[The Two Faces of the Shadow Fleet]②"Sanctions Make Money"… Falsifying '100% Iraqi Origin'

Telegram-Based Route Instructions, Pay in Cryptocurrency
Blending with Other Nations' Crude to Conceal Origin
Over 100 Chinese Small Independent "Teapot" Refineries

Mobilizing Agencies and Brokers Across Asia and the Middle East
Payments Received Through Shell Company Accounts

Editor's Note
With the Strait of Hormuz in Iran—which accounts for about 34% of global maritime crude oil trade—effectively cut off, tanker traffic has plummeted to just 10% of normal levels. This is the result of the Iran war entering its sixth month, even though U.S. President Donald Trump had confidently claimed it would last no more than six weeks. Although there were forecasts in the early days of the conflict that oil prices could surge to $200 per barrel, since the outbreak of war, prices have fluctuated between $70 and $120 per barrel. The limited rise in oil prices has been attributed to the so-called "shadow fleet." These are oil-smuggling fleets of unclear nationality, sometimes referred to as "pirates." Experts suggest that while the shadow fleet may serve as a short-term firefighter, holding off a surge in crude prices, in the long term, their activities are likely to have negative effects. Analysts warn that the shadow fleet undermines the effectiveness of U.S. sanctions on Iran, channels funds to the Iranian regime, and ultimately plays a pivotal role in prolonging the conflict. Last month, the United States announced sweeping new economic sanctions against Iran and, for these reasons, specifically named the shadow fleet as a concrete target. The Asia Business Daily has closely examined the realities of the shadow fleet and possible ways to enhance the effectiveness of U.S. sanctions.

"To be honest with you, I love sanctions. Sanctions make everybody money."

This remark was made by Chinese national Bill Wang, who in June 2024 was sentenced by a U.S. federal court to 45 months in prison for operating a shadow fleet to illegally sell Iranian crude oil to China and for laundering the transaction proceeds. From 2019, Wang transported Iranian oil while concealing its origin for about eight months. His accomplice, Daniel Ray Lane, also confidently stated, "Sanctions can always be circumvented." The U.S. federal prosecutors cited their conversations as evidence of their crimes.

On January 7, the U.S. Southern Command seized the sanction-targeted tanker M/T Sophia through a maritime blockade operation. This operation targeted the so-called "shadow ships" that had been evading sanctions on Venezuelan crude oil. U.S. Southern Command

The background to the decades-old U.S. sanctions regime on Iranian oil exports being so easily bypassed lies in clever tactics and multiple accomplices. The architects of these schemes staffed their fleets with "rookies" to evade sanctions. Crew members were recruited via online job ads. According to the Financial Times (FT), in an interview this May with crew from the shadow fleet vessel Bella 1, which operates between Russia, Iran, and Venezuela, it was revealed that positions considered difficult to obtain in legitimate shipping companies could be secured much more easily with the shadow fleet, which attracted new recruits.

A crew management company for the Bella 1, based in Moldova, offered to pay crew in cryptocurrency and used anonymous Telegram accounts to direct routes to captains and crew. The majority of those on board had no idea where the vessel was headed, or were misinformed, and there were numerous suspicious circumstances. Still, some knowingly boarded sanctioned vessels "just to make a living."

Manipulating Country of Origin to Evade Sanctions... Final Destination: Chinese Teapot Refineries 

These hastily assembled crews set out to falsify oil origins, the first step to sanctions evasion. According to the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and United Against Nuclear Iran (UANI), oil purchased in Iran was typically sold under the fabricated label "Malaysian blended crude oil."

This went beyond simply forging documents. The scheme involved either mixing Iranian crude with other oils or falsifying paperwork in a process known as "blending," similar to mixing coffee beans from different regions to produce a blend. For example, British-Iraqi businessman Salim Ahmed Said was caught by U.S. authorities after, beginning in 2020, blending Iranian crude with Iraqi crude in storage tanks at Khor Al Zubair in Iraq and selling it to Western buyers as "100% Iraqi crude."

Some of the laundered oil, bearing a "false label," was shipped westward; however, the bulk of it was ultimately supplied to China’s small independent refiners, known as "teapot refineries." According to the FT, over 90% of Iran’s oil exports are now bound for China, as these companies are said to take advantage of deep discounts on Iranian crude oil despite U.S. sanctions.

According to the Wall Street Journal (WSJ), China now has more than 100 teapot refiners, which have become a key means for China to circumvent U.S. sanctions. In May, the U.S. Treasury designated subsidiaries of Hengli Petrochemical as sanctions targets, specifically naming the teapot refiners. However, the Chinese Ministry of Foreign Affairs characterized U.S. sanctions as "unilateral" and asserted that there was no basis for them under international law, refusing to recognize any criminal activity. The Chinese government officially claims it does not import any Iranian-origin crude oil. 

Mobilizing Helpers Across Asia and the Middle East... Systematic Concealment

The shadow fleet and teapot refineries used complex processes to transfer funds, designed to evade U.S. financial sanctions. Local agencies, intermediaries, and brokers across Asia and the Middle East were intricately engaged. Shell companies played a key role by receiving payments through accounts in their names, and their functions extended far beyond simple name lending—they handled all aspects of the transactions. For example, Sepehr Energy Jahan Nama Pars, a company affiliated with the Iranian military, laundered transaction funds using this method. The U.S. Treasury explained that this company cooperated with several shell companies established in Hong Kong, transported Iranian crude to China multiple times, and even managed storage facilities within China.

In particular, Iran used bank accounts in the names of these shell companies to receive payments for crude oil sales and to secure foreign currency. By conducting transactions through entities in third countries instead of directly as sanctioned Iranian firms, they evaded the scrutiny of financial institutions. Local collaborators were mobilized throughout the process. Shell companies partnered with local agencies that support ship docking and unloading to facilitate the discharge of oil, and then coordinated transportation and storage services inside China, thus managing the entire supply chain.

They also actively utilized brokers based in the Asia region. These companies, whose business purposes were ambiguous or who appeared to operate as ordinary businesses, acted as intermediaries connecting Iranian oil sellers with Chinese teapot refiners.

The U.S. Treasury warns financial institutions that, from their perspective, these transactions may appear to be ordinary trade deals. Extra caution is required for any transactions related to Chinese independent refineries and for payments processed through shell companies registered in Hong Kong, Malaysia, and elsewhere. Any company that trades, transports, settles financial transactions for Iranian oil, or deals with related shell entities could be indicted under U.S. federal law. If violations are found, assets within the U.S. may be frozen and the company may be subject to secondary sanctions, cutting them off from the U.S. financial system. 

This content was produced with the assistance of AI translation services.