Small refiners in China are evading U.S. sanctions on Iranian and Venezuelan oil exports by using false flags, old tankers, turning off ship transponders, and transferring oil mid-ocean between vessels to hide the origin of illegally-exported oil.
Iran’s illegal oil exports are facilitated by the Biden administration’s lax enforcement measures in its failed attempts at reviving the Iranian nuclear deal.
Despite Burma’s genocide against the Rohingya starting in 2017 and coup in 2021, China has invested heavily in an oil and gas pipeline that starts at the military dictatorship’s hydrocarbon fields off the Burmese shore and ends at the Chinese province of Yunnan.
“The country’s ships routinely turn off their onboard tracking devices, which is illegal, so that they do not appear on radars as they ferry the oil across international waters.”
Small refiners with assets and markets largely limited to China and its allies are able to ignore the risk of U.S. penalties in order to gorge on the cheap oil, according to the report.
Processors in China bought 324 million barrels of Iranian and Venezuelan crude in 2021 on the cheap, up 53 percent compared to 2020. In 2018, China purchased 352 million barrels from the two rogue nations.
U.S. sanctions on Venezuela and Iran, without tougher enforcement measures against small importers, actually drive rogue exporters to the Chinese market and benefit Beijing.
“The risk that non-U.S. entities may lose access to the U.S. financial system or have their American assets frozen if found guilty of breaching the sanctions hasn’t dissuaded them,” according to the Bloomberg analysis.
“A glut of unsold cargoes, rising international prices, and the issuance of more crude import quotas by Beijing, have incentivized the private refiners, known as teapots, to snap up more oil from the pariah states.”
Official customs data does not typically include the small shipments of oil sold at below-market prices.
The crude from Iran, for example, sells at 10 percent cheaper to China, according to a tanker analyst from Braemar ACM Shipbroking Pte. The analyst, Anoop Singh, told Bloomberg that sanctioned oil is usually transported by aging ships that are better suited for the scrapyards.
Oil can be shipped directly from Iran and Venezuela on tankers that “go dark” by turning off their transponders, or by transferring the crude between vessels on the high seas, in order to hide its origins.
The illegal cargoes are often rebranded as originating in Malaysia and Oman, according to the Bloomberg report. While China claims that its last Iranian oil imports were in December 2020, shipments from Malaysia and Oman—likely with falsified origin papers—rose dramatically the next month.
If dictators know that they can run to Beijing for their sanctioned exports, then U.S. sanctions could actually hurt the promotion of democratic values globally by further aligning the global economy with Beijing, and empowering the CCP’s totalitarianism and aspiration to global hegemony.
To avoid this double-edged effect, the United States should enforce sanctions against not only relatively easy targets like Venezuela and Iran, or inaccessible targets like teapot refiners in China, but by taking the tougher, riskier, and ultimately more effective action of sanctioning larger and more accessible refiners in China itself for the transgressions of smaller, less accessible entities.
All Chinese refiners are ultimately controlled by the CCP, and benefit the CCP. So sanctions must be enforced and should be escalated where necessary to send the signal that America and its allies will not be deterred, boxed in, or fooled by Beijing’s fake companies and imports, or by Iran’s ghost ships.
The entire market in China is controlled by the CCP and should be treated as such whenever any part violates international law.
Beijing’s powerful surveillance technologies and state economic control must be aware of, and capable of stopping, the illegal trade in cheap sanctioned oil. But Beijing is profiting from the misery of Iranians and Venezuelans, and the instability caused to the U.S.-championed international system. So it falls upon the United States and allies to fix the problem.
The CCP’s profit and growing threat to the international system and democracy can be stopped by escalating U.S. sanctions from small Chinese refiners to large Chinese companies with bigger global markets to lose. If even that fails, sanctions and tariffs can and must be increased on the entire country.
