Last month, almost 50 percent of crude exports were cloaked, according to TankerTrackers.com, a website that tracks and reports oil shipments and storage. Despite reports to the contrary and threat of impending sanctions, Iran was still able to export around 2 million barrels per day.

Iran has embraced the media and market narrative that exports are down because it helps boost the oil price. Now, however, they have pretty much cloaked every vessel coming in to pick up oil, [but] we can still see them by satellite, said Samir Madani, co-founder of TankerTrackers.com.

Cloaking a vessel entails the shipper switching off its automatic identification system transponder, a tracking system that allow authorities to follow and monitor a ships unique identification, position, course and speed. When the AIS is turned off, voyages are categorized as Ghost Shipments. The International Maritime Organization requires the systems to be fitted aboard international ships with 300 or more gross metric tons on board.

Iran is a major producer of API Group I base stocks, and Iranian refiners exported 435,000 tons of base oils during the 2017-2018 fiscal year, the vast majority destined for the United Arab Emirates, according to a presentation by Farzad Zandi, commercial director at Sepahan Oil Co., at the AMEA Base Oil, Lubricant and Wax Conference in August in Mumbai, India. The U.A.E. is also a strategic re-export hub to India and China, often necessitating ship-to-ship (STS) transfers. According to TankerTrackers.com, smaller STS tankers were also partly cloaking exports between Iran and the U.A.E. during September.

Some in the base oil industry speculate that Iranian base oil suppliers could use a cloaking strategy when next months U.S. sanctions are invoked, particularly if it supports prices. Prices for solvent neutral 500 have been stable to soft for most of the past three months, but in recent weeks they have faced downward pressure, according to an ICIS report distributed at its Middle Eastern Base Oils & Lubricants Conference held Oct. 15-17 in Dubai. Iran’s major refiners are also mindful that any significant lapse in Group I base stock supply could open the market to Asian refiners and to some extent Saudi Arabia, analysts say.

Iran’s government looks set to use a suite of options to support trading in oil and refined products. It is currently mulling revival of trading on a domestic bourse or exchange. This would permit intermediaries to buy crude and refined products and then sell them in international markets as sourced from the private sector. Barter trade may also be used, an initiative likely to be supported by the European Union within the framework of the Joint Comprehensive Plan of Action that the U.S. exited in May.

Cloaking base oil shipments is not without risk. The region’s congested shipping lanes make cloaking a potential threat to navigation. Iranian President Hassan Rouhani has said oil exports could be moved from Kharg Island – which currently accounts for 90 percent of oil exports – to Jask Oil Terminal, a process which may take several years but alleviate some risk. “Once the Jask Oil Terminal is operational and at full capacity, any threat to the Strait of Hormuz would have fewer consequences for Iran, [but] the plans are overly optimistic – most of the oil production is in the western half of the country along the Iraq-Iran border,” says Matthew Bey, senior global analyst at Stratfor.

With deepening uncertainty ahead of next months sanctions, the short-term outlook for Iranian base oils seems increasingly opaque. Monitoring shipments, an already difficult task, will become more complex. Industry predictions anticipate volatility in the market in the months ahead as the forces of supply and demand play out.

But for the moment, Iran’s Group I base stocks continue to be sold on the open market despite restrictions.