Russia is facing a financial crisis because its main export item, petroleum, has declined in value while Russia, because of sanctions, has more difficulty getting cut-rate petroleum to buyers. For example, in the second half of 2023, Russian oil income hit a record low of $14.4 billion while the control over oil prices of OPEC, the Organization of Petroleum Exporting Countries, had started to unravel after 64 years of controlling the oil market. A growing number of new oil exporters do not join OPEC. This further degrades OPEC’s ability to control oil prices and keep them high.
Economic sanctions imposed on Russia for invading Ukraine have also made it difficult for Russia to deliver oil to customers, so Russia then cut its oil prices. This made the illegal Russian oil imports attractive because it protected the importer against losses from sanctioned shipments that were detected and blocked by one or more of the many nations supporting the sanctions. At the same time OPEC has been losing its ability to control oil production because of the increasing number of new oil exporting nations that did not join OPEC and sell their oil on the open market for whatever they can get. This trend is overwhelming OPEC’s ability to control prices and reduces Russian oil income more each year. This is all part of a growing assortment of economic problems imposed on Russia. Soon after Russia invaded Ukraine, Western countries united in imposing severe economic sanctions on Russia. This did some damage to the Russian economy, but not as much as the sanctioning countries expected. This is because there are always other countries with current or previous experience evading sanctions. Outlaw states tend to cooperate, or at least share sanction evasion techniques with each other. Russia found that nearby Iran, which has been under varying degrees of sanctions for decades, was a good source of advice on evading sanctions. Even before Russia went total outlaw in Ukraine, they had been cooperating with Iran, North Korea, and several other heavily sanctioned nations.
Russian oil exports, which for decades have been about eight million BPD or Barrels Per Day, vary in value depending on the world price for oil. In the last decade there have been two instances of sanctions related declines in Russian oil exports. The first was in 2014, in response to the Russian occupation of Crimea and parts of eastern Ukraine. Russian oil exports fell about ten percent from their normal level. Russian oil exports recovered quickly to their previous levels, but oil income remained lower because Russia had to use discounts to get past the oil sanctions. This was because nations caught obtaining sanctioned oil could themselves be sanctioned. In 2022, Russia was hit with even heavier sanctions that caused oil income for 2022 to decline by over 20 percent compared to the previous year.
Russian oil exports cannot be ignored because Russia is the second largest oil exporter, behind Saudi Arabia. During periods when Russian oil exports are sanctioned, the primary impact is Russia receiving less for its oil. Russia managed to quickly deal with the new sanctions because of its close relationships with Iran, which was a veteran practitioner of how best to evade sanctions.
Iran has become quite skilled at evading sanctions. Since the U.S. revived economic sanctions against Iran in 2017, there has been an even larger and better organized effort to defeat the many methods Iran has developed over the years to conceal its smuggling efforts. Everyone involved tried to keep details of these Iranian schemes and American countermeasures out of the news, and not just because the Iranian methods were usually illegal, but also because the U.S. and its allies didn’t want Iran to know the full extent of the new countermeasures being used. That veil of secrecy began to shred at the start of 2019 when a storm off the Syrian coast ran an Indian tanker, the Tour 2, ashore. The tanker had just delivered Iranian oil to Syria and went to sea hurriedly using the bad weather to evade detection. Tugs did not arrive until April to pull the tanker off the beach near the Syrian port of Latakia. It soon became clear what happened here. During late December 2018, Tour 2 loaded its oil cargo in an Iranian port and after it exited the Suez Canal it ghosted or ran dark. That is, the tanker turned off its AIS Automated Identification System, which allows ship owners and their customers, as well as any nearby vessels, to track the progress of large ships. With the Indian shipping company exposed as illegally smuggling oil to Syria, the extent of the increased American scrutiny of ships making deliveries to Syria forced Iran to be more resourceful. Iranian plans for more illegal oil tanker visits to Syria had to be hastily revised. Iran found that most of its old ploys and too many of its new schemes to carry out illegal oil movements no longer worked, at least not regularly. For months after the Tour 2 grounding, there was a very visible oil shortage in most of Syria. Iran has resorted to smuggling oil via truck from Iran through Iraq to Syria, but this is not sufficient to make up for the deliveries via sea going tankers.
Iran also noted that the American/Israeli surveillance of economic activity in Syria was more thorough and robust than anticipated. Any improvement in the Syrian oil situation triggered more international countermoves to block Iranian efforts to find a tanker that could deliver to Syria. The new countermeasures include monitoring the nations that provide ship registry services while maritime insurance companies have their own array of regulations regarding who can have access to insurance coverage and who cannot. This is about more than ship owners being covered against accidents at sea or in port. Ships without proper coverage, especially for vessels carrying dangerous cargo, like petroleum and natural gas, cannot enter many major ports or the territorial waters of most nations if they do not have proper insurance. By mid-2019 Iran found it more difficult to conceal what its hundred or so Iranian owned tankers and cargo ships were doing as more and more shipping companies and nations refused to do business with Iran. Iran tried to rely on Chinese tankers using Iranian techniques. For example, a Chinese tanker in the Indian Ocean using ghosting and, while its AIS was off, changed its ship registration to hide delivery of Iranian oil to a banned customer. Now the Americans are threatening to seize Chinese tankers if China does not enforce the terms of the Iranian sanctions.
All this is happening because once more Iranian oil exports are hobbled by sanctions and Iran is reviving its usual array of deceptions to try and hide illegal exports to customers willing to risk discovery and punishment when the Iranian deceptions fail. The last time Iran got hit by an oil export ban, shipments dropped from 2.6 million barrels per day to a million barrels per day. After the sanctions were once more imposed in late 2018, Iranian exports quickly fell from 2.8 million barrels per day to 1.8 million barrels. By April 2019 legal shipments had declined to under a million barrels per day. By mid-2019 oil shipments were often down to less than half a million barrels a day. The decline delay was, in part, caused by exemptions given to eight export customers who needed time to shift to another supplier. Some of the exemptions are permanent which is why the exports never hit zero.
There are plenty of other suppliers because there has been a world oil glut since 2010 because of fracking in North America and elsewhere. The OPEC oil cartel has restricted production to try and drive the oil price up, but that only worked for a while and only partially. Even before Iranian oil sanctions were revived the oil price was declining again. There were plenty of oil producers willing and able to replace Iranian exports. Illegal Iranian oil exports are sold at a lower price because of the risk of financial costs if caught and that also contributes to keeping oil prices low. But if scrutiny is too intense the smugglers find they cannot reach many customers. By mid-2019 Iran was again threatening to close the entrance to the Persian Gulf, the Strait of Hormuz and the Red Sea entrance as well. The Hormuz threats were a bluff because Iran would be hurt more than anyone else, in the short term as well as going forward. A more immediate problem was Iran losing the cloak of secrecy that had long kept its smuggling methods out of the news.
Iran not only revived its usual techniques to hide ship movements but was shown to have expanded them. One reason the oil sanctions returned was that after most sanctions were lifted in 2015 is that Iran continued to smuggle weapons by sea, using the same deceptions it employed to try and get around the oil export ban. The difference was that most of the ships Iran used for arms smuggling were under 300 tons and not legally required to carry an electronic beacon. But some larger Iranian weapons smuggling ships illegally turned off their AIS beacon and, as the saying goes, ghosted. It was this continued smuggling and other unfriendly activity that brought back the sanctions and the oil embargo.
Iran now found that its opponents, mainly the U.S. and Israel, developed more effective methods of tracking its use of smaller ships so those were no longer as successful. Other old standbys, like bribes and corruption of officials involved in monitoring maritime cargo in ports and at sea, were also under greater scrutiny.
For a long time, the primary technical deception was having ships carrying contraband turn off their AIS transponder. AIS was originally developed to make it easier to track ships at sea and was rapidly adopted by most large commercial vessels in the 1990s. AIS is essentially an automatic transponder or radio beacon that, when it receives a signal from a nearby AIS equipped ship, responds with the ship's identity, course, and speed. This is meant to enable AIS ships to avoid collisions with each other. The original AIS only had a range of 20-35 kilometers but by 2006 space satellites were developed that could track AIS transmissions worldwide. Commercial ships have become very dependent on AIS, which has greatly reduced collisions and crew anxiety at sea. After 2000 international agreements mandated that ships larger than 300 tons, and all passenger ships carry and use AIS at all times.
While this made it practical to track all high seas commercial traffic, it was also exploited by smugglers and pirates. Some ships traveled in violation of international law with AIS and other trackers turned off. Usually, only criminals turned these devices off, and this was often discovered when navies spotted one of these ships ghosting at sea. It didn’t take long for some intelligence agencies, at least those with ocean surveillance space satellites and lots of ships and subs at sea, to exploit the silent AIS ploy to create better ways to track smugglers by noting when some ships turn off their trackers and then turn them on again as they are about to enter a port or some other area where AIS use is mandatory. Some nations, like Iran and North Korea, have tankers and cargo ships that are often found running dark. Naturally, intelligence agencies developed methods to take advantage of this and a growing number of smugglers, usually North Korean, are detected and tracked because of AIS manipulation. Iran had an easier time concealing arms smuggling because they could use smaller ships. Actually, for getting arms to Shia rebels in Yemen Iran used a lot of small ships that are not required to use AIS. These could be, and were, tracked by satellite but it was more difficult. Oil smuggling is another matter as large ships, especially tankers, are used and they are easier to spot from orbital space or by recon aircraft and UAVs.
AIS monitoring has been combined with analyzing the thousands of satellite photos available each day from commercial satellites. Using software that can scan these digital photos and match ship position data with current AIS data, it is easier to identify who is misbehaving and go after them. This has been bad news for Iranian oil smuggling efforts and so far, the Iranians have not come up with effective countermeasures.
Before AIS came along, most large ships carried, and still carry INMARSAT, which enables shipping companies to keep track of their vessels no matter where they are on the planet. INMARSAT became available in the 1980s and uses a system of satellites which transmit AIS-like signals to anywhere on the oceans. It only costs a few cents to send an INMARSAT signal to one of your ships, and a few cents more to receive a reply. The trackers and satellite-based navigation systems in general soon proved invaluable by preventing collisions or running into reefs, rocks, or when there is bad weather, near coastal areas.
The smugglers soon responded to intel agency tracking of AIS activity with new tricks. Back in 2012, Iran was caught hacking AIS signals. Iran was sending false AIS signals to assist its smuggling operations. After 2012 security researchers found even more ways to hack AIS and have been calling for changes in the AIS software to make it more difficult to spoof. Iran is expected to try this again, despite the increased security measures in the AIS software.
Iran has been working for some time to come up with ways to confuse the international ship tracking system, mainly to support their arms smuggling activities. These maritime security technologies were developed as a safety feature and have proved valuable in other ways as well by providing the positions of ships caught in storms or taken by pirates. All ships now use GPS coordinates to record location and constantly report that back to the home office. Iran exploited this by having two of its ships trade INMARSAT IDs while they were near each other, leaving the U.S., or anyone else checking INMARSAT data, unable to track ships that have been switched. Well, for a while at least. Once the intel people caught onto this scam, they developed ways to counter it. This is very much a matter of move and counter move when it comes to exploiting or creating AIS vulnerabilities.
Because these tracking systems were, after 2000, required by international agreements for all seagoing vessels, this new tech was particularly useful in counter-terror operations. Coast guards the world over have also found the systems a big help. But apparently pirates in some areas have gained access to the systems via bribes or theft and a large number of pirate attacks appear to have been helped by technology meant to safeguard ships at sea. But overall, the tracking systems have done far more good than bad. By 2012 counter-piracy operations improved and better security inside the AIS operation made it much more difficult to be a pirate via stolen AIS data.
Iranian abuse of the AIS system was not appreciated by the shipping companies and ship crews. The Iranians have been found moving tankers around the Persian Gulf with AIS turned off. The Iranians do this in other parts of the world where there is a lot of ship traffic. This puts ships of many nations at risk and despite Iranian denials, there are enough ships reporting encounters with Iranian ships running dark to confirm what Iran is doing. All this outlaw activity turned more and more former allies, or neutrals, against Iran.
The bad reputation Iran has made for itself in the maritime shipping community caught up with them in 2019. Nations that registered ships, the flags of convenience, were no longer as convenient for Iran and the Iranians were surprised to find out how many ship registering nations, even the small ones with a reputation for serving shady customers, were no longer willing to register Iranian ships and were able to spot, with American help, Iranian efforts to use deception to get one of their ships registered. Insurance companies work closely with ship registrars to spot fraudulent activities and Iran soon found many of its ships could not get insurance and without it could not enter many foreign ports. At this point, Iran finds itself on the defensive. The Americans had built up a larger arsenal of countermeasures than Iran expected, and that disturbing revelation came at a very inconvenient time.
Because Russian oil exports represented a larger portion of oil exports, Russia found more major oil purchasers willing to cooperate in evading sanctions for the discounted Russian oil. Iran was also a major supplier of munitions to Russia after Ukraine was invaded and Russia found it needed more ammunition than expected. Russia expected a short war. This is a common delusion with aggressor states and now Russia finds itself taking major losses in Ukraine and unable to find an easy way out.