A shadow fleet of Iranian oil tankers continues to operate in Southeast Asian waters, using ship-to-ship (S.T.S.) transfers to evade longstanding U.S. sanctions. Despite increased efforts by Washington to halt the illicit trade, the flow of Iranian crude persists, particularly around the Malaysian coast, where maritime service providers facilitate the operations.

In the waters off Johor state, Malaysia, giant vessels like the Europe serve as stationary floating storage units, receiving fuel and crude via transfers from tankers such as the Dubai Beauty. These transfers, while common in the petroleum industry, have become a method for Iranian ships to secretly move millions of barrels of oil, often bound for small Chinese refineries. These so-called “teapots” purchase discounted Iranian crude, maintaining demand even amid broad sanctions targeting Tehran’s oil exports.

The location of much of this activity is the Malaysian Eastern Outer Port Limits (E.O.P.L.), a maritime zone approximately 45 miles off Johor’s eastern coast. Positioned beyond Malaysia’s territorial waters but within its Exclusive Economic Zone, the E.O.P.L. has become a focal point for these covert trades. Local authorities acknowledge practical challenges in policing the area and have rarely intervened, reflecting Malaysia’s official stance that does not recognize the legitimacy of U.S. sanctions on Iran.

Companies operating in Johor and nearby ports, including suppliers of fuel, repairs, and essential equipment such as fenders, often serve these Iranian vessels. Some maritime professionals, including local mooring masters familiar with the currents and skilled in facilitating transfers while ships are still in motion, are in high demand. While some service providers refuse to engage with Iranian tankers due to concerns over sanctions and reputational risk, others are drawn by the prospect of premium cash payments and sometimes offers in cryptocurrency.

The legal backdrop is complex. Malaysian law does not prohibit business with Iranian ships, and enforcement against such transactions is limited. Many firms operate cautiously, attempting to avoid records that could link them to sanctioned activity. The involvement of shell companies and measures such as false flags and transponder manipulation further obscure the true nature of the trade, complicating efforts to track the supply chain.

U.S. officials have expanded their focus to include not only the tankers themselves but also vessel brokers, bunkering services, and financial intermediaries that enable the shadow fleet. Treasury Secretary Scott Bessent has announced a “zero-leakage” policy aimed at curtailing all avenues supporting Iranian crude shipments. However, analysts suggest that despite sanctions pressures, the flow of oil has not significantly diminished.

The situation reflects broader geopolitical complexities. Malaysia maintains amicable relations with Iran and China—Beijing being the largest buyer of Iranian oil—as well as economic ties with the United States. As a predominantly Muslim nation with a nonaligned foreign policy, Malaysia has voiced criticism of the ongoing conflict involving Iran and avoids taking clear sides. This diplomatic balancing act influences local enforcement actions and public sentiment, which tends to be wary of U.S. policies, especially amidst heightened regional tensions.

Maritime workers engaged in these operations emphasize the human dimension, noting that crew members on Iranian tankers, often from various nationalities, are simply professionals earning livelihoods. They highlight the ethical concerns of denying basic services such as water and food to seafarers based on geopolitical disputes.

Experts monitoring the shadow fleet warn that even if enforcement intensifies in the E.O.P.L., Iranian tankers are likely to disperse to other regional locations including Penang, Malacca, and Indonesian waters. With vast ocean areas to exploit and adaptive tactics, the illicit trade in Iranian oil continues to pose challenges for international sanctions regimes and maritime security efforts alike.