Iran evades US sanctions via ship-to-ship oil transfers, with China as key recipient

Iran is circumventing US sanctions and an oil blockade through a sophisticated ship-to-ship transfer system, with China acting as the primary destination for its sanctioned oil. This method allows Iran to continue generating significant revenue despite international restrictions.

The core of this evasion strategy involves Iran's "shadow fleet" – a collection of aging tankers whose owners and flags are deliberately obscured. These vessels often disable tracking devices and alter identification numbers to hide their illicit activities. The operation is heavily reliant on China, Iran's largest oil consumer, which officially logs no direct imports of Iranian oil.

Despite the lack of official imports, Iran reportedly earned approximately $31 billion from oil sales to China, accounting for about 90% of its foreign oil revenue and nearly half of its government's budget. This arrangement benefits China by providing discounted oil while shielding its refineries, ports, and banks from potential US sanctions.

China actively supports Iran's shadow fleet by registering the legal ownership of many tankers within Chinese cities and supplying crews. Chinese ship management companies openly recruit for these risky voyages, offering additional pay for the dangers associated with older vessels, which carry a higher risk of accidents and oil spills. Furthermore, China has instructed companies to disregard US sanctions on Iranian oil, citing rules designed to counter foreign laws that restrict trade.

Most of these ship-to-ship transfers occur in a legal gray area known as the Eastern Outer Port Limits (EOPL), located midway between China and Iran within Malaysia's exclusive economic zone but outside territorial waters. Malaysian authorities have acknowledged the fleet's presence but stated they cannot intervene as the ships operate outside their direct enforcement jurisdiction.