Missing $8 Billion in Shadow-Fleet Oil Revenue Primes Iran for Revolt

 

Early readers of the Maritime Executive magazine’s Nov/Dec edition will have been pre-warned about Iran’s Velayat-e Faqih regime being on the brink of imminent collapse. As protests and street riots continue, it is evident, as predicted, that the prime mover bringing Iranians onto the street are the economic hardships that the general population is now suffering. Iranians have tried to get on with their lives, ignoring what they dislike about the regime. But with inflation, unemployment, rising food prices, shortages of water and electricity, and noxious air quality, ordinary Iranians can no longer bear the deteriorating conditions, and despair then turns to blaming the regime and street protests.

The religious leadership in Iran has always sought to placate the population by providing heavy subsidies for basic commodities. But implementing this policy has become harder and harder in recent months, especially as hardliners refuse to compromise and keep diverting resources to the much-reduced Axis of Resistance and to nuclear and missile programs. There hasn’t been enough in the bank both to pay for Iran’s external posturing and to cover the domestic budget. Without government money feeding into the economy – in the form of subsidies, employment, wage increases, infrastructure spending and investment – then ordinary Iranians suffer deteriorating living standards, particularly in rural areas. Of late, that drop in living standards has become extreme, creating hunger and acute shortages of basic necessities.

Although this trend has been felt by Iranians for some time, matters came to a head politically in recent weeks, when the draft government budget was put before the Iranian majlis – and was rejected by lawmakers because it planned to put even more burdens on the population.

It has now emerged that one of the principal reasons for the revenue shortages necessitating price and tax increases and effective wage cuts has been the shortfall in revenues expected from oil sales.

Revenues generated from oil sales have been under pressure for some time, with sanctions forcing Iran to offer larger and larger discounts to purchasers worried about being listed by the US Treasury and others. China has provided no relief, using Iran’s difficulties not to aid a supposed ally but instead to demand larger and larger discounts. Worse, to sell its oil, Iran has had to rely on a network of trusted third-party shipping brokers and oil traders registered in supposedly friendly countries. But it turns out that figures such as Hussein Shamkani and Babak Zanjani, closely connected to the regime or related to senior regime figures, have been pocketing up to 38 percent of revenues, failing to pass the money on to the government.

The head of the Budget Committee in the Iranian Majlis has told law-makers in recent weeks that of $21 billion in oil sales made between March and November this year, the government only received $13 billion, with the rest purloined by the regime’s “trusted” middlemen. Gholamreza Tajgardoun also told the Majlis that he wasn’t expecting the government to get more than $8 billion from oil sales next year, such being the pressure of sanctions. So matters are scheduled to get worse, and particularly so if, as some analysts believe, ship and cargo seizures become more frequent next year.

For ordinary Iranians, the huge amount of money being stolen by regime insiders has at least one benefit: key regime leaders may be inclined to flee the country with their ill-gotten gains to live a less stressful (and more secular) life in exile, rather than put up resistance to the street protests growing in momentum. If insiders abandon the regime and flee, security force defections will increase and the regime’s internal security defenses will begin to crumble.

For the US Treasury and the shipping community there is a simple message: the missing billions indicate that sanctions are working, and the penalties for avoidance are a sufficiently effective deterrent.