Senior Iranian and Iraqi officials held consultations in Baghdad as Iraq’s central bank banned five more banks from US dollar transactions following discussions with US Treasury officials.
The move is intended to combat money laundering and dollar smuggling alongside other unilateral financial restrictions that were imposed on eight banks in Iraq last year alongside Baghdad’s attempts to increase pressure on Tehran in regards to access to hard currency.
Iran’s Deputy Foreign Minister for Politics Majid Takht-Ravanchi met with Iraqi Deputy Foreign Minister Mohammad Bahr al-Uloom, along with National Security Advisor Qassim al-Araji and Deputy Speaker of the Iraqi Parliament Mohsen al-Mandalawi.
“Exchange of views on vital and important issues between the two close neighboring countries, who share many commonalities, is a must in this challenging time for the West Asia,” Ravanchi wrote on X.
The ban on Iraqi banks follows meetings in Dubai between officials from Iraq’s central bank, the US Treasury, and the Federal Reserve.
Iraq, which holds more than $100 billion in reserves in the US, is reliant on the approval of Washington in order to keep access to its oil revenue.
The recent restrictions are in line with US President Donald Trump’s reinstatement of his "maximum pressure" strategy on Iran, raising fears that Baghdad may experience increased financial difficulties putting it in between Washington and Tehran.
Iran views Iraq as an economic ally for hard currency, while it leverages strong ties with Shi’ite militants and political factions in the Arab country.
The US has long been seeking to restrict Tehran’s ability to bypass sanctions through its Arab neighbor’s financial system.
While the West has lauded Iraqi Prime Minister Mohammed Shia al-Sudani’s economic initiatives, the escalating financial strain could challenge Baghdad’s ability to balance Washington’s expectations with its economic connections to Tehran.
Findings by Iran International show that while Iran’s oil sales to China dropped sharply last month, the decline in export revenues began months earlier, coinciding with US sanctions on dozens of tankers carrying Iranian crude.
The Biden administration imposed sanctions on dozens of tankers carrying Iranian oil after Iran’s missile attack on Israel in early October last year. While this initially led to a relative decline in Iranian oil offloading at Chinese ports, the real blow came in early January when China, fearing potential US sanctions under Donald Trump's administration, prohibited sanctioned oil tankers from entering Shandong port.
Iran’s only oil customers are small, independent Chinese refineries, known as "teapots," most of which are based in Shandong, where 90% of Iranian oil cargoes is discharged.
Data from Kpler shows that Iran’s oil deliveries to China fell below 850,000 barrels per day in January, compared to over 1.8 million barrels per day in October last year.
Homayoun Falakshahi, a senior analysis at Kpler told Iran International that Iran’s floating oil reserves have also tripled to 35 million barrels during this period. This explains the discrepancy between Iran’s claims of steady shipments and falling deliveries to China.
Most tankers are anchored in the waters off Singapore and Malaysia, while the Islamic Republic is seeking non-sanctioned vessels to transport the shipments to Shandong port.
Oil export revenues collapse, far exceeding decline in sales
Although Iran’s oil deliveries volume to China saw a relative drop in late 2024 and experienced a steep plunge in January, Iranian customs data indicates that the sharp decline in the country’s oil revenues began as early as October last year.
From March to September 2024, customs and government officials regularly reported monthly oil revenue figures. However, they had remained silent in since October until Iran’s Abdolnasser Hemmati, the minister of economic affairs recently referenced oil export revenues briefly in a tweet about the country’s foreign trade.
The latest data published by Iran’s Customs Administration indicated that the country had exported $23 billion worth of oil in the first six months of the current Iranian fiscal year (March 21 to September 21). No further official figures were released until Hemmati, citing customs data, announced that Iran’s oil export revenue had reached $30 billion over the past ten months.
In simple terms, Iran’s monthly oil export revenue has plunged from $3.83 billion in the first half of the fiscal year (March-September), to just $1.75 billion over the past four months.
It remains unclear why Iran’s oil revenues have plummeted far more than the drop in crude sales volume to China. However, it appears that latest sanctions by the Biden administration on dozens of tankers in October 2024 have significantly increased the cost of transporting Iranian oil to China, leading to a severe revenue decline.
Moreover, Iran’s oil exports to Syria have also halted in recent months following the collapse of Bashar al-Assad’s government. However, with a daily export volume of only around 60,000 barrels, this alone cannot explain the halving of Iran’s oil revenues over the past four months.
Since October last year, the Iranian rial has also suffered a sharp devaluation, with the US dollar surging from around 600,000 rials to 900,000 rials in the free market—highlighting a major challenge for the Iranian government in meeting the country’s foreign currency needs.
Russia’s Challenge for Iran
In the final days of the Biden administration, Washington sanctioned over 180 oil tankers carrying Russian crude oil. According to Reuters, this move has caused the cost of chartering non-sanctioned tankers for transporting Russian oil to China to increase 3.5-fold. As a result, some previously non-sanctioned vessels that were involved in smuggling Iranian oil have shifted toward Russia, making it even more difficult for Iran to find non-sanctioned tankers to transport its oil to Chinese ports.
In this regard, TankerTrackers reported on February 13 that a very large crude carrier (VLCC), previously engaged in smuggling Iranian oil, is now en route to China with 1.9 million barrels of Russian crude.
Similarly, Kpler has confirmed that several large tankers that previously operated for Iran are now serving Russia.
Meanwhile, Russia’s floating oil storage has surpassed 88 million barrels, and it appears that the country’s logistical challenges won’t be resolved anytime soon.
