Iran: Shipwrecked in Asia

The example of an Iranian shipping firm underscores how sanctions may finally be biting against the country’s nuclear programme.

Luke Hunt

The crisis at the Fukushima nuclear power plant following the devastating earthquake and tsunami that wreaked havoc in north-eastern Japan has again thrown the spotlight on an industry that has always struggled for public acceptance. But the nuclear danger is also a reminder of the threat posed by rogue states that harbour atomic ambitions, including Iran.

Undermining Iran’s nuclear programme remains near the top of the US foreign policy agenda, and a change in strategy by the United Nations Security Council — at Washington’s behest — is being felt far and wide, particularly in East Asia. And while the new approach may not grab many headlines, it’s already showing some useful results.

In an effort to halt Iran’s controversial efforts by choking off the supply of materials, international focus has shifted to financial services and the world’s shipping lanes, which deliver goods Tehran needs to continue developing its nuclear programme.

Heading the list of targets is the Islamic Republic of Iran Shipping Lines (IRISL). The carrier boasts the biggest fleet in the Middle East, with about 170 vessels, but is struggling as banks foreclose on
mortgaged vessels, and as insurers refuse to underwrite the company’s operations.

IRISL ships were once a common sight in Asian ports, Hong Kong, Singapore, Thailand and in the Malaccan Straits dividing Malaysia and Indonesia. Its ships were among the biggest and newest to ply the waterways, and mostly transported goods supplied by Chinese companies.

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David Albright, a US nuclear physicist who inspected Iran’s nuclear facilities for the UN’s atomic energy agency, says China is key to Tehran’s nuclear designs as a supplier of high strength maraging steel, specialty vacuum pumps, Kevlar and carbon fibre.

‘Over and over, Iran goes there to buy things,’ Albright said after the United Nations imposed the latest round of sanctions against Iran in June last year.

The United States and its allies argue Iran’s nuclear programme is a cover for weapons development, and sanctions are credited with hindering Iranian efforts to acquire materials used in centrifuges to enrich uranium to make a nuclear bomb. Tehran, for its part, denies the allegations, saying its nuclear industry is for electricity generation and civilian use, although few in the international community believe them.

Regardless of Iranian intentions, sanctions recently came to a head in Singapore, where a sheriff’s sale of three IRISL ships was organized after the vessels were seized.

The courts later released the ships, after IRISL found the cash to meet calls on loan repayments, and Chairman Mohammad Hossein Dajmar went on the offensive, rebuking Singapore and the banks for impounding his ships. ‘We had a loan and (the banks) changed it from a loan to a due payment because of sanctions…they committed a violation because the loan contract was signed before the sanctions,’ he said.

He also told the Financial Times that sanctions hadn’t hurt the company, insisting revenue for the eight months from March 2010 was up 40 percent, while shipping transactions were up 25 percent.

But despite his protestations, it’s clear that international sanctions are hampering the firm’s ability to operate. Dajmar failed to mention, for example, that another four European financial institutions are seeking the detention of five new IRISL ships amid alleged defaults worth $268 million. Already, two of the vessels have been detained — the Decretive was seized in Hong Kong and the Dandle in Malta last November — following requests from banks. Hong Kong companies have apparently organized mortgages on seven Maltese registered ships.

Meanwhile, the broader screws of international sanctions are being turned even further, including in Asia.

South Korea has shut 102 companies believed to be assisting Iran’s nuclear programme, including the local branch of Bank Mellat, which is said to be responsible for exports to Iran. Malaysia, for its part, has signed off on its Strategic Trade Bill and signalled a change in stance by backing sanctions, a move that should please the United States. The trade bill enables authorities to seize material bound for export that could be used in the production of weapons of mass destruction. WikiLeaks cables named Electronic Components and Skylife Worldwide, both Malaysian companies, over potential breaches of sanctions and for acting as front companies for Tehran.

However, Emeritus Prof. Carl Thayer of the Australian Defence Force Academy in Canberra says that although Asian states are obliged to comply with UN Security Council resolutions, with the exception of Singapore, capacity and political too often inhibit compliance.

He notes, for example, that although Malaysia is now tilting towards the United States, in Thailand, Universal Transportation Limited proudly boasts of its position as agent for IRISL despite Thailand’s status as a major US ally.

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Still, from a business perspective the international moves taken already mean that the financing of IRISL’s ships prior to sanctions — legal in principle — is now a much more risky proposition for the banks concerned. And there’s also the potential reputational damage to a bank from dealing with a sanctioned entity.

Among other allegations, IRISL is accused of trying to evade sanctions through a network of front companies, engaging in little more than a paper shuffle (the companies listed all share the same address, staff and office space as the initial IRISL operations).

US officials say IRISL uses an array of deceptive practices to conceal its identity, including false shipping documents, changing names and nominal ownership of vessels and re-painting ships. Among the front companies are Hafiz Darya Shipping Company, which deals in containers, and bulk carrier Sapid Shipping Lines.

As a result, another 24 affiliated companies were blacklisted in January, 16 of which were traced to a single Hong Kong address. IRISL-owned vessels are often registered in a third country, such as Hong Kong, Germany or Malta. The three IRISL vessels – the Tuchai, Sabalan and Sahand – seized in Singaporean waters late last year were German registered and were impounded after a warrant was issued on behalf of banks seeking $210 million in alleged loan defaults and damages.

An impounded ship can cost its owners about $35,000 a day in docking and fuel charges. Further fines are imposed for delays, and according to Iranian reports there are outstanding loans on 80 new IRISL ships.

Older IRISL-tied ships are also thought to be at high risk of seizure having also been re-mortgaged in exchange for new ones, one Western maritime trade source told me. ‘It’s impossible that the company can pay back all the loans ahead of time.’

All of this means that IRISL looks set to become the latest casualty of sanctions against Iran. Selected routes have closed, its days as a carrier of ballistic missile parts appear to be over, and its future as a trusted name in shipping is, at best, questionable.

None of this will grab international headlines. But it’s certainly making life that little bit more complicated for Tehran and its nuclear ambitions. 

Luke Hunt
Contributing Author

Luke Hunt

Luke Hunt is a South-east Asia correspondent for The Diplomat and has worked in journalism for more than 25 years.

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