Iran threatens a large-scale war against Israel, but where does Terhan get the money for its anti-Israel terror? Israel’s enemies—Iran, Hamas, the Houthis and Hezbollah—have all been hit hard, losing troops, training facilities, tons of weaponry and miles of tunnels; senior figures have been assassinated. Yet, the Ayatollah regime continues to benefit from its engine of revenue: large-scale oil exports.
Oil revenues continue to flow despite the many sanctions imposed on the country since 2019 to stop its oil exports. Iran counteracts these sanctions with more than 300 tankers registered in foreign countries, which form a “ghost fleet.” This fleet turns off or disrupts navigation and identification systems (AIS) and uses false registration documents.
To cover the tracks of this maritime traffic, Iran routinely takes other measures—for example, transferring oil from tanker to tanker, falsely registering a source of the oil as a third country, and using complicated money transfer networks. Iran tempts buyers with a 15% discount on the price per barrel. According to market experts, that discount does not entail losses for the regime because the marginal cost of production in Iran is low compared to other countries.
Washington’s sanctions and Iran’s progression to terror
A major challenge for Washington’s sanctions is that the Iranians are progressing in their sales at a faster pace than the Americans can sanction. For example, through July 18, 2024, the United States slapped sanctions on 48 ships, including 41 tankers. Yet Lloyd’s List notes that since the beginning of the year, the ayatollah regime has expanded its ghost fleet with tankers totaling 3.85 million dwt (capacity—a unit of measure for the maximum weight a ship can carry). An especially small tanker carries 50,000 dwt, and an especially large one is 550,000 dwt.
Just last June, former Iranian foreign minister Mohammad Javad Zarif said Ebrahim Raisi’s government had been able to sell so much oil in recent years because of the failure to implement sanctions. In other words, the Iranians are profiting from the Biden administration’s unwillingness to enforce sanctions, which in turn stems from Washington’s desire to keep oil prices from rising.
Iran sells to China, and reaps anti-Israel terror
Demand for Iranian oil comes mainly from the largest importer in the world, China. According to the maritime traffic monitoring company ARGUS, China buys 85%-90% of the approximately 1.5 million barrels per day that Iran exports. According to the UANI organization, in June, the quantity of oil spiked 17% compared to the same period last year. From the beginning of President Biden’s tenure in January 2021 to December 2023, the ayatollah regime’s revenues from oil exports to Beijing crossed the bar of $100 billion.
Data from Chinese tax authorities reveal that in 2023, China imported about 11.3 million barrels of oil daily, over 10% more than in 2022. Amid the dramatically rising demand in the post-COVID-19 era, the U.S. Energy Information Administration (EIA) records that in 2023, Chinese refineries imported more oil than ever before, seeking to meet the needs of the local transportation industry. Over the past year, China’s primary sources of oil were Russia, Iran, Brazil and the United States. In the first quarter of 2024, 11% of the total came from Iran.
China is deepening its presence in the Middle East, whether in Saudi Arabia or through contacts between the Palestinian factions, because it sees a vacuum and American weakness. Iranian media have reported outright that Iran is protected from U.S. sanctions because of China.
This issue is one Israel cannot address alone, though it may be able to play a role in raising international awareness of the role China plays vis a vis Iran.
The Iranian economy is being kept afloat
The Chinese oil purchases are helping keep the Iranian economy from sinking. The Iranian population, however, is in a difficult situation. The Statistical Center of Iran reported that 930,000 students left the Iranian education system in the last year. The Islamic Parliament Research Center of the Islamic Republic of Iran found that 15% of children in the country have to work, with 10% unable to go to school because of their work. Last year, the Iranian Interior Ministry found that 60% of the population is below the poverty line.
On the other hand, the International Monetary Fund (IMF) found that in 2023, the Iranian economy grew by 4.7%, led by 19% growth in the oil sector. Last year, the Iranian production rate grew from half a million barrels per day to 3.1 million per day. At the same time, Iran’s oil production is expected to grow this year and next by only 100,000 barrels; hence, the IMF predicts a slowdown in which the GDP will grow by 3.3% in 2024 and 3.1% in 2025.
The Iranian economy is based on oil products and needs foreign currency, as was demonstrated when sanctions were enforced under the Trump administration.
If the Bab el-Mandeb strait is important to Israel, this is an equivalent artery for Iran. Disrupting Iran’s oil tankers will disrupt Iran’s economy and hence Iran’s proxies. Such disruption can can progress from legal activity based on sanctions enforcement to other activities, that require international backing.
This is an edited version of an article originally published by the Jerusalem Center for Public Affairs.
