From Iraq to Iran... How does fuel smuggling affect the Iranian economy?

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Economy News - Follow-up
Energy-rich Iran suffers from fuel smuggling across its borders. Its naval forces regularly intercept fuel smuggling, especially diesel, in its southern waters, which are Iran’s most important gateway to the world.
Kerosene, gasoline and diesel fuel are the main fuel smuggling operations from Iran. According to the Iranian IRNA news agency, the volume of fuel smuggled (diesel and gasoline) from Iran ranges between 10 and 20 million liters per day.

Smuggling under sanctions

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The continuation of this situation has led the Iranian Revolutionary Guards Navy to continuously monitor fuel smugglers and deal with them in coordination with the GCC countries.
For example, on April 24, 2022, the head of public relations for the IRGC’s Second Navy Region, Gholamhossein Hosseini, announced the seizure of 200,000 liters of smuggled fuel, the confiscation of the ship, and its transfer to the port of Bushehr (southern Iran) to follow up on legal procedures, according to the state-run IRNA news agency.
The Pakistan Petroleum Traders Association told Reuters that petroleum traders have reported an increase in the smuggling of Iranian fuel into Pakistan, saying that up to 35 percent of diesel sold in the South Asian country comes illegally from Iran.
On the other hand, a group of experts in the field of sanctions believe that this measure may be an unofficial attempt by Tehran to circumvent the US Treasury Department sanctions in order to provide the foreign currency that the country needs, but so far this claim has not been responded to and has not been confirmed or denied by the official Iranian authorities.
The extensive fuel smuggling operations in the Gulf waters under sanctions represent a major problem for Iran, and result in huge economic damage.
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Economic damage

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Middle East researcher Mohammad Bayat explained that in recent years, Iran and Saudi Arabia have recorded the largest amount of fuel smuggling in the Gulf due to the allocation of large subsidies to the energy sector.
Meanwhile, with the onset of the Ukrainian crisis and the migration of influential minority and Russian companies to the region to circumvent US and EU sanctions, the fuel smuggling crisis has entered a new phase, according to the researcher, who added that in this illegal chain, groups linked to organized crime play a role in the fuel smuggling network.
Bayat said that the four main variables, which are “neutralization of US sanctions,” “large government support for energy,” “low fuel production prices,” and “depreciation of the national currency,” are the main factors behind Iranian fuel smuggling in the region.
He added that the decline in the value of the rial, the allocation of large subsidies to the energy sector, and the payment of 90% of the cost, created a great incentive for fuel smugglers in the southern and southeastern regions of the country to transport diesel and gasoline from Iran to neighboring countries.
He pointed out that the price of a liter of gasoline in Iran, for example, is about 12 US cents, but when smuggled to countries neighboring Iran, this figure rises to $1.23 (i.e. a profit of about one dollar). This profit margin leads fuel smugglers, individually or collectively, to monopolize this illegal business and create a platform for smuggling fuel safely and continuously to countries neighboring Iran, such as Pakistan, Iraq, Turkey and Azerbaijan.
The researcher concluded that the continued smuggling of fuel produced in Iran will cost the government billions of dollars and reduce its ability to meet domestic needs.
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economic crisis

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On the other hand, energy expert Hamid Reza Shokohi explained that there are two ways to smuggle diesel by sea:
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• The first method is done through barges, as they sell their fuel at sea to other ships at a higher price, or the fuel is purchased in coastal cities and then transported to the barges.
  
• The second method is adopted on islands and some ports through which many ships pass, which is to connect pipes from the land to the sea and transport diesel through them to the sea and load it onto ships.
  
• Iranian security forces have discovered this type of smuggling more than once on Qeshm Island and other areas of Hormozgan Province overlooking the Strait of Hormuz.
  

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The energy expert added, “We see news every month about Iranian forces discovering and seizing fuel smuggling operations in the Gulf waters, and this is due to the fact that diesel smuggling has caused great damage to the Iranian economy.”
Shukohi continued that there is a severe economic crisis and deprivation in the southern governorates, which makes citizens turn to businesses that bring them large and quick profits such as smuggling, especially smuggling fuel such as gasoline and diesel in cars across land borders or in pipelines and ships across the sea.
He said that diesel smuggling weakens the fuel supply centers located in coastal areas around the sea and in Iran, as passing ships prefer to supply with smuggled diesel at a lower price, instead of supplying from state-owned centers, which weakens the economy.[/size]

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Added 09/04/2024 - 9:23 AM
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