Malaysia and Indonesia Are Links in Iran’s Drone Supply Chain

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Malaysia and Indonesia Are Links in Iran’s Drone Supply Chain

Companies based in the two countries are part of an “illicit procurement network” that has been targeted by U.S. sanctions. 

Malaysia and Indonesia Are Links in Iran’s Drone Supply Chain
Credit: Depositphotos

In the early hours of December 16, 2023, a swarm of drones headed toward the USS Carney, a warship patrolling the southern Red Sea. Crew members on board the ship shot down the 14 UAVs (Unmanned Aerial Vehicles), which had been launched from north Yemen.

The “drone wave” targeting the USS Carney was one of more than 26 attacks launched by the Houthis, a Yemen-based militant Islamic group aligned with Iran. Since November 19, the rebels have gone after ships in the Red Sea with drones and ballistic missiles as a retaliation against Israel’s war in Gaza. This week, the Houthis went a step further, launching their largest operation to date.

A majority of the strikes have targeted commercial vessels in the Red Sea. However, the UAVs are capable of striking further afield. On December 23, a Liberia-flagged chemical tanker in the Indian Ocean was attacked by a kamikaze drone launched directly from Iran.

The Shahed-136 drones are designed and manufactured by HESA (Iran Aircraft Manufacturing Industrial Company) in association with Shahed Aviation Industries. HESA is a subsidiary of a state-owned aerospace company. Launched from a truck, the “suicide drone” carries a 40-kilogram warhead, which detonates on contact with the target.

The Shahed-136 is a “loitering munition” filled with parts from electronics manufacturers in the U.S., Asia, and Europe. “The stuffing of the Shaheds, except for the Iranian-made engine, consists entirely of foreign components,” concluded a 2022 joint investigation by NAKO, a defense-focused Kyiv-based NGO, and the Wall Street Journal.

In 2022, the Russian army deployed a version of the Iranian drones in Ukraine. Small and inexpensive, they were reportedly designed to target civilian infrastructure. Ukrainian soldiers called them “flying mopeds” for the buzzing sound emanating from the piston engine. The Ukrainian intelligence service disassembled the downed drones and found that roughly half of the 200 technical components came from U.S. manufacturers and a third from Japan-based companies.

Shortly after the attack on the USS Carney, the U.S. Department of the Treasury imposed a new round of sanctions on an “illicit procurement network” assisting the “export of U.S.-origin, dual-use, and sensitive technology to Iran.” A multi-year investigation by Homeland Security Investigations exposed a web of “Iranian intermediary companies, front companies, and logistics businesses” engaged in sourcing parts for the Shahed drones.

For the first time, U.S. officials named a cluster of Southeast Asian companies as intermediaries in the procurement network. The sanctions identified four firms in Malaysia and one in Indonesia. All the Asian entities had links to Hossein Hatefi Ardakani, an entrepreneur and foreign defense procurement agent who used “front companies” to acquire electronic components. Ardakani has business ties with state-affiliated firms like HESA, which manufactures the Shahed drones.

The sanctioned companies in Southeast Asia are typically importers of electronics components. Arta Wave, based in Malaysia and Hong Kong, “attempted to facilitate Ardakani’s acquisition of more than 1,000 servomotors,” noted the Treasury’s statement. Another Kuala Lumpur-based company, Nava Hobbies, helped source electrical motors, fuel pumps, and servomotors.

The Indonesian firm, Surabaya Hobby, likely exploited the dual-use capability of the components, importing parts for non-commercial or recreational use. The firm’s owner, Agung Surya Dewanto, facilitated shipments of at least 100 servomotors for Isfahan-based Pishgam Electronic Safe Company, which has ties to state-controlled defense industries. Dewanto was the only non-Iranian individual named in the latest round of drone-related sanctions.

The servomotors found in disassembled drones downed over Ukraine were manufactured by Hitec Group USA, an electronics company based in San Diego with units in South Korea, Japan, and Germany. In a statement, Hitec’s U.S. and Korean units acknowledged that their components were found in Shahed-136 drones: “Through extensive vetting, we believe that our product was obtained through typical hobby channels located in Europe and Asia.”

David Albright, a weapons expert and President of the Washington D.C.-based think tank Institute for Science and International Security, suggested that U.S.-origin electronics could have given the UAVs a technological edge. “One electronic module in the Shahed-136 drone called Nasir… has played a central role in hindering Ukrainian jamming efforts,” wrote Albright.

“Treasury will continue to enforce its sanctions against Iran’s military procurement efforts that contribute to regional insecurity and global instability,” said Brian E. Nelson, Under Secretary for Terrorism and Financial Intelligence at the Treasury Department, in a statement last April.

The latest round of sanctions against Malaysia and Indonesia-based companies signals a renewed attempt by the U.S. to block the supply of parts for an underrated munition that has driven commercial vessels out of one of the world’s busiest shipping lanes.