Iran’s ‘Grace I’ reveals limits of sanctions dragnet

The fate of the Iranian supertanker Grace I, impounded off the coast of Gibraltar for allegedly attempting to violate EU sanctions and likely poised to sail free, has exposed limits to the Donald Trump administration’s “maximum pressure” dragnet.

Initially, it appeared the United Kingdom was pursuing an activist interpretation of EU regulations, going out on a limb to seize an Iranian vessel that had veered into the waters of a tiny overseas territory, and on the basis of the rules of a union it has voted to leave.

European Union law does not forbid the export of oil to Syria, nor does it have jurisdiction over Iranian oil sales. Not to mention that Spain disputes British jurisdiction over Gibraltar. But according to local authorities, the suspected destination of the oil was Syria’s Baniyas refinery, which is blacklisted under EU sanctions.

When the Grace I entered the waters of Gibraltar on July 4, British Royal Marines in cooperation with local law enforcement seized the ship.

Iranian Foreign Minister Javad Zarif quickly blamed the “B team” – his nickname for the hawkish US national security adviser John Bolton.

“Iran is neither a member of the EU nor subject to any European oil embargo. Last I checked, EU was against extraterritoriality. UK’s unlawful seizure of a tanker with Iranian oil on behalf of #B_Team is piracy, pure and simple,” he tweeted.

Gibraltar arrested the Indian captain and chief officer of the ship, and the case was referred to the territory’s Supreme Court.

Bolton appeared ecstatic. “Excellent news: UK has detained the supertanker Grace I laden with Iranian oil bound for Syria in violation of EU sanctions. America & our allies will continue to prevent regimes in Tehran & Damascus from profiting off this illicit trade,” he tweeted.

But just as suddenly, the tides appeared to turn.

Eyes on Grace

UK Foreign Secretary Jeremy Hunt has now signaled that Britain will be seeking de-escalation.

“Just spoke to Iranian Foreign Minister Zarif. Constructive call. I reassured him our concern was destination not origin of the oil on Grace One & that UK would facilitate release if we received guarantees that it would not be going to Syria, following due process in Gib courts,” Hunt said over the weekend.

Of course, in the period between the tanker’s impounding and the phone call, there was another key event: A British BP tanker aborted a planned voyage to the oil-rich Iraqi port of Basra, only to find itself blocked from traversing the Strait of Hormuz.

The tanker’s owner said it was blocked by three Iranian ships, prompting a British naval vessel to intervene. In the end, the ship, the British Heritage, was able to pass. But not before marine insurance premiums shot up.

The UK appeared to signal discreetly that it was not looking for a fight. A security source told Reuters that the Royal Navy would not move to escort every UK-flagged merchant vessel through the narrow strait.

Not only the UK, but regional powers such as the United Arab Emirates and exporters including Iraq have been rattled by what they see as Iran’s new willingness to respond to pressure in the past few months, shipping-industry experts say.

“They see how it actually turned the region into a volatile, tumultuous region. We saw how immediately the region just changed,” said Noam Raydan, a geopolitical analyst at ClipperData. “Right now, there are questions about Hormuz, and whatever happens there can affect oil supplies.” 

The blocking of British Heritage cannot be separated from the impounding of Grace I in Gibraltar.

“Keep your eye on Grace I,” Raydan stressed. “We could see it contained or see more escalation. To assess the impact, wait to see how it unfolds.” 

Until now, ClipperData has not documented another case of an oil tanker aborting a scheduled voyage, as happened with the British Heritage. But in the event tankers begin to avoid Hormuz, that could be a game-changer for regional shipping.

Simon Says 

The United Kingdom currently has little reason to go along with the most hardline elements of the Trump administration.

“If the UK were doing this as part of a US-inspired maximum pressure campaign, they wouldn’t be offering the Iranians a way out,” said James Dorsey, senior fellow at the S Rajaratnam School of International Studies and Middle East Center in Singapore.

“It could very well be it was US intelligence asserting that this was oil going to Syria. But it’s not the old game of Simon Says,” he said. “The UK is not executing, certainly not in the way the US may have wanted to see it executed.”

Iran has insisted its vessel is destined for a legal destination in the Eastern Mediterranean, which could be Syria, or Tehran could transport the oil to neighboring Lebanon to offer the UK a face-saving measure.

Randa Slim, director of the Conflict Resolution and Track II Dialogues Program at the Washington-based Middle East Institute, says the United States is not offering a convincing game plan to its allies.

“On the one hand you have Bolton who wants regime change, and on the other hand, a president that doesn’t want a war, and the Iranians know this,” Slim said.

Meanwhile, it is increasingly hard to imagine a scenario where the US would be able to trigger snapback sanctions against Tehran by the remaining nuclear signatories, since it is no longer a party.

“It seems we have exhausted our options. The British are coming to the conclusion that they may need an exit ramp here because maybe the American policy is not going to happen,” Slim said. The UK may also wish to conceal its source of intelligence on the Iranian oil shipment.

With Trump polling well in the run-up to the 2020 elections and the Democratic Party establishment attacking its new progressive generation, the US president has little reason to push for conflict.