Origin of cargo - Iranian crude


Published: 20 February 2015

Members will know that the sanctions regime in respect of Iran continues to be in place, despite the extension of the so called "easing" for the 5+1 negotiations with Iran. Recent information indicates there are renewed attempts to circumvent the sanctions on the export of Iranian crude and tanker owners and operators need to remain on alert for this risk.

The Association is grateful to Hannaford Forensic Services (Asia) Limited for contributing to this update.

Contango and STS operations

Members were recently alerted to the risk of Iranian oil being shipped in breach of sanctions by way of Ship to Ship transfer operations (STS) taking place in the Persian Gulf (Iran sanctions and STS).

The modus operandi appears to be that Iranian crude is being taken to Iraq, or is being marketed as originating from Iraq, and thereafter is transferred via a STS operation along the Persian Gulf.

These shipments are likely to be in breach of sanctions should they not ultimately be received at a country benefiting from the US National Defence and Authorisation Act (NDAA) waiver.

With the oil storage trade experiencing a boom following the recent dramatic drop in oil prices there is likely to be more activity in the Persian Gulf and nearby areas involving vessels used as floating storage facilities and repeat STS operations.

These developments may make it more likely that Iranian crude is being hidden and disguised by way of a number of consecutive storage and STS operations, as well as blending with other crude, which can make it difficult to trace the true origin of the cargo.

The reason is that Iran needs exports to earn foreign currency, and the fall in oil prices will require Iran to sell more to achieve the same revenue level. As such, Iranian activity is likely to increase while oil prices remain at present low levels.

Members are therefore advised to take extra care when taking crude oil from the Gulf unless the origin can be easily proven or is physically demonstrated.

With respect to specific contango related issues, members can have reference to the Contango and tankers loss prevention advisory.

Iranian crude

Given that cargo documents may not correctly state the true origin of the cargo, if indeed a sanctions breach is being attempted, owners, charterers and traders need to consider other means of checking that the cargo they are dealing with does not come with this legal and moral hazard.

Iranian crude may, however, come with certain tell-tale characteristics that would prompt further follow up enquiries to be made.

One particular characteristic is the viscosity of 280 cst, which could indicate that Iran's Bandar Mahshahr port is the origin.

Iraqi crude, for instance, does not have such a viscosity level.

Should blending take place, however, then the characteristics may be changed so that even a standard laboratory test could not help to ascertain the oil's true origin.

Hence these physical and chemical properties are useful to check against, but should not be taken as a guarantee that the cargo is definitely not of Iranian origin.

In the attached note from Hannaford Forensic Services (Asia) Limited, Dr. John Allum outlines some of the basic principles that would be involved in the testing of oil as a means of confirming its origin.

Risk management and sanctions

Members in the tanker trade will have over time become familiar with the sanction regime on Iran and should have existing procedures in place to ensure appropriate due diligence is undertaken to ensure that neither a cargo nor a counterparty will put them at risk of breaching the sanction regime.

The recent STS trend, now fuelled by contango, will require a renewed level of attention and appropriate follow up to ensure that one does not become an unwitting accessory to a sanctions breach.

In particular the following needs to be checked:

  1. where is the cargo being taken on
  2. is the cargo operation performed, in part or in full, by way of a STS
  3. will the STS be undertaken in national waters of a specific country
  4. will the STS be undertaken, in part, outside of national waters
  5. is there a request that the cargo be co-mingled or blended
  6. what cargo documentation will be made available in advance
  7. what cargo specifications will be made available in advance
  8. will cargo be sampled and tested at any stage, if so by whom and where
  9. are counterparties known and "tested"
  10. can local agents assist in verifying the origin of the cargo and identify of other involved parties

These questions will need to be considered with a particular focus on the specific new risk scenarios that come with STS and contango operations.

Good pre-contract due diligence and adequate contractual sanctions clause provision are also necessary, as part of a comprehensive commercial risk management procedure.

Post fixing, the operations team needs to be alert to unusual requests concerning the routing of the vessel, unscheduled STS, blending, change of destination, change of documentation, turning off of AIS and other such requests that could indicate something untoward being planned.

Hot tip: if in doubt, stop and check. Genuine counterparties shipping legitimate cargo should have no issue with providing legitimately required information and documentation. A reluctance to share information or even silence are signs of a potential problem.

Further reading

The Association has developed an in-depth sanctions resource centre for members to access, which includes expansive information on the various sanction regimes, charterparty issues, insurance coverage issues and external resources. This resource centre is being continuously updated and members should have frequent recourse to its material in the Insight: Iran sanctions.

For vessel specific enquiries, members are asked to contact their usual Skuld business unit.