A (2:31)

Yeah. So Venezuela, I think, is the most straightforward, that we are seeing general licenses issue, or there were general licenses that allow predominantly US persons to start Dealing in Venezuelan oil with PD visa. There's still some questions around the margins of what you can do, particularly if it involves, say, another country, particularly ones they've highlighted. So if you want to recap, say, Venezuela's oil infrastructure. Right. I think the focus is very, like, US dependent. Right. That we want Schlumberger coming in or Baker, you know, Baker.

B (3:10)

So that's what they wouldn't. If you're like Technip or someone, they. They have the ability not to give you an OFAC license.

A (3:18)

Yeah. So there are cutouts. And the problem is, for some of this, the oil infrastructure in Venezuela is built off of, you know, components that are in foreign country from foreign countries that are sort of excluded here. So there's still questions like that as to, you know, how is it going to recapitalize. But the US has been on a pretty constant pattern of issuing these licenses. So, for example, they issued one this week even for entering negotiations for restructuring of debt. So I think it's very much US Policy that they do want to drive the oil business in Venezuela. They've been very consistent about it. It's just kind of handling these other sort of legal questions that crop up in the course of doing business that sort of OFAC is stepping in to either issue a specific license, to issue a general license to everyone, or sometimes just to say no to companies that. That is not part of U.S. policy in this case.

B (4:16)

So if you're a U.S. trading house or the U.S. cEO, you might. You'd have a better shot at it than whoever it might be.

A (4:26)

Correct.

B (4:27)

But what happened with. So is oil is flowing at the moment, Right?

A (4:33)

Yes.

B (4:33)

And that is. We've obviously seen Trafigura and Vitol step up to move that oil. Are there other participants in that now? And then, what was the story with the oil that, you know, so the priest, like the, the oil that was flowing prior to those, prior to sort of the events and sort of getting boarded by U.S. marines and. Yeah. And.

A (4:53)

Well, law enforcement detachments and stuff like that. Yeah. So, I mean, I, it's, it's interesting what we're seeing. Obviously, Vitol and Traffi were already well positioned to take over this when this happened.

B (5:06)

The scale.

A (5:07)

Yeah.

B (5:07)

An operational stance.

A (5:08)

And also they had been. Because, remember, Chevron was also there as well. So, like, they did have some of this infrastructure in place, some of the, the networks in place to do that.

B (5:17)

A Swiss and a Dutch UK firm. I mean, they don't.

A (5:21)

Yeah. I mean, they, but, but look, I mean, they. When we're talking about the oil houses. Right. The major are not predominantly in America. Right. So I mean, I think like the US issued them specific licenses to engage in this and that this is a very straightforward way to go about it. Right. I think from the US's standpoint, they're more interested that the buyers and the refineries that are receiving this oil are going to be us more so than the trading houses that are doing it.

B (5:52)

Right. Okay.

A (5:53)

As to the second question, I mean, so we have obviously seen a massive drop in Dark Fleet vessels going to Venezuela. They have largely gone on to the Iranian trade or the Russian trade, it depends. And some of the vessels that were seized or boarded, we let them go. Right. It was a bit of a catch and release, particularly the ones that we seized in international waters because they lacked a flag. Right. That we didn't necessarily have a warrant for their cargo. Holding onto these vessels is very expensive. And so we saw some of them after the catch and release were heading straight to Russia, Iran or to off the coast of Malaysia to deliver this cargo. Some vessels that were part of the Dark Fleet that had been holding on to Venezuelan cargo that had been in say off a Jose terminal at the time, they actually delivered it to certain ports within the Caribbean. And then that's when it was picked up by vessel charter by saying the

B (6:54)

US did a massive favor to the Dark Fleet.

A (6:57)

Yeah.

B (7:00)

Make the Dark Fleet great again was, you know, the Venezuela trade was shut off, but thankfully for in their case, a couple of months, a month later, the Iranian opportunity really opened up.

A (7:12)

Yeah, yeah. I mean that's a whole different story that we're probably going to tackle with the general licenses allowing for the sale of Russian and Iranian oil, where that has been a massive favor to the Dark Fleet. That prior to all this happening, like the Dark Fleet was kind of in the ropes. The seizure strategies was really starting to catch on, particularly with Europe as well. And it's one that like, we're very

B (7:34)

consequential to Russian revenue. I mean, exactly like it was finally doing what it meant to do.

A (7:39)

Exactly like we now have Russian warships escorting Dark Fleet tankers out past UK waters.

B (7:46)

Yeah.

A (7:47)

So that they can go there safely. And we're seeing Russian PMCs, PMCs, private military contractors staffing these vessels to provide security on them. So in fact, the EU in their latest round of sanctions, sanctioned an entity called the Moran Group. And they are the ones that Russia has been hiring to provide security, armed security on these vessels to deter boardings and stuff like that.

B (8:10)

So right up until the US's and Israel's attack on Iran. Yeah, we were seeing the Europeans get in on this.

A (8:19)

I mean the French got on it, the Swedes are in on it, like,

B (8:22)

and it was, I mean it was very deleterious to Russia. And so. Okay, so what, let's, let's move on to Russia then. Okay, so Russian sanctions, the sanctions on Russian oil finally had some teeth and certainly that Darth eater did. What was the state of those sanctions just prior to the Iran conflict?

A (8:46)

Yeah, so one, I mean this is where we start to have sanctions divergence. Right. That the US since designated Roseneft and Luke oil, which was impactful. Obviously that was a major escalation. Really. That was the only thing that OFAC has done relating to Russia since the Trump administration came in. So the US has been very hands off. And so the EU is picking up the slack. They had the 20th package of sanctions which was going to tighten the noose. It was going or did tighten the noose. It now prohibits EU persons from providing, say maritime services for Russian oil, things like that. So it had a bunch of measures that are impactful. The Iran war put that on ice for a little while. Obviously Viktor Orban being voted out of office in Hungary allowed that to pass as well. Yeah. So that was a major victory here. Right. You know, but at the same time, one of the things that's happened is because of the Iran war, we issued General License 134 and this allowed for the.

B (9:51)

Okay, so Iran will say February 28th.

A (9:56)

Yeah.

B (9:57)

Fact check. If I had a real time. February 28th, we don't have a little Steve or whatever Rogan calls this guy. February 28th attack happens very quickly. The context here is obviously immediately oil just goes. We were told that they're somewhat surprised that Iran shuts the Straits down and attacks the US's Gulf allies. And all of the war gaming and thoughts about the Strait of Hormuz plays out, oil shoots up. That is an absolute catastrophe politically, domestically for the us