OFAC Targets Iran-Iraq Oil Smuggling Network In Latest Sanctions Action

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On September 2, 2025, the U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC") announced sanctions against a network of shipping companies...

United States International Law

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Overview

On September 2, 2025, the U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC") announced sanctions against a network of shipping companies and vessels led by Waleed Khaled Hameed al-Samarra'i ("al-Samarra'i"), a dual citizen of Iraq and St. Kitts & Nevis, for smuggling Iranian oil disguised as Iraqi-origin crude. The alleged scheme, which involves covert blending and mislabeling of Iranian oil, according to the Treasury report, has generated hundreds of millions of dollars in revenue for both the Iranian regime and al-Samarra'i. The action was taken pursuant to Executive Order ("E.O.") 13902, which targets Iran's petroleum and petrochemical sectors.

Key Findings

Following the press report, al-Samarra'i's network allegedly operates primarily by blending Iranian oil with Iraqi oil at sea and in Iraqi ports, then marketing the product as exclusively Iraqi-origin crude to evade U.S. sanctions. The network relies on a fleet of Liberia-flagged vessels, which are managed by Babylon Navigation DMCC ("Babylon"), a UAE-based logistics company. Additionally, Galaxy Oil FZ LLC ("Galaxy Oil"), also UAE-based, serves as the primary trader of the blended oil on global markets.

To obscure the Iranian origin of the oil, the vessels allegedly engaged in ship-to-ship transfers with tankers affiliated with Iran's shadow fleet, often at night and using techniques such as AIS spoofing and location reporting gaps. The vessels used in the scheme are registered to Marshall Islands-based shell companies, which allegedly serve to mask al-Samarra'i's control. We recently posted on OFAC sanctions involving the shadow fleet on August 26, 2025, when the agency targeted the Margaritas network for transporting Iranian petroleum products in violation of U.S. sanctions programs on Iran.

Pursuant to this action, al-Samarra'i and Babylon were designated pursuant to E.O. 13902 for operating in Iran's petroleum sector and Galaxy Oil was designated for being owned or controlled by al-Samarra'i. Additionally, nine vessels were identified pursuant to E.O. 13902 as property in which Babylon has an interest. The five Marshall Islands-based companies allegedly involved were also designated for acting on behalf of Babylon. For additional information concerning the specific entities and identified vessels, please refer to this SDN list update.

U.S. Policy Context

As with previous sanctions actions against Iran, the latest designations are taken pursuant to Executive Order 13902 and in furtherance of National Security Presidential Memorandum-2, which directs a campaign of maximum economic pressure on Iran. Remarking on the action, Treasury Secretary Scott Bessent stated, "Iraq cannot become a safe haven for terrorists . . . We remain committed to an oil supply free from Iran and will continue our efforts to disrupt Tehran's evasion of U.S. sanctions."

Next Steps

This action underscores OFAC's continued focus on Iran-related sanctions programs and secondary sanctions targeting non-U.S. actors involved in key sectors in Iran, notably the oil and gas sector. Companies in shipping, energy, insurance, and commodities trading should assess potential exposure to the designated entities and vessels.

OFAC Designation Implications

As with prior OFAC designations, all property and interests in property of the designated individuals and entities that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Entities owned 50 percent or more by one or more blocked persons are also blocked under OFAC's 50% Rule.

All transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or blocked persons are prohibited unless authorized by a general or specific license issued by OFAC or exempt. These prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person and the receipt of any contribution or provision of funds, goods, or services from any such person.

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