For years, Iran has found creative ways to sidestep U.S. sanctions and deliver its oil to its largest buyer, China. Despite official agreements and restrictions, billions of dollars’ worth of Iranian crude continues to flow into Chinese ports through clandestine networks, shadow fleets, and maritime deception tactics. This article explores how Iran manages this covert trade, the smuggling routes involved, and the geopolitical forces at play, including the roles of the U.S., India, and regional actors.
The Backstory: Oil Trapped in Chinese Ports
In 2018, under the Trump administration, the United States reimposed sanctions on Iran after withdrawing from the Joint Comprehensive Plan of Action (JCPOA). Iran’s oil exports plummeted, and 25 million barrels of Iranian crude, worth $1.75 billion today, became stranded in Chinese ports, primarily Dalian and Zhoushan. These barrels, originally delivered under temporary waivers, were left unsold after Trump revoked those waivers in early 2019. Storage fees have since piled up, surpassing $450 million in Dalian alone.
“NIOC stored the oil in the ports of Dalian and Zhoushan in east China, where it had been leasing tanks,” reported Reuters. “But in early 2019, Trump scrapped the waivers, and the oil never found buyers or cleared Chinese customs and remained trapped in the tanks.”
Storage operators like PDA Energy in Dalian and CGPC in Zhoushan have demanded hefty payments from Iran for holding this oil. According to sources, negotiations between Iranian officials and Chinese operators have become increasingly urgent as the possibility of renewed Trump-era sanctions looms.
Shadow Fleets and Maritime Trickery
Despite these setbacks, Iran has built an elaborate system to circumvent sanctions. Central to this effort is the so-called “shadow fleet,” a network of aging, poorly insured tankers often operating under flags of convenience from countries like Panama or Mongolia. These ships disable their transponders to avoid detection, engage in ship-to-ship transfers in international waters (notably off Malaysia and Indonesia), and redocument cargo to disguise its origin.
Satellite imagery analysis reveals that these dark fleet operations have increased dramatically since 2020. In the Malaysian Exclusive Economic Zone (EEZ) alone, over 350 million barrels of oil were transferred ship-to-ship in 2024, valued at over $20 billion.
Key Smuggling Routes and Players
Iran’s oil-smuggling operations rely on carefully coordinated routes and players:
- The Strait of Malacca and South China Sea: Tankers transport Iranian oil via the Strait of Hormuz, through the Indian Ocean, and into Southeast Asian waters where ship-to-ship transfers occur.
- Malaysia and Indonesia: These nations’ territorial waters are hotspots for transfers due to limited enforcement capacity and political reluctance to confront the issue.
- China’s ‘Teapot’ Refineries: Smaller, independent Chinese refiners known as “teapots” are primary buyers of this discounted oil. These entities are harder to sanction due to their independence from China’s state-controlled energy giants.
Bloomberg highlights the risks associated with these smuggling routes: “It’s possible some of the ships operating in this area are unconnected to the dark fleet. But multiple maritime security experts and ship brokers said there was no clear reason why legitimate operators would conduct transfers so far from the coast where risks and logistical costs are high.”
Trump’s Return and Renewed Pressure
As Donald Trump prepares for his return to the White House, the geopolitical landscape is shifting again. Trump has signaled intentions to tighten sanctions further and pressure China into ceasing its Iranian oil imports. His administration previously linked Iranian oil purchases to trade tariffs, a tactic he is likely to revisit.
In his earlier term, Trump stated, “I told China and other countries, if you buy from Iran, we will not let you do any business in this country and we will put tariffs on every product you do send in of 100% or more.”
However, experts suggest that fully stopping these shipments will be extremely difficult. The shadow fleet operates independently, with limited oversight, and China’s reliance on discounted Iranian oil is deeply embedded in its economic strategy.
India’s Position: Balancing Energy Needs and Diplomacy
While India has historically been a significant buyer of Iranian oil, its imports have decreased significantly under U.S. pressure. However, India remains a growing energy consumer and is expected to surpass China in oil demand growth by 2025.
According to Kang Wu, global head of macro and oil demand research at SPGCI, “India’s oil demand in the current year grew by 180,000 barrels per day, surpassing China’s growth at 148,000 bpd.”
India is walking a tightrope, balancing its relationship with both the U.S. and Iran. While it has complied with sanctions in recent years, India’s long-term energy strategy might see a return to Iranian oil imports if global diplomatic conditions shift.
Environmental and Security Risks
The clandestine nature of these oil transfers brings serious environmental and security concerns. Aging tankers increase the risk of catastrophic spills, while the lack of insurance and oversight creates potential hazards for busy shipping lanes like the Strait of Malacca.
In May 2023, an explosion aboard the dark fleet tanker Pablo resulted in a devastating fire and loss of life. Incidents like this highlight the growing risks associated with this shadowy trade.
Maritime security expert Charlie Brown warned, “The scope and scale of the illicit ship-to-ship transfers here is much larger than in other locations. There’s the geographic advantage, the generally good weather — and the ability to do it without the authorities intervening.”
The future of Iran’s oil trade with China hinges on several factors: Trump’s policies, China’s willingness to endure U.S. pressure, and the effectiveness of sanctions enforcement. Meanwhile, Southeast Asian nations, particularly Malaysia and Indonesia, will face mounting pressure to crack down on ship-to-ship transfers in their waters.
For now, Iran’s oil continues to flow through shadowy networks, with billions of dollars bypassing sanctions and fueling both Tehran’s economy and geopolitical ambitions.
ACZ Editor: It is clear that sanctions are having their effect, and if Trump can tighten the screws even more if may cause a shift in power in Iran. Iran has also been weakened by retalitory attacks by Israel, it is a good time to double down. If not, then Iran has a serious shot at becoming a nuclear power (if they are not already).