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Iraq: Oil Smuggling Produces High Profits

  • Charles Recknagel



After briefly closing its waters to ships smuggling Iraqi oil, Iran now has reopened them. In the second of a two-part series on oil smuggling in the Persian Gulf, RFE/RL's Charles Recknagel looks at who the oil smugglers are and how Iraq helps coordinate their operations.

Prague, 21 June 2000 (RFE/EL) -- Experts on the sea smuggling of oil from Iraq say that the pace of the trade depends on the price of oil.

When oil prices are high, fleets of ships -- ranging from wooden dhows (traditional sailing vessels) to rusty oil barges to modern oil tankers -- ply the trade. When prices are down, the fleets all but disappear.

Vice Admiral Charles Moore, commander of the U.S. Navy's Fifth Fleet based in Bahrain, coordinates the multinational force which patrols the Gulf to enforce UN sanctions on Iraq. He described the trade in detail to RFE/RL.

"In 1999, when we saw oil prices worldwide plummet to around $10 a barrel, we observed the smuggling to come to an end for about nine months. This supports our thesis that the smuggling of oil from Iraq is driven principally by the price of oil. Starting in late August, we saw international oil prices rise and in some cases exceed $30 a barrel, and concomitantly we saw a rapid increase in smuggling. By December of 1999, smuggling had reached an all-time high in excess of 400,000 metric tons per month."

Moore says that when prices are high, the trade tempts a wide range of smugglers to try their luck. Some are individuals with just enough capital to field a small boat carrying dozens of barrels. Others are companies which invest in dilapidated oil tankers with capacities for several thousand tons. The profit margin is high. Charles Moore says:

"[The Iraqis] offer the oil to smugglers at a much discounted price, a price of about $95 a metric ton. This would enable a smuggler to purchase the oil for that price, pay the Iranians $50 a metric ton for a tariff to use their waters, and then sell the oil at their destination for around $205 a metric ton and thereby make $50 to $60 a metric ton in profit."

He continues:

"So this motivates a variety of entities to enter into smuggling. We have seen smugglers range from individuals who have enough money to purchase an old, dilapidated, barely seaworthy vessel, hire an undocumented crew that is very inexpensive, and make a run or two, transferring this illegal oil, and therefore make a lot of money. We have seen individuals, we have seen some small businesses engaged in this activity, and we have even seen larger companies."

For Baghdad, the trade brings big revenues at no risk. Moore estimates that at the rates of smuggling observed before Iran briefly closed its territorial waters in April and May, the trade will net Baghdad some $1 billion in cash this year. That, plus money earned from a lively oil smuggling trade by trucks into Turkey, provides the money Iraqi President Saddam Hussein needs to maintain power despite UN sanctions which have crippled Iraq's economy.

Moore says that Baghdad assures the sea trade goes smoothly by providing smugglers with a team of experienced Iraqi pilots who help them navigate down the Iranian coast and stay out of international waters guarded by the multinational patrol. Moore says:

"The Iraqis in many instances will provide personnel, generally they are former naval officers or merchant marine officers, who are able to pilot the smuggling vessels in the narrow Iraqi waterways. They are knowledgeable of the business side of the operation and can facilitate the transfer of monies for the cargo on both ends of the operation -- where it is purchased and where it is sold. And then they can assist in navigation and piloting of the vessel through the Iranian waters."

He says the Iraqi pilots coordinate their activities with one another at sea by radio telephone. And because they are a small group and make one round trip after another, they are highly experienced and can coordinate their activities in ways to complicate patrol ships' strategies to interdict them. That makes the smuggling a sophisticated game of cat-and-mouse, in which both sides are constantly varying their sailing patterns and routines.

When the multinational fleet interdicts a smuggler's vessel, they escort it to one of the neighboring Arab Gulf countries. There it is turned over to local authorities, which at times confiscate the vessel and sell the cargo -- turning the proceeds over to the UN. But the crew, who may be from any number of countries, and the pilots have little to fear. Moore says that in the vast majority of cases, they are simply repatriated home with no penalties.

Because the confiscation of their boats is the main -- if not sole -- penalty for the smugglers, most use only vessels they can afford to lose. The result is a fleet of barely seaworthy barges plying Iran's coast and occasionally dashing across the Gulf to a port of call -- often in real danger of sinking. That makes the boats a procession of oil spills just waiting to happen -- a prospect that alarms some of the Gulf states. Moore:

"We see smuggling conducted largely by these unseaworthy, dilapidated vessels, many of which are barely capable of making even one run. And of course, we see a lot of them have difficulty [at sea], they go dead in the water, they lose power, they have other problems that result in their interception. I should also point out they pose a significant environmental hazard to the Gulf and the region, and this has prompted several of our friends in the region to take more stringent actions in terms of the standards they enforce in their ports [to discourage sale of illegal oil]."

In a major oil spill two years ago, a barge suspected of carrying Iraqi diesel fuel sank off the United Arab Emirates, spilling more than 4,000 tons (30,000 barrels) into Gulf waters. The oil slick caused substantial environmental damage and forced some of the UAE sheikdoms to temporarily shut down their desalination plants, which provide the bulk of their drinking water.

Environmental experts say that the ecological danger is amplified by the fact that the Gulf is a very shallow, almost landlocked sea with an already high level of pollution due to leakage from oil terminals and pipelines.

But not only dilapidated vessels make the oil-smuggling run. Earlier this year, as oil prices climbed steadily toward $30 a barrel -- where they stand today -- even new tankers worth millions of dollars came into the game. One was the Russian tanker Volganeft-147, discovered in March to be carrying 25,000 barrels of Iraqi fuel aboard. A month later, the multinational patrol intercepted another Russian vessel, the Akademik Pustovoyt, with some 80,000 tons of suspect fuel aboard.

Since those high-profile interceptions, there are signs that such large players have now been frightened out of the trade. Moore says it is because they have discovered they have too much to lose if caught.

"We did see newer, more capable [ships] come into the smuggling scene over the past several months. [But] my view is that after we intercepted the Volganeft-147, those types of vessels and the individuals or companies that own them decided that it was not worth getting into the smuggling business. They have a lot of money invested in their vessels, and they probably felt as though they couldn't afford to lose that investment."

For now, that leaves the trade back where it has always been since the UN slapped sanctions on Iraq following Baghdad's invasion of Kuwait in 1990.

Dilapidated tankers continue to hug Iran's coast as they work their way toward ports in the Gulf, the Horn of Africa, and even Pakistan and India.

And the multinational patrol fleet continues patrolling the Gulf in hopes of catching them in international waters.

(This concludes the two-part series on oil smuggling in the Gulf.)

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