Why Do Iran's Oil "Intermediaries" Owe the Government Billions of Dollars?

Iran says the intermediaries handling its oil sales owe it billions of dollars, but how did these debts build up?

As the United States continues its naval blockade of Iran's ports and imposes more sanctions on its oil exports, Tehran faces another problem: billions of dollars in revenue from previous oil sales that it says have been lost.

A spokesman for Iran's judiciary said in September that a network of oil intermediaries known as "Amin" owes the Iranian government between 10 billion euros ($11 billion) and 11 billion euros ($12 billion). This figure was equivalent to half of the total oil revenue predicted in the Iranian government's budget for the current fiscal year.

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The end of the list US officials, including Treasury Secretary Scott Bessant, see Iran's efforts to tap oil revenues as evidence of the effectiveness of its campaign of economic pressure. In August, Bessant said Iran's "shadow banking system was buckling" under pressure from the US campaign against the country, which has intensified as it seeks a way to force Tehran to surrender in the war between the two countries, which was launched by the US and Israel in late February.

So who are the oil intermediaries, why is Iran dependent on them and what happened to their billions of dollars in debt? Let's take a closer look.

The debt and the crisis it has created for the Iranian government are both caused by the oil sales contract that Tehran adopted in 2012 in response to the US sanctions against Iran's oil exports.

US and European sanctions targeting Iran's oil sales and revenue collection began in 2012. The stated rationale behind both sets of measures was that revenue from oil sales would help finance Iran's nuclear program, and that restricting Iran's oil exports could prevent the program from progressing.

In response, the Iranian government devised a way to circumvent international sanctions on its oil sales. Unable to sell oil through the Ministry of Oil and receive funds through the Central Bank, the company started selling oil to domestic buyers or using it to settle outstanding obligations to indebted government institutions and organizations.

This arrangement led to the creation of a network of oil intermediaries, which are often referred to as "Amin's network" in Iran. Instead of selling all of its oil through official government channels, the government left crude oil to institutions, individuals, and companies to sell it on its behalf. The proceeds were to be deposited in the government treasury and the sellers or receiving institutions were subsequently to recover their agreed fees and outstanding claims. Some institutions sold the oil themselves, while others contracted with private trading companies to handle the sale.

The Oil Industry Pension Fund, which is for retired employees of the Ministry of Oil and familiar with the oil sales process, was one of the first institutions to receive crude oil for sale. Other recipients included the Khatam Al Anbia construction site, a major hub for major infrastructure projects. Even the city police used to receive the amounts owed to them by the government in the form of crude oil.

Even in those early experiments, discrepancies emerged between the expected revenue from oil sales and the amounts sellers actually paid into government coffers. These disputes eventually led to some of the biggest corruption cases in Iran.

Accounting disputes and the government's inability to recover money from private sellers entrusted with Iranian oil continued until 2016, when the Joint Comprehensive Plan of Action (JCPOA) nuclear deal was signed and sanctions on Iranian oil sales were lifted. The government was subsequently able to regain control of oil sales.

People who sold Iranian oil but did not return the proceeds were imprisoned. With the ability to resell oil through legal and transparent channels, the government was able to manage its oil revenues and expenses with greater control for a while.

How was the money from the sale of oil not returned?

After US President Donald Trump withdrew the United States from the JCPOA in 2018 during his first term as president, the Iranian government once again had to rely on private oil traders to sell its oil. But problems related to selling oil through intermediaries rather than official government channels, including delays in repatriation of revenues, accounting inconsistencies, debts owed by oil sellers to the government, and occasional seizures of Iranian oil shipments at sea, again limited the government's ability to manage its oil revenues.

In addition, the United States expanded its sanctions beyond Iranian government entities and interests, adding bank accounts involved in transactions with the Iranian government, foreign exchange bureaus, companies, and individuals to its sanctions list. As a result, the time between participants in the Iranian oil trading network and having themselves sanctioned, along with their assets and companies, and having their accounts frozen or frozen became progressively shorter.

This helped pile up debts owed by sanctioned oil traders - who were no longer able to access their accounts - to the government. It also left Iran with no choice but to expand its private oil sales network. This meant increasing the number of people involved in Iran's oil trade, reducing the amount of oil allocated to each person or company, and ultimately increasing the risk of non-return of revenues.

Iranian authorities have also accused the trustees of using sanctions solutions to enrich themselves.

The billions of dollars owed by private oil sellers to the Iranian government is a combination of delayed payments, disputed financial obligations and allegations of corruption. The head of Iran's judiciary has recently addressed the issue, warning that oil sellers who refuse to return the proceeds of oil sales will face prosecution. But such warnings do not change the atmosphere of sanctions and remove the obstacles that prevent some oil sellers from returning the money.