On Wednesday, Iraqi naval forces detained a vessel suspected of oil smuggling in the Persian Gulf, apprehending both the Iranian captain and crew members from India and Iraq.

Intercepted within Iraqi territorial waters, the vessel has been towed to Umm Qasr naval base and all crew members have been handed over to local authorities for questioning, Iran International reports. While fuel smuggling is common throughout the Persian Gulf region, such interceptions by Iraqi forces, who rely heavily on support from Iranian-backed Shiite groups, are notable.

Fuel smuggling represents a significant economic challenge for the Islamic Republic where heavily subsidized fuel is routinely diverted to the black market. President Masoud Pezeshkian recently highlighted the scale of the problem, stating that between 20 to 30 million liters of fuel are smuggled out of Iran daily, calling the situation a “catastrophe” amid the country’s ongoing energy crisis.

In Iraq, a particularly sophisticated smuggling operation has taken root since 2022, reportedly generating at least $1 billion annually in revenue. Exploiting Iraqi government subsidies intended for asphalt manufacturing plants, smugglers access fuel oil allocated at significantly reduced prices.

According to Reuters, the operation functions through two primary channels. In the first method, Iraqi fuel is blended with Iranian fuel and fraudulently documented as purely Iraqi origin, helping Iran circumvent international sanctions on its energy exports. Alternatively, smugglers directly export subsidized Iraqi fuel using falsified documentation to mask its origins.

The southern Iraqi city of Basra has emerged as a central hub for these operations, with Khor Al Zubair and Umm Qasr serving as key export points. rowing in both volume and complexity in recent years, Iraqi fuel oil exports are now on track to exceed 18 million tons this year.