IRGC Seizes a Third Tanker for Fuel Smuggling
Iran Islamic Revolutionary Guard (IRGC) Navy (Nedsa) has seized another small tanker suspected of smuggling fuel within the Gulf, Nedsa reported on April 8.
The vessel was not identified, but would have been a small tanker, as it had a crew of six and was carrying 100,000 liters of fuel. The ship was apprehended by patrol craft from the Nedsa’s Second Naval District, and was then taken to the district's home port of Bushehr.
Two other small tankers, with a total of 25 crew and carrying three million liters of diesel, were also seized and taken to Bushehr on March 31, also by patrol craft from the Nedsa Second Naval District.
Iranian seizures of small tankers carrying refined fuels, whether petrol or diesel, have been commonplace in the Gulf for years. This smuggling occurs to exploit the arbitrage between heavily subsidized refined fuels sold in Iran, and higher fuel prices prevailing elsewhere in the Gulf.
The principal smuggling route is from Iran to Iraq, an attractive destination for smugglers because of endemic corruption amongst coastguard, police and customs personnel. The biggest differential between Iranian selling prices and pump prices for fuel are in the Bahrain and the United Arab Emirates, where subsidies have been largely removed and the price of fuel is fixed monthly depending on market movements. Customs interceptions in Bahrain and the UAE are relatively efficient, so smugglers often have to resort to transshipment to smaller craft at sea in order to avoid detection. Oman, Kuwait, Qatar and Saudi Arabia still subsidies fuel prices, making these countries of lesser attraction to smugglers.
Seizures of such tankers are often portrayed as being part of Iran’s campaign to expand its regional influence, or a reprisal for some form of anti-Iranian action. But the reality is that this is a local issue, with Iran and the GCC having common cause in clamping down on the smuggling carried out by these small tankers. Subsidies paid out in Iran are a huge drain on the government budget. Within the GCC, VAT, sales and corporation taxes, depending on the country concerned, are effectively avoided by purchasing smuggled fuels sold on the black market.
Many of the smuggling operations are bankrolled by Gulf businessmen, just as pirate expeditions were centuries ago. The enterprises often employ stateless captains and crews, and vessels that are incorrectly registered or were apparently scrapped years ago. When Iran seizes an unregistered tanker that previously called in a GCC port, the GCC country concerned is often keen not to be identified and is reluctant to intervene on behalf of those detained.
Beyond fuel, there is a thriving industry of small-boat smuggling across the Gulf. The flow of goods is determined by subsidy arbitrage, but also by the fluctuations in seasonal supply and demand, all determined by market forces. In one month, trader boats from Iran can be bringing out pistachio nuts and returning with appliances. In the next month it will be live sheep being taken south and cigarettes heading north.