Iran’s shadow fleet and shadow banks keeps the money pouring in

Iran has doubled its oil exports since the start of Operation Epic Fury, sustaining flows of between 2.4mn and 2.8mn barrels per day (b/d), including 1.5mn to 1.8mn b/d of crude. It has also doubled the amount of money it’s earning, The Economist reports.

The Strait of Hormuz is blocked and the flow of oil through the chokepoint has been reduced to a trickle of ships under the new permits-for-passage system that is entirely under the IRGC’s control. But not for Iran. It has not only continued its oil exports unfettered since the start of the conflict but has increased them to record amounts.

Iranian shipments, however, have continued largely uninterrupted, allowing Tehran to benefit from oil prices above $100 per barrel. Revenues from exports is estimated at about $250mn per day, roughly double pre-war levels. Previously, the Financial Times reported that Iran was earning $150mn per day from the ongoing oil exports. In addition, the IRGC is reportedly charging some ships a $2mn fee for transit through the Strait.

China is the anchor customer. It absorbs around 90% of exports, largely via independent “teapot” refineries in Shandong province. Some of these refiners maintain links with state firms. Shandong Shouguang Luqing Petrochemical, for example, has purchased at least $500mn of Iranian crude and holds stakes in three joint ventures with Chinese state-owned enterprises, The Economist reported. These transactions are increasingly settled in yuan rather than dollars, echoing shifts seen in Russian oil trade since 2022, which now settles the bulk of its oil export trade in yuan and a smorgasbord of other local currencies. As a result of the international sanctions on Russia, and now the conflict in the Middle East, significant pools of de-dollarized oil trading are popping up around the world.

Behind these flows sits an increasingly opaque system. Iran’s shadow fleet remains critical, but so too does a parallel financial architecture built on layered “trust” accounts, shell companies and small banks, particularly in China and Hong Kong. Funds move through multiple jurisdictions — including India, Kazakhstan and Turkey — before reaching networks linked to the Islamic Revolutionary Guard Corps (IRGC).

Control of the trade is decentralised but tightly embedded within the state. The National Iranian Oil Company (NIOC) allocates export quotas across institutions ranging from the foreign ministry to domestic security forces. Around 20 oligarch-linked networks operate within this system, many integrated into IRGC economic structures.

Prominent figures have emerged within these networks. Ali Shamkhani, the former Secretary of Iran’s Supreme National Security Council, is reported to have played a central role before his death, while his son, Hossein Shamkhani, now runs a trading and shipping empire, including Admiral. Other power centres include networks linked to Mojtaba Khamenei and Gholam-Hossein Mohseni-Ejei, The Economist reports.

Operational control is increasingly concentrated within the IRGC. Its international branch, the Quds Force, oversees around 25% of crude output and plays a direct role in negotiating international deals and securing payments. Shipping and logistics are co-ordinated through entities including Sahand, Sahara Thunder, Pasargad, Persian Gulf Petrochemical Company and firms affiliated with Khatam al-Anbiya, The Economist reports, all of which are under sanctions for their role in facilitating exports.

Market dynamics have shifted alongside the conflict to bolster the bottom line. Discounts on Iranian crude have narrowed from $18–$24 per barrel below Brent before the war to $7–$12, while Russian discounts have disappeared completely. Once discounted by $20–$30, the Russian Urals blend is now trading at or above benchmark levels in some markets, particularly India. The Kremlin just said it is going to revise its economic growth for this year upwards and the Ministry of Finance (MinFin) is going to nix plans to cut spending by 10% due to the anticipated windfall from high oil prices.

In addition to paying more for Iranian and Russian oil, freight costs have also exploded and tightened margins for customers, especially for Chinese teapot refiners, who are also facing state-imposed caps on domestic fuel prices as governments rush to manage the oil price shock on their economies.

The shadow banking system that washes these incomes is also evolving. Dedicated units within firms linked to the defence ministry and the IRGC operate extensive networks of accounts — effectively functioning as shadow banks — to process oil revenues.

Two or three additional layers of shell companies have been introduced since the conflict began, holding an estimated $6bn–$7bn, according to The Economist. Funds are increasingly routed through new hubs in East Asia and Europe, including Britain, Germany, Georgia, Italy and Romania after the traditional banking services, mostly based in Gulf countries, get shut down.

For example, Dubai used to be a major banking hub for Iran, but since the UAE started sharing financial system intelligence with the US, Iran has rushed to redeem deposits and move the business to new channels.

Separately, unconfirmed reports, suggest that Qatar has done a deal with the IRGC, returning Iranian money in exchange for a cessation of attacks on its key oil and gas production facilities. And indeed, the wave of Iranian attacks over this weekend on military and industrial targets did not include any major strikes on Qatar that has already seen 17% of its LNG production taken off line after an Iranian missile strike on its Ras Laffan LNG plant on March 18.

The work of remaking the shadow banking system has fallen to the oligarchs that handle much of the nitty gritty of exports as part of the IRGC’s Decentralized Mosaic Defence doctrine (DMD) that breaks up Iran’s defence into cells to protect them from attack, or in this case, sanctions and seizure. But that has introduced a new set of problems as the already opaque system has become even more inscrutable making it hard for the Central Bank of Iran to monitor. It has also multiplied the oligarchs’ ability to skim off the top.