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Iran teaches Russia its tricks on beating oil sanctions

(News Agency) Iran is preparing to hand the Kremlin the blueprints for its most effective weapon against the West: the underground financial network it relies on to evade sanctions.
For years, the Islamic Republic has frustrated American efforts to isolate it and starve its economy by constructing a parallel universe of front companies and foreign banks — including major financial institutions based in Europe and the U.S. — that Iranian companies use to evade international controls and conduct business abroad.
As Russia faces increasing international isolation over the war in Ukraine, Iran, which is already providing Moscow with weapons, has offered to share its expertise in the art of sanctions evasion, Western diplomats say. A series of recent meetings between senior Russian and Iranian officials, including Iranian central bank chief Ali Salehabadi and Deputy Economy Minister Ali Fekri, involved laying the groundwork for that collaboration, the diplomats argue. If Moscow manages to copy the Iranian system it could hope to blunt the impact of many of the sanctions it faces, especially in its oil and gas sector, which forms the backbone of its economy. Such a system would give Russian President Vladimir Putin much more flexibility — and time — to continue to wage his war against Ukraine by keeping oil revenue flowing.
“Anyone interested in changing the Russian state of mind should understand that paralyzing the Russian-Iranian financial abilities is essential,” one of the Western officials said.
The diplomats who issued the warning on sanctions evasion techniques also noted that Western banks, such as Germany's Commerzbank and Deutsche Bank, as well as Citigroup in the U.S., played a role in helping Iran continue to rake in export earnings through underground transactions. The risk is that the same Western banks — either wittingly or unwittingly — could be sucked into the same style of trade by Russia.
Trans-Caspian comrades
Over the summer, Tehran and Moscow held talks about using Iran as a backdoor for Russian oil once Tehran and world powers went back to a nuclear deal, under which the Islamic Republic would rein in its atomic program in return for sanctions relief. But amid the Iranian regime’s brutal crackdown on protestors in recent weeks and growing skepticism about renewing the accord in Washington, the likelihood of a breakthrough has faded.
Relations between Russia and Iran, which collaborated in Syria to support the regime of Bashar al-Assad in that country’s civil war, have intensified on other fronts, however. Iran has become a major supplier of the “kamikaze” drones Russia is using in Ukraine, for example. Meanwhile, Tehran asked the Kremlin for help in advancing its nuclear program, CNN reported last week, citing U.S. intelligence.
Iran has decades of experience in finding ways to avoid American sanctions but made particular strides since 2018 after U.S. President Donald Trump withdrew from the nuclear deal and reimposed restrictions. Trump argued that the arrangement with Iran was insufficient to prevent Tehran from building a bomb. European countries, led by Germany and France, objected to the U.S. decision but were powerless to stop it.
Even before Trump’s move, however, European banks and companies had been reluctant to reengage with Iran because many U.S. sanctions remained in place and most firms assessed the risk of U.S. legal exposure as too high.
Iran’s remedy was to go underground.
A cache of recent transaction data reviewed by POLITICO between Iranian clearing houses and foreign-registered front companies controlled by the regime suggests that the volume of sanctions-evading transactions handled by the network is at least in the tens of billions of dollars annually. The data, authenticated by Western officials, underscores the degree to which Iran succeeded in circumventing the so-called “maximum pressure campaign” Washington initiated in 2018. “This explains how Iran won the maximum pressure campaign,” one of the Western officials said.
It might also explain why Iran, despite significant concessions by the administration of U.S. President Joe Biden, resisted re-entering the nuclear deal. The talks reached a stalemate even before the recent surge in protests in Iran.
While American sanctions have taken a toll on Iran's economic output, Tehran’s shadow financial network has ensured the economy continues to fire, if not on all cylinders, then at a pace that keeps it moving, while also securing the elite’s privileges. Though inflation and unemployment in Iran are high — factors that have contributed to unrest — its economy has recently shown signs of life, growing by more than 4 percent in the last fiscal year alone, according to the World Bank. While Iran’s oil exports have roughly halved under the sanctions to about 1 million barrels per day, it has succeeded in maintaining robust trade in other areas, such as petrochemicals and metals. At about $100 billion last year, Iran’s foreign trade reached its highest level since the U.S. reimposed sanctions. Despite the drop in oil volumes, the country has recently benefited from rising prices, with export revenue last year more than doubling to about $19 billion. What’s driving Iran’s oil recovery, according to the World Bank, are “indirect exports to China.”
Iranian oil is attractive to China, mainly because it’s relatively cheap. The illicit nature of sanctioned Iranian crude means it sells at a steep discount to market prices.