Iran and its allies make millions in financial profits from smuggling Iraqi fuel oil

Iran runs a sophisticated Iraqi fuel oil smuggling network, which, according to experts, could generate at least a billion dollars a year for the Iranian regime and its intermediaries. These smuggling networks have flourished in Iraq since Prime Minister Muhammad Shia al-Sudani came to power in 2022.  

Through this smuggling process, involving various companies, factions and individuals from both Iraq and Iran, between 500,000 and 750,000 tonnes of heavy fuel oil, including those with high sulphur content, are transferred from terminals each month, equivalent to between 3.4 and 5 million barrels of oil. Most of this cargo is exported to Asia.  

The Islamic Republic of Iran exerts considerable military, political and economic influence through the Shi'a factions and political parties it supports. In this regard, Al-Arab reports - based on Iraqi and US officials - that Tehran also earns hard currency from its neighbour and ally through exports, circumventing US sanctions through its banking system. 

Although Baghdad has tried for years to maintain a delicate balance between its role as an ally of both Washington and Tehran, and although US President-elect Donald Trump is expected to take a tougher stance on Iran's efforts to circumvent US sanctions, Tehran's activities in Iraq are expected to continue.  

According to the Arab media, there are two main routes for transporting fuel oil from Iraq. One is to blend it with a similar product from Iran and present it as fully Iraqi, allowing Tehran to circumvent strict US sanctions on energy exports. 

The other route is to export fuel oil originally destined for the subsidised programme, using forged documents to conceal its true origin. 

The Iranian regime benefits directly from the first route because, although it usually sells its fuel at reduced prices due to sanctions, it can obtain a higher price by presenting it as Iraqi. 

As for the second route, it is the Iranian-backed factions in Iraq, which control the smuggling, that make significant profits. According to estimates, annual revenues range from 1 billion dollars to more than 3 billion dollars. 

This illicit trade could push the US to impose sanctions on Iraqi institutions and officials for their support of Iran, and more so during Trump's tenure.  

Iraqi leaders rely heavily on the backing of powerful Iranian-backed Shia factions to stay in power, making it difficult for them to take firm action against illegal activities such as fuel smuggling. 

Washington is already closely monitoring Iraq's smuggling operations and their links to Iran. In fact, a source told Reuters, this issue was one of the main points during talks between US and Iraqi officials when Iraqi Prime Minister Al-Sudani visited the United States in September. 

US sanctions on Iran are primarily a response to its nuclear programme and its support for armed groups in the Middle East that Washington considers terrorist organisations, such as Hamas in Gaza, Hezbollah in Lebanon and the Houthis in Yemen. 

However, while Washington pressures Iraqi officials to curb activities that benefit Iran, Tehran's influence continues to be consolidated in the region. 

Asaib Ahl al-Haq, a paramilitary force and political party, was reportedly one of al-Sudani's earliest allies and a key player in the bloc that nominated him for Prime Minister, as well as a key component in the smuggling operation. 

Backed by the Iranian Revolutionary Guard, Asaib Ahl al-Haq joined the Iraqi security services in 2018 and currently holds 16 seats in parliament. 

Washington imposed sanctions in 2019 on Asaib Ahl al-Haq's leader, Qais Khazali, whom it accuses of serious human rights violations, including the killing of protesters in Iraq that year, as well as in other acts of violence, including a 2007 attack that killed five US soldiers. 

Fuel oil smuggling existed before al-Sudani took office in October 2022, but has become more complex and formalised since he took office. 

Indeed, industry sources and ship-tracking data indicate that Iraqi fuel oil exports are on track to reach an all-time high, exceeding 18 million tonnes this year, more than double the exports recorded in 2021. 

One of the main drivers of the plan was the General Mining Industries Company, which operates asphalt factories through joint ventures with private companies. Originally founded to promote local industries, such as the production of flankcote, a waterproof asphalt material used in construction, the company has been instrumental in the implementation of this smuggling network. 

The Iraqi government also stepped up the licensing of asphalt factories, authorising 37 new projects that nearly doubled the size of the sector in a short period. Al Arab notes that some of these projects are fictitious and act as a cover for obtaining fuel oil allocations for export. 

Al-Sudani's office manages the fuel oil allocations through the National Operations Centre in the Prime Minister's Office. The Petroleum Products Distribution Company is then responsible for processing fuel transportation requests, which include details such as vehicle numbers, shipment sizes, specifications, and identifying information for each driver and truck. 

The transport of fuel is subject to the supervision of the National Operations Centre in the Prime Minister's Office, which approves the movement through memoranda authorising the trucks to pass through various checkpoints managed by the Iraqi Oil Police. 

Once the fuel oil is diverted from the factories, it takes one of two routes, both involving forged documents. Some of the Iraqi fuel is exported directly through ports in southern Iraq, using fraudulent documents that classify it as other products. 

The second route involves mixing illicit fuel oil with similar Iranian fuel and presenting it as entirely Iraqi, also using forged documents to help Tehran circumvent strict sanctions imposed by Western countries on its energy exports. 

The southern Iraqi city of Basra has become the epicentre of the blending operations, with the ports of Khor al-Zubair and Umm Qasr as the main points of illicit fuel export.