US officials to discuss with Malaysia ‘potential impact’ of Iran sanctions’ violations

Treasury Department says it’s concerned about Washington-sanctioned Iranian oil being moved from ship to ship in Southeast Asian waters.
Iman Muttaqin Yusof
Kuala Lumpur
US officials to discuss with Malaysia ‘potential impact’ of Iran sanctions’ violations The Liberian-flagged oil tanker Ice Energy transfers crude oil from the Iranian-flagged oil tanker Lana (formerly Pegas), off the shore of Karystos, on the Island of Evia, Greece, May 26, 2022.
[Costas Baltas/Reuters]

A U.S. Treasury delegation will discuss the consequences of allowing transshipments of Washington-sanctioned Iranian oil in meetings with government officials here this week, amid longtime allegations by Western news and research firms that Malaysia permits Iran to use its waters for ship-to-ship petroleum transfers.

The American officials who arrived in Kuala Lumpur late on Monday will engage in blunt discussions with their Malaysian counterparts, U.S. Ambassador Edgard Kagan said on the sidelines of Asia’s largest defense show.

“We are confident that the Malaysian government understands the U.S. position with regard to transshipment of oil that has been sanctioned, and understands the potential impact that this could have,” Kagan said in response to a question about whether Washington sees Malaysia as a transshipment hub for Iranian oil.

He did not elaborate on what he meant by “potential impact,” which could mean anything from sanctions on Malaysia to an emboldened Iran potentially causing more trouble for Washington. Sanctions deny people or companies access to assets within the United States and prevent American citizens or financial institutions from doing business with them.

“We look forward to candid and frank discussions that are going to be done very much from our standpoint in the spirit of working together to address a common problem,” Kagan said.

Iran has been the target of a range of American sanctions since 1979, after students seized the U.S. Embassy in Tehran and took hostages. The latest ones have been implemented over Iran’s nuclear program.

In December, the U.S Treasury Department imposed sanctions on four Malaysia-based companies it accused of helping Iran’s production of drones. Washington accuses Iran of supplying deadly drones to what it says are terrorist proxies in the Middle East, and to Russia for use in Ukraine.

On Friday, the Treasury Department said that two of its top officials would visit Malaysia and Singapore on May 6-9 to advance its work in countering what it called terror financing by Iran and its proxies, and the implementation of sanctions against Russia.

“Since the beginning of this year, the Treasury has taken several significant actions to combat and disrupt the illicit shipment of Iranian oil to buyers in East Asia, including shipments via ship-to-ship transfers in international waters near Singapore and Malaysia,” the department said in a statement on Friday.

“In Malaysia, Under Secretary Nelson and General Counsel MacBride will discuss the United States’ efforts to disrupt terrorist financing, including through fundraising for fraudulent charities and illicit oil sales, while ensuring that U.S. sanctions and other financial measures do not impede the flow of humanitarian aid to Gaza.”

BenarNews contacted the Prime Minister’s Office and the foreign ministry for comment on the U.S. officials’ visit and Kagan’s comments, but did not immediately hear back.

Images of the Iranian flag and a miniature oil pump model are overlain on the picture of a stock’s trading graph, in this illustration from Oct. 9, 2023. [Dado Ruvic/Illustration/Reuters]

Both the issues – sanctions against Russia and Iran – have seen the East and the West divided in their responses. 

In the case of Iran, responses have diverged even more following the attack by Palestinian Hamas militants on Oct. 7 that killed around 1,100 people, and Israel’s retaliation after, which has taken more than 34,000 lives of people in Gaza.

The U.S. and its allies in the West firmly fault Russia for its invasion of Ukraine in February 2022, and staunchly support Israel, while many in Southeast Asia and other parts of the world are not so quick to denounce Moscow, but downright denounce Israel.

Malaysia, a Muslim-majority country, has consistently advocated for a two-state solution as the Jewish state has occupied the Palestinian territories of Gaza and the West Bank. And amid the latest crisis, it has denounced Israel in no uncertain terms.

Malaysia has taken a stance supporting Iran, which launched drones and fired missiles at Israel on April 13. Prime Minister Anwar Ibrahim described Iran’s actions as a “legitimate act” in response to Israel’s “barbarous” attack on Iran’s consulate in Damascus.

‘I will not accept any threats’

Anwar has dug in on the threat of U.S. sanctions as well.

He said in November that Malaysia would maintain ties with Hamas and not be cowed by the threat of “unilateral” sanctions for doing so in the face of a proposed U.S. law to sanction the group’s supporters. 

He was responding to the Nov. 1 passage by the U.S. House of Representatives of the Hamas and Other Palestinian Terrorist Groups International Financing Prevention Act. It has yet to be passed by the Senate.

“I will not accept any threats, including this,” Anwar said in Parliament back then. 

“This action is unilateral and not valid because we, as members of the United Nations, only recognize decisions made by the United Nations Security Council.” 

In December, Malaysia banned Israeli shipping company ZIM, vessels flying the Israeli flag and those headed there from docking at its ports, saying the move was a response to the Jewish state’s actions in Gaza.

Washington ups the pressure

Still, allegations about Malaysia’s support for Iran evasion of U.S.  sanctions have been made for years, and long before the latest crisis in the Middle East. 

More recently, the U.S. Energy Information Administration (USEIA), in September, noted that China’s oil imports from Malaysia in the first half of 2023 rose to 1 million barrels a day – a figure that exceeded total production in Malaysia.

USEIA pointed to a May 2021 article from the Washington-based Middle East Institute’s website  to explain this discrepancy. The article was titled “Iranian sanctions evasion and the Gulf’s complex oil trade,” and cited news sources like Bloomberg and Reuters as well.

“With a heavy discount on Iran’s high-risk, illegal oil exports, buyers in China are purchasing so much that oil tankers are ‘clogging up’ ports in the country,” the article said, referring to a Bloomberg News story for the information about the choked ports.

“Identifying the oil’s true origin is difficult, however, as it is often imported ‘indirectly,’ first passing through transshipment hubs in the UAE, Malaysia, and Oman, or simply relabeled as ‘Middle Eastern’ oil,” it said, citing Reuters as the source for information about indirect imports.

Meanwhile, Washington is ratcheting up the pressure on sanctions violators.

The Treasury officials’ visit to Malaysia comes less than two weeks after President Joe Biden signed a national security package that included the “21st Century Peace through Strength Act,” which extends the statute of limitations for violations of sanctions to 10 years.

It also included the “Stop Harboring Iranian Petroleum (SHIP) Act, which authorizes sanctions on foreign ports, vessels, and refineries involved in the trade of sanctioned Iranian petroleum products.

Additionally, the Fight and Combat Rampant Iranian Missile Exports Act, the Iran-China Energy Sanctions Act of 2023, and the “No Technology for Terror Act,”  each address specific aspects of Iran-related sanctions and activities.

In a recent article for The Washington Institute for Near East Policy, research assistant Rebecca Redlich wrote that “Kuala Lumpur is once again displaying its willingness to facilitate Iran’s illicit activity.”

“The United States has repeatedly sought to curb Kuala Lumpur’s growing ties with Iran by sanctioning various Malaysia-based entities,” she said in her article dated April 24.

“U.S. officials have focused most of their outreach and punitive actions on areas where Malaysian decisions directly threaten U.S. objectives, such as facilitating illicit Iranian oil sales and creating a permissive environment for sanctions evasion.”


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