas Akhundi, the Minister of Roads and Urban Development in Hassan Rouhani's first government, highlighted this problem in April 2021: “Circumventing sanctions,” he said, “has cost [us] hundreds of billions of dollars, and because of that the stakeholders are seeking to maintain the status quo." Trying to get around sanctions, he claimed, had cost the Iranian economy $300-400bn over the past 16 years.
Researchers at the Center also pointed out that a focus on the Iranian economy could help the regime more effectively extract and export oil. “Taking advantage of investment opportunities in the country, such as building small refineries, as well as the construction of petro-refineries" were two other priorities listed in the study, as well as “the use of internal capacities and efforts to upgrade technological capabilities”. International sanctions, it pointed out, “make it difficult to finance large projects through external financing... we should focus on the country’s domestic capability.”