US Treasury sanctions target far-flung entities involved in Iranian oil trade

The US Department of Treasury is ramping up sanctions on Iran, including entities and officials involved in the oil trade used to fund regional proxy groups, including Hamas and Hezbollah.

"The Iranian regime uses this illicit revenue to support conflict and spread terror throughout the Middle East," Matthew Miller, spokesperson for the Department of State, said in a Nov. 29 statement. "The United States will continue to disrupt Iran's funding support for terrorists," he said.

Treasury's Office of Foreign Assets Control sanctioned more than 20 individuals and entities for their involvement in financially propping up Iran's Ministry of Defense and Armed Forces Logistics, or MODAFL; Iranian Armed Forces General Staff, or AFGS; and the Islamic Revolutionary Guard Corps-Qod Force, or IRGC-QF.

Iran generates the equivalent of billions of dollars through commodity sales using intricate networks of foreign-based front companies and brokers, OFAC said in a Nov. 29 statement. MODAFL and AFGS sell commodities through front companies both inside Iran and abroad, OFAC explained.

Treasury's move to sanction companies trading with Iranian military proxies is a predictable step as the US government works to design sanctions that punish the perpetrators of aggression more than they punish consumers, said David Goldwyn, chairman of the Atlantic Council Global Energy Center's Energy Advisory Group.

"This action raises the price of this destructive trade to companies in Singapore, the UAE and other places, but it is unlikely to materially affect oil prices or flows," Goldwyn said in an email.

The new sanctions on Iranian energy were expected as a way for the Biden administration to close loopholes for financing to Hamas and Hezbollah and to show they are doing something to enforce sanctions, said Rachel Ziemba, an adjunct fellow at the Center for a New American Security.

Notable targets

It was notable that Treasury sanctioned entities based in the United Arab Emirates for sales or attempted sales of Iranian fuel and condensate to Europe, Ziemba said in an email.

The recent permissive sanctions environment had increased the number of UAE-based entities willing to engage in the trade, Ziemba said. She added, however, "The current designations suggest more risk averse parts of the chain will do more due diligence on their energy trade, especially as it coincides with a modest increase in enforcement on the Russia price cap," she said.

But the sanctions will probably not have much of an impact on global oil prices and volumes, Ziemba said. "Assume that most of Iran's 2023 additions will remain on the market unless there is a further tightening of enforcement—but it will not be a big additional source of supplies in 2024 as it was this year," she said.

The new sanctions will only be meaningful if there is more enforcement from the administration, said Brenda Shaffer, an energy expert at the US Naval Postgraduate School. "Having sanctions in place and not enforcing them is pretty useful because it gives the administration the image that it is acting against Iran and at the same time the flexibility to give a carrot to Iran," she said in an interview.

New sanctions

As an example of the sanctions, Treasury designated Sepehr Energy Jahan Nama Pars Co. and officials at the company, which oversees commodity sales for the AFGS. "Sepehr Energy uses companies in Hong Kong and the United Arab Emirates to sell billions of dollars worth of commodities to customers in Europe and East Asia," OFAC said.

Treasury also sanctioned companies in Dubai, Hong Kong, and Singapore involved in the transactions or illicit financing, according to OFAC. And Treasury sanctioned Iran-based Pishro Tejarat Sana Co. and the chairman of the board of the company, for working with Sepehr Energy to facilitate the sales and shipment of commodities, OFAC said.