Five intelligence sources have told Reuters about the activities of a complex oil smuggling network in Iraq that has been operating during the tenure of Prime Minister Mohammed Shia al-Sudani. According to these sources, the network generates at least $1 billion annually for Iran and its proxies.
According to these five sources and three relatively recent reports from Western intelligence agencies, the network exploits an Iraqi government policy of providing low-cost fuel oil to asphalt companies. It involves a wide range of companies, groups, and individuals in Iraq, Iran, and Gulf countries.
Reuters states that each month, between 500,000 to 750,000 tons of heavy fuel oil, including high-sulfur fuel oil (HSFO), equivalent to 3.4 to 5 million barrels of oil, are diverted from asphalt companies and exported to Asian countries.
One of the routes involves mixing Iraqi fuel oil with Iranian fuel oil and exporting it as a purely Iraqi product.
According to the five sources who spoke to Reuters, Tehran uses this method to partially circumvent stringent U.S. sanctions on its energy exports.
Due to the striking similarity between Iranian and Iraqi fuel oil, it is scientifically impossible to distinguish between homogeneous or blended exported materials.
The second route involves exporting fuel oil that is legally allocated at a very low cost to asphalt companies under Iraqi government regulations.
According to the report, Tehran “directly benefits” from the first method. Iran has long been forced to sell its oil at deep discounts to a limited pool of customers, such as China, due to sanctions. By passing it off as Iraqi oil, it can achieve higher revenues.
The second method primarily serves as a source of income for Tehran-backed militia groups, which control the entire smuggling network in Iraq.
Three sources, based on an approximate calculation of the volume of oil passing through this network and its average price, estimate the network’s annual revenue at between $1 billion and $3 billion.
Iran views Iraq as a critical economic lifeline, leveraging powerful militia groups and its supported political parties to exert significant political, military, and economic influence in the neighboring country.
In recent years, Baghdad has tried to maintain close ties with Tehran while also being a reliable ally for Washington. However, with Donald Trump’s return to the White House and his potential crackdown on Iran’s sanction-evading efforts, Iraq’s cooperation with the Iranian government will come under greater scrutiny.
Iraqi leaders’ heavy reliance on Iran-backed Shia militias to remain in power has made it extremely difficult for them to address illegal activities, including oil smuggling.
