U.S. threatens sanctions over Iran tanker after court ruling

Jonathan Browning, Alex Longley and Nick Wadhams August 16, 2019

GIBRALTAR (Bloomberg) --The U.S. is disappointed with the UK after a Gibraltar court allowed the release of an Iranian tanker, and threatened sanctions against ports, banks and anyone else who does business with the ship or its crew, two administration officials said.

Grace 1
Grace 1

The court’s decision Thursday to release the Grace 1 was a missed opportunity and the Trump administration hopes that the UK government and authorities in Gibraltar will reconsider, according to the officials, who asked not to be identified discussing private deliberations. They said the court order rewards Iranian terrorism and Tehran will interpret the action as appeasement.

The Grace 1 had been held in Gibraltar after British forces seized it last month on suspicion that it was hauling Iranian crude oil to Syria. The U.S. Department of Justice is seeking to block the vessel’s release, but the Gibraltar Supreme Court on Thursday said American authorities hadn’t filed the appropriate legal application.

The two administration officials said the Grace 1 should now be considered a pariah. Anyone that does business with the ship, its crew or its owners, or provides financial transactions or port services to the vessel could be liable for evading U.S. sanctions, the officials said.

They argued that the UK should think of the tanker issue in terms of the broader relationship with the U.S., particularly as Prime Minister Boris Johnson’s government presses forward with departing the European Union and seeks a free-trade agreement with the U.S. While the people wouldn’t say the release threatens prospects for that deal, they added that the UK should ask if it wants to do business with the U.S. or Iran.

Iran said the ship wouldn’t sail to a sanctioned destination and is now rushing to return it to international waters before the U.S. finds a way to prolong its six-week detention.

“In light of the assurances we have received, there are no longer any reasonable grounds for the continued legal detention of the Grace 1 in order to ensure compliance” with European sanctions, the Gibraltar government said in an emailed statement.

The decision now essentially sets up a race between Iran and the U.S. over the ship’s fate. The vessel is bound for a port in the Mediterranean, Iran’s Mehr news agency said, citing Jalil Eslami, deputy for maritime affairs of the Iranian ports and maritime organization. The vessel hadn’t moved as of 7:49 a.m. local time, data on the MarineTraffic website showed.

Diplomatic Row

The seizure of the tanker set off a diplomatic row, underscoring tense relations between Iran and the West that have only worsened since the U.S. reimposed sanctions on the Persian Gulf state last year. Tensions have been high in the region in recent months amid a series of vessel attacks and seizures, which have threatened shipping in the Strait of Hormuz, the world’s most critical chokepoint for oil shipments.

Following the detention of the ship on July 4, Iran seized a British-flagged vessel, the Stena Impero, which it continues to hold.

Gibraltar’s decision to release the Grace 1 “is a satisfactory result for the UK,” Cara Hatton, an analyst at Falanx Assynt Ltd., a geopolitical risk consulting firm, said in an emailed statement. It “fully justifies Britain’s initial seizure of the ship, and increases the likelihood that Iran will now release the Stena Impero without giving the impression that the countries are engaged in a tanker swap.”

The UK Foreign and Commonwealth Office cautioned that there was no connection between Gibraltar’s enforcement of sanctions and Iran’s activities at the mouth of the Persian Gulf.

“There is no comparison or linkage between Iran’s unacceptable and illegal seizure of, and attacks on, commercial shipping vessels in the Strait of Hormuz and the enforcement of EU Syria sanctions by the Government of Gibraltar,” it said in an emailed statement. “Freedom of navigation for commercial shipping must be respected and international law upheld.”

The Gibraltar government said in its statement that it held several meetings with Iranian representatives this month and last to negotiate the tanker’s fate, and on Tuesday, the Islamic Republic agreed that the ship’s final destination wouldn’t be subject to European Union sanctions.

Iran agreed to re-flag and insure the vessel, which was carrying about $140 million in crude oil to the Baniyas refinery in Syria. It will now travel under the Iranian flag.

Four crew members from the Grace 1 -- the captain, chief officer and two second mates -- have been released, according to the Gibraltar government. The vessel’s captain has no intention of going back aboard the ship, said his lawyer, John Wilkinson. “He wants to go home to India,” he said. Most of the 28 crew are on board, he said.

Connect with World Oil
Connect with World Oil, the upstream industry's most trusted source of forecast data, industry trends, and insights into operational and technological advances.