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Every year, billions of dollars of sanctioned Iranian oil finds its way to China, even though on paper the country hasn’t imported a single drop in more than two years. How?
On today’s Big Take Asia podcast, host K. Oanh Ha speaks to Bloomberg’s Serene Cheong on her team’s investigation into a clandestine shipping hub off the coast of Malaysia that funnels Iranian crude to China.
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Below is a lightly edited transcript of the conversation:
K. Oanh Ha: On an early Friday morning in October, Bloomberg’s Serene Cheong and a team of colleagues set out on a small supply ship from Singapore. They were headed into the waters of the South China Sea.
Serene Cheong: We sailed off from Singapore at around five in the morning. We were very fortunate, the seas were very calm that day. On route there, one of my colleagues even spotted like dolphins.
Ha: But Serene wasn’t there for a sightseeing cruise. Her team was looking for tankers carrying Iranian oil that was sanctioned by the US. And after seven hours on the water, they saw something that caught their eye. Through the haze, they found what they were looking for: dozens of huge ships, some more than three football fields long, looming in the distance.
Cheong: We were quite taken aback by the scale and just a number of tankers that were sitting, and loitering around the area.
Ha: As Serene’s team was sailing through this cluster of ships, they spotted two oil tankers side-by-side. They identified one tanker as the Win Win, a Panama-flagged vessel. And the other ship, sitting low in the water and laden with crude oil, was a Cameroon-flagged vessel, the Titan.
Weilun Soon: Titan, Titan. The one behind is Titan.
Cheong: Oh oh oh!
Soon: It's Win Win and Titan.
Cheong: Yeah, they’re STS.
Ha: The Titan is known to have transported Iranian oil. And it’s infamous within shipping circles. It has no known insurer, no known beneficiary owner, and the only contact details for its registered owner are a post office box in the Seychelles.
Cheong: We saw these two vessels, Titan and Win Win, they were doing a ship to ship transfer right before our eyes.
Clara Ferreira Marques: Look, you can see the hose! Can you see the hose connecting? So that’s the hose that’s transferring the oil. Unbelievable.
Cheong: I think we realized that, Oh, this is the, this is jackpot. This is the one that has been handling Iranian crude and it was tethered, connected to a vessel that is often going towards China.
Ha: What Serene and her team witnessed was likely one of many oil transfers that happen every day in the South China Sea. Transfers that happen away from prying eyes and skirt US sanctions. The US has essentially declared Iran’s oil sector off-limits – and it can restrict or cut off access to its financial system for any company or person found trading with Iran. But Iran needs the oil revenue. And it appears to be using a network of intermediaries and vessels owned by shell companies – to get its oil to willing buyers like China. And that’s creating a multibillion-dollar shadow industry that is flourishing today.
Cheong: When we look at ship tracking data and we look at satellite images, it is very clear that this supply chain is happening and it's moving a lot of oil and there's a lot of money to be made. In terms of its dollar value, just for this year alone, for the first nine months of 2024, we are looking at more than $20 billion. And that is already a very conservative estimate.
Ha: Welcome to the Big Take Asia from Bloomberg News. I’m Oanh Ha. Every week, we take you inside some of the world's biggest and most powerful economies, and the markets, tycoons and businesses that drive this ever-shifting region. Today on the show -- how a vast network of aging ships are covertly transferring millions of barrels of Iranian oil and skirting US sanctions. What are the risks for neighboring countries if a shady transfer goes wrong? And what is the US doing to keep sanctioned oil out of reach?
Ha: Back in 2018, the US reimposed sanctions on Iran’s major oil exporters, banks and shipping companies. That meant Iran had a hard time finding willing customers to buy its oil. Serene Cheong, Bloomberg's team leader for oil trading in Asia, says the sanctions cut off crucial revenue for Iran, and hit its economy hard.
Cheong: Iran really relies on this oil revenue, billions of dollars goes back to Tehran from the sale of this oil. There is a real need for the Iranians to think of different ways to bring the oil to the customers.
Ha: One workaround Iran’s using to get its oil out on the market involves what’s known as the dark fleet.
Cheong: Dark fleet tends to be very old tankers that don't have proper insurance coverage, tends to sail under what we know as flags of convenience. And these tankers tend to support sanctioned and restricted regimes and flows of oil, from the likes of Iran, Venezuela and Russia.
Ha: And one thing these tankers tend to do a lot is to turn off their transponders, which send signals of the ship’s location and other basic information for navigational safety. And with them off – the ships can essentially disappear off the map.
Cheong: They can go dark for a long period of time, maybe days or even weeks. Nobody would actually know what it’s doing during that period of time.
Ha: Recently, Serene and the Bloomberg team noticed a pick-up in the number of these shadow tankers off the east coast of Malaysia.
Cheong: When we looked at the ship tracking data, we can see that it's very, very clear where the cluster is. It's almost like a parking lot, right? It is known to be the biggest cluster of dark fleet tankers in the world. It can contain around, any time between 70 to 100 vessels, many of them super tankers, the biggest in the world.
Ha: The ships are clustered off the east of Johor – the southernmost state of Malaysia.
Cheong: So this particular area, it's in what we know as the Malaysian EEZ, which is the exclusive economic zone. It is outside of Malaysia's territorial waters. Because it is a very large area, there’s not that much scrutiny.
