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On an early Friday morning in October, Bloomberg, Serene Cheng, and a team of colleagues set out on a small supply ship from Singapore. They were headed into the waters of the South China Sea.
We sailed off from Singapore around five in the morning. We were very fortunate the seas were very calm that day. En route de one of my colleagues events bottled like dolphins.
But Serene wasn't there for a sightseeing cruise. Her team was looking for tankers carrying Iranian oil that was sanctioned by the US, and after seven hours on the water, they saw something that caught their eye. Through the haze, they found what they were looking for. Dozens of huge ships, some more than three football fields long, looming in the distance.
We were quite taken aback by the skill and just a number of tankers that were sitting and loitering around the area.
As Serene's team was sailing through this cluster of ships, they spotted two oil tankers side by side. They identified one tanker as the wind Wind, a Panama flagged vessel, and the other ship sitting low in the water and laden with crude oil was a Cameron flagged vessel, the Titans. The Titan is known to have transported Iranian oil and
it's infamous within shipping circles. It is no known insure, no known beneficiary owner, and the only contact details for its registered owner are a post office box in the Seychelles.
We saw these two vessels Titan and they were doing a ship to ship transfer right before our eyes. Look you can see the hose. Can you see the hose connecting, So that's the hose that's transferring the oil.
Unbelievable.
I think we realized that, oh, this is the this is checkpot, this is the one that has been handling Iranian coude and it was connected to a vessel that is often going to with China.
What Serene and her team witnessed was likely one of many oil transfers that happen every day in the South China Sea transfers that happen away from prying eyes and skirt US sanctions. The US has essentially declared Iran's oil sector off limits, and it can restrict or cut off access to its financial system for any company or person
found trading with Iran. But Iran needs the oil revenue, and it appears to be using a network of intermediaries and vessels owned by shell companies to get it oil to willing buyers like China, and that's creating a multi billion dollar shadow industry that's flourishing today.
When we look at ship tracking data and we look at satellite images, it is very clear that this supply chain is happening, and it's moving a lot of oil and there's a lot of money to be made in terms of its dollar value. Just for this year alone, for the first nine months of twenty twenty four, we are looking at more than twenty billion dollars and that is already a very conservative estimate.
Welcome to The Big Take Asia from Bloueberg News. I'm wanh. Every week we take you inside some of the world's biggest and most powerful economies and the markets, tycoons and businesses that drive this ever shifting region. Today on the show, how our vast network of aging ships are covertly transferring millions of barrels of Iranian oil and skirting US sanctions. What are the risks for neighboring countries if a shady transfer goes wrong? And what is the US doing to
keep sanctioned oil out of reach. Back in twenty eighteen, the US reimposed sanctions on Iran's major oil exporters, banks, and shipping companies. That meant Iran had a hard time finding willing customers to buy its oil. Serene Chung, Bloomberg's team leader for oil trading in Asia, says the sanctions cut off crucial revenue for Iran and hit its economy hard.
Iran really relies on this oil revenue. Billions of dollars goes back to Tehran from the sale of this oil. There is a real need for the Iranians to think of different ways to bring the oil to the customers.
One workaround Iran's using to get its oil out on the market involves what's known as a dark fleet.
Duck fleet tends to be very old tankers, don't have proper insurance coverage, tends to sail under what we know as flecks of convenience, and tend to support sanctioned and restricted regimes and flows of oil from the likes of Iran, Venezuela and Russia.
And one thing these tankers tend to do a lot is to turn off their transponders, which sends signals of the ship's location and other basic information for navigational safety, and with them off, the ships can essentially disappear off the map.
They can go dark for a long period of time, maybe days or even weeks. Nobody would actually know what it's doing doing that period of time.
Recently, Serene and the Bloomberg team noticed a pickup in the number of these shadow tankers off the east coast of Malaysia.
When we looked at ship tracking data, we can see that it's very very clear where the plaster is. It's almost like a parking lot right. It is known to be the biggest cluster of dakty tenkas in the world. It can contain around any time between seventy to one hundred vessels, many of them supertankers, the biggest in the world.
The ships are clustered off the east of jahor the southernmost state of Malaysia.
So this particular area, it's in what we know as the Malaysian z which is the exclusive economic zone. It is outside of Malaysia's territorial waters. Because it is a very large area, that's not that much scrutiny.
This lack of oversight and its location in the middle of a shipping corridor between China and Iran make this a perfect place for dark fleet vessels to move sanctioned oil. So Serena and her team focused on this cluster of tankers. They gathered nearly five years of satellite images from the hot spot and train the computer to recognize one unique pattern two ships side by side for hours at a time.
In the shipping industry, it's called a ship to ship transfer, which could be an indication that oil is being moved from one vessel to another.
When a cargo gets transferred via ship to ship, it tends to be relabeled as another type of oil. When Iranian oil gets transferred out at sea of Malaysia, that is a good opportunity for this relabeling of sensitive cruds into Malaysian crude. But of course, what we can only say is that adjacent side by side ships in this manner suggests that a ship to ship transfer is happening.
Or you know, they could just be stopping in the open sea to say hi.
Right, A right, you want to keep warm or something, right. But I want to be clear that not all the time these would be dark business, but oftentimes because of what we know of what's happening in this area, it tends to be.
So to nail it further down, Serene and the Bloomberg team layered the satellite image with ship tracking data to check whether these tankers are where they say they are, and on top of that, another set of data was revealing on paper, the official data from Chinese customs just didn't add up.
If you look at Chinese official imports from Iran that has been down to zero since the middle of twenty twenty two, and when we checked with the Chinese customs, there's not single barrel of Iranian oil that has been imported by China since middle of twenty twenty two. And China has in fact imported a lot of Malaysian oil, way more Malaysian oil than Malaysia can even ever produce.
And all of this research led the team to the discovery of those two ships in mid transfer.
Yeah, yeah, the SSEs STS. So it was really exciting for us because I think in that moment we realize that with these two tankers, we could potentially join the Dots and tell our story about how the Dark Fleet has been helping oil move from restricted regimes such as the one in Iran to willing customers in China.
For Iran, the South China Sea gambit is a means of survival. The country needs the revenue and there aren't many buyers willing to skirt the sanctions. But China doesn't recognize the US curbs on Iran, and these shadow operations offer a way for the country's refineries to access cheap oil. But what are the risks and what needs to be done to curb the shadow exchange before the worst happens.
That's after the break. Every year, billions of dollars of oil is estimated to move from Iran to China with the help of a vast shadowy fleet and bluebirg Serene Cheng says this growing cluster of dark tankers poses multiple risks.
The first risk we would be looking at is environmental. This is a lot of oil that is being transferred from one vessel to the other, and it's happening quite frequently in these waters. Should there be any fire, explosion, oil spill, or any sinking of ships, this would be a real tragedy and catastrophe to the coastal states in what is otherwise a pretty pristine area that's of Malaysia, Singapore and Indonesia.
And in recent years there have been incidents that showed just how dangerous the risks can be. An explosion last year aboard the Pablo, a dark vessel which had been observed in Iranian waters, killed three crew members, and in July this year, a collision between an oil products tanker and a dark fleet crew tanker result in fires on both ships. The dark fleet trade is also a growing source of tension between Washington and regional powers like Malaysia.
The US has called on Malaysia to do more to tackle the problem, but with little success, and earlier this year, at a Bloomberg Economic Forum, Malaysian Prime Minister and more Ibrahim denied that any transshipment of Iranian oil took place, not one should of evidence they induced, and he added that Malaysia isn't able to monitor what's happening out at sea. There was ship to ship, thus shipment in the international walks, and we do not have the capacity to observe a
monitor there. Meanwhile, China didn't comment specifically on the oil transfers, but it said its trade with Iran is reasonable and
legal and should be respected and protected. Iran's Foreign and oil ministries, the US Treasure Department, and Malaysia's Foreign Affairs ministry, as well as a Prime Minister's office, didn't respond to requests for comment as for the transfer between those two tankers, the wind Win and Titan that Bloomberg Reporters observed, a letter requesting comment to the po box of Titan's owner was returned with the address not found, and for win Win,
a representative in London for its registered owner declined to comment on their clients or to provide contact details. And Serene says, exactly what can be done about the dark fleet and who's willing to take responsibility for it is a complicated question.
The US would like Southeast Asia to properly enforce its sanctions against countries like Iran, but on the other hand, countries like Malaysia are on very friendly terms and have long term ties with Iran as well as with China, where a lot of this Iranian oil is going to. You can imagine that there are different priorities and as capabilities when it comes to sanctioned enforcement in this area and stream.
How do you see this trend of sanctioned oil moving around Asia playing out? Especially with the new US president coming into the White House.
I think everyone is looking out to see what a Trump administration will do in terms of its foreign policy and in terms of how harsh it is when it comes to sanctioned enforcement. But what I would say is that this trade, involving dark fleet and involving the movement of sanctioned and restricted oil, it is a very resilient trade. They will not go away because at the end of the day, there is a lot of money to be made by these dark fleet tanker operators who are helping
the sanction that restricted regimes. They are making way more than they would on a legitimate fleet, and of course the likes of regimes such as those in Iran, Venezuela and Russia. They really are motivated to get the oil to the customers. There is a very eager buy of oil in China, and there are middlemen and tanko operatas willing to help this trade, so it will not go away.
This is the big take Asia from Bloomberg News. I'm wanha. This episode was produced by Young Young, Naomi Um and Jessica Beck. It was mixed by Alex Suguiera in fact checked by Naomi and Adrianna Tapia. It was edited by Aaron Edwards, Caitlin Kenney, Clara for Raira Marquez, and Emily Cadman. There was additional reporting by Clara Wilund, Soon, Krishna Kara, and Yasufumi Saito. We'd like to give special thanks to
Bloomberg's Originals team. Naomi Shaven is our senior producer, Elizabeth Ponzo is our senior editor, Nicole Beemster Bower is our executive producer, and Sage Bowman is Bloomberg's head of podcasts. Please follow and review The Big Take Asia wherever you listen to podcasts. It really helps me. Stener's final show, See you next time.