The report said Iran appeared to be using the port of Labuan as a place where its oil could be shifted from its own tankers to other tankers in order to disguise the origin of the crude and allow importers to bring Iranian oil into their countries while citing it as coming from some other country.
A Reuters examination of shipping movements and interviews with industry sources and officials shows how Iranian crude is shipped to Labuan and loaded onto empty vessels at night to await potential Asian buyers.
At least two large Iranian oil tankers were unloaded this way last month and other Iranian vessels are sailing in the direction of Labuan, according to Reuters Freight Fundamentals, which tracks the movement of the global tanker fleet.
An industry source familiar with Iran’s planning told Reuters Iran is struggling to find shipowners willing to offer vessels for storage. And the exposure of the scheme may bring it to an end.
The dead-of-night transfer of oil is not illegal but illustrates the efforts Iran is making to skirt Western sanctions. A European Union sanction has virtually halted access around the world to insurance for Iranian crude, while new US sanctions punish countries that do not reduce their purchases of Iranian oil “substantially.”
The Labuan caper allows foreign buyers of Iranian oil to pretend their Iranian oil comes from somewhere else, thus allowing them access to European insurers and permitting them to tell their own government they aren’t buying Iranian oil.
Less than 10 kilometers (six miles) from the coast of Borneo, Labuan is sheltered from typhoons and is typically used to park unwanted ships rather than store expensive oil. People in the industry say this makes it an ideal place to blend or re-brand oil as non-Iranian and resell it under the radar of sanctions enforcers in Washington or Brussels.
But Labuan is no longer under the radar.
The insurer of one of the storage ships that took oil from an Iranian tanker said it had been informed of the transfer by the British government August 16, and was looking into the matter.
Reuters said Malaysian and Iranian officials did not respond to requests for comment on its report.
China, India, Japan and South Korea, which together buy the vast bulk of Iran’s reduced crude exports, have all imported less this year, thereby winning waivers from US sanctions. Those waivers are up for review and renewal every six months, so buyers need to be careful not to be seen increasing imports from Iran again.
Last month, Lantana, a tanker operated by the National Iranian Tanker Co (NITC), transferred its cargo of around 1 million barrels of crude oil to the Titan Ruchira, a floating storage vessel, off the tiny tropical island of Pulau Kuraman near Labuan, port and shipping industry officials told Reuters.
Around August 10, another Iranian tanker, Motion, discharged as much as 2 million barrels of fuel oil on to the Titan Tulshyan in the same area, said the officials.
Another Iranian tanker, Pioneer, had been expected in Labuan early this month, but has anchored off the southwest Malaysian coast.
“That [Lantana] operation took place literally in the dark of night. They didn’t even use a proper operator with experience to carry out the STS [ship-to-ship transfer],” said an East Malaysian-based shipping source. “The authorities were aware only after the fact.”
The Islamic Republic, however, has not apparently sold any of that crude yet. Reuters quoted one source as saying Iran declined to sell the stored crude to a Chinese trader who offered $54 a barrel, about half the price of Iran’s cheapest heavy crudes.
The two Titan storage vessels fly the Panamanian flag, but they are owned by offshore companies linked to the Singapore-based Tulshyan Group, which hired them out in 2010 to Hong Kong-based Titan Petrochemicals under a five-year bare boat charter, an arrangement where Tulshyan has no staff managing or operating the vessel. Tulshyan, which shares a Singapore office with Titan, told Reuters it was not aware that the cargo on its ships was Iranian.
Titan, battling a shipping industry downturn caused by a glut of tankers, high bunker fuel prices and a shaky global economy, has struggled to meet charter payments to Tulshyan, according to a person familiar with the matter. Heavy with debt and with five straight years of losses, Titan is being sold to Chinese oil trader Guangdong Zhenrong Energy Co Ltd, whose parent, Zhuhai Zhenrong, is blacklisted by the United States as the biggest supplier of refined petroleum products to Iran.
Titan leased the two tankers to Glammarine, a little-known shipping company that only recently registered in Labuan. Glammarine took the two ships under a six-month charter, with Titan’s crews running the vessels’ day-to-day operations and Glammarine taking responsibility for finding the cargo and paying for use of the ships.
“This was the first business we’ve done with Glammarine…. There were no red flags raised,” Titan director Augustine Cheong told Reuters in Singapore. “The due diligence we took was to check if they are legally incorporated. And it’s on a time charter, so we have our own crew on board and can see if they’re doing something wrong.”
Cheong said Titan would drop the charter to Glammarine if the oil was found to be Iranian.
Glammarine officials declined to comment. A visit by Reuters to a listed Labuan address for Glammarine given in business registry documents found a rundown building in a neighborhood once used to house workers at a now defunct milk factory. The premises were closed.
Glammarine agreed to let a company called Account International Safe Oil use the Titan Ruchira and Titan Tulshyan to store four million barrels of Iranian oil, shipping sources said. Account International is not registered in Malaysia or Hong Kong, and Reuters was unable to find an address for the company. Buyers of Iranian oil in China, India and Japan said they had not heard of the company.
A Middle East industry source familiar with the company said Account International was an affiliate of the National Iranian Oil Company (NIOC). A second source based in East Malaysia said the firm had business links to HK Intertrade, a Hong Kong-based firm sanctioned by the United States in July for operating as a front company for Iran.
“HK Intertrade purchases oil from NIOC and resells it to companies like Account,” another southeast Asia-based shipping industry source said.
The ships’ managers from Titan were not aware that the crude and fuel oil transferred from Lantana and Motion were from Iran, Cheong said. “We requested BL [bill of lading] documents. We were told the cargo was from India … and we believed they were ex-NITC tankers,” he added. “We only operate the ships as the ship manager. We don’t own the cargo.”
A source familiar with the operations of the Titan Ruchira said the cargo was declared as Iranian to port officials in nearby Sabah. Customs officials in Sabah did not respond to Reuters emails. But in signed shipping documents seen by Reuters, Account International listed the 1 million barrels of crude oil unloaded by Lantana as Indian.
But India doesn’t allow the export of domestically produced crude. Nor did Lantana call in at India on its journey from Iran’s crude export hub at Kharg Island to Malaysia, according to Reuters Freight Fundamentals and industry sources in both India and the Middle East.
Account International also indicated on shipping documents seen by Reuters that the fuel oil on the Motion was from Fujairah, a major transshipment and storage hub in the United Arab Emirates. Shipping data shows the Motion did stop in Fujairah, but began its trip in Iran.
The Titan Ruchira is insured by the North of England P&I Association, which said it was looking into the matter after being informed of the transfer off Labuan by the UK government last month.
“There is a risk … a vessel providing storage services for Iranian oil would breach European sanctions laws,” said Mike Salthouse, director with North Insurance Management, which acts as manager for the North of England P&I Association. “I say a risk because sanctions as currently drafted appear to target the insurance of the transportation of Iranian oil and not the provision of insurance to facilities storing such products.”
The Titan Tulsyhan is among some 7,000 vessels insured by Gard, the world’s second-largest marine insurer. “Gard takes very seriously any suggestion that it is in breach of any international sanctions and is conducting an investigation,” it said in a response to Reuters queries. “Gard can, and will, withdraw any insurance cover if it believes sanctions are being breached.”
Rakesh Tulshyan, head of the Tulshyan Group that owns the two Titan vessels, said that if there is “concrete evidence that it’s Iranian oil”, he will seek to have it removed from his vessels. “Because of my reputation, I would rather not do any business with links to sanctioned countries,” he told Reuters.