Ha: This lack of oversight, and its location in the middle of a shipping corridor between China and Iran, make this a perfect place for dark fleet vessels to move sanctioned oil. So Serene and her team focused on this cluster of tankers – they gathered nearly five years of satellite images from the hotspot and trained the computer to recognize one unique pattern: two ships side by side for hours at a time. In the shipping industry, it’s called a ship-to-ship transfer, which could be an indication that oil is being moved from one vessel to another.
Cheong: When a cargo gets transferred via ship to ship, it tends to be relabeled as another type of oil. When Iranian oil gets transferred out at sea off Malaysia, that is a good opportunity for this relabeling of sensitive crudes into Malaysian crude. But of course, what we can only say is that adjacent, side by side ships in this manner suggest that a ship to ship transfer is happening.
Ha: Or you know, they could be just stopping on the open sea to say hi, right?
Cheong: Yeah, right, they want to keep warm or something, right? But I want to be clear that not all the time, these would be dark business, but oftentimes because of what we know of what's happening in this area, it tends to be.
Ha: So to nail it further down, Serene and the Bloomberg team layered the satellite imagery with ship tracking data to check whether these tankers are where they say they are. And on top of that, another set of data was revealing: on paper, the official data from Chinese customs – just didn’t add up.
Cheong: If you look at Chinese official imports from Iran, that has been down to zero since the middle of 2022. And when we checked with the Chinese customs, there's not a single barrel of Iranian oil that has been imported by China, since middle of 2022. And China has, in fact, imported a lot of Malaysian oil, way more Malaysian oil than Malaysia can even ever produce.
Ha: And all of this research led the team to the discovery of those two ships in mid-transfer.
Soon: It's Win Win and Titan.
Cheong: Yeah the STS.
Ferreira Marques: But they're not ship to ship, right?
Cheong: STS STS, they are.
Cheong: so it was really exciting for us because I think In that moment, we realized that with these two tankers, we could potentially join the dots and tell our story about how the dark fleet has been helping oil move from restricted regimes such as the one in Iran to willing customers in China.
Ha: For Iran, the South China Sea gambit is a means of survival. The country needs the revenue and there aren’t many buyers willing to skirt the sanctions. But China doesn’t recognize the US curbs on Iran, and these shadow operations offer a way for the country’s refineries to access cheap oil. But what are the risks? And what needs to be done to curb the shadow exchange before the worst happens? That’s after the break.
Ha: Every year, billions of dollars of oil is estimated to move from Iran to China with the help of a vast, shadowy fleet. And Bloomberg’s Serene Cheong says this growing cluster of dark tankers poses multiple risks.
Cheong: The first risk we would be looking at is environmental. This is a lot of oil that is being transferred from one vessel to the other, and it's happening quite frequently in these waters. Should there be any fire, explosion, oil spill, or any sinking of ships, this would be a real tragedy and catastrophe to the coastal states in what is otherwise, a pretty pristine area that's off Malaysia, Singapore and Indonesia.
Ha: And in recent years, there have been incidents that show just how dangerous the risks can be. An explosion last year aboard the Pablo, a dark vessel which had been observed in Iranian waters, killed three crew members. And in July this year, a collision between an oil products tanker and a dark fleet crude tanker resulted in fires on both ships. The dark fleet trade is also a growing source of tension between Washington and regional powers like Malaysia. The US has called on Malaysia to do more to tackle the problem, but with little success.
And earlier this year, at a Bloomberg Economic Forum, Malaysian Prime Minister Anwar Ibrahim denied that any transshipment of Iranian oil took place.
Anwar Ibrahim: Not one shred of evidence ever –
Ha: And he added that Malaysia isn’t able to monitor what’s happening out at sea.
Ibrahim: There was ship to ship transshipment in international waters, we do not have the capacity to observe or monitor that.
Ha: Meanwhile, China didn’t comment specifically on the oil transfers, but it said its trade with Iran is reasonable and legal, and should be respected and protected. Iran’s foreign and oil ministries, the US Treasury Department, and Malaysia’s Foreign Affairs ministry, as well as the Prime Minister’s Office did not respond to requests for comment. As for the transfer between those two tankers, the Win Win and Titan that Bloomberg reporters observed – a letter requesting comment to the PO box for Titan’s owner was returned with the address not found. And for Win Win, a representative in London for its registered owner declined to comment on their clients or to provide contact details.
And Serene says, exactly what can be done about the dark fleet – and who’s willing to take responsibility for it – is a complicated question.
Cheong: The US would like Southeast Asia to properly enforce its sanctions against countries like Iran. But on the other hand, countries like Malaysia are on very friendly terms and have long term ties with Iran, as well as with China, where a lot of this Iranian oil is going to. You can imagine that there are different priorities and also capabilities when it comes to sanction enforcement in this area.
Ha: And Serene, how do you see this trend of sanctioned oil moving around Asia playing out? Especially with a new US president coming into the White House?
Cheong: I think everyone is looking out to see what a Trump administration will do in terms of its foreign policy and in terms of how harsh it is when it comes to sanctions enforcement. But what I would say is that this trade involving dark fleet and involving the movement of sanctioned and restricted oil, it is a very resilient trade. They will not go away because, at the end of the day, there is a lot of money to be made by these dark fleet tanker operators who are helping the sanctioned and restricted regimes. They are making way more than they would on a legitimate fleet. And, of course, the likes of regimes such as those in Iran, Venezuela and Russia, they really are motivated to get their oil to the customers. There is a very eager buyer of oil in China and there are middlemen and tanker operators willing to help this trade. So it will not go away.
(Update the transcript)
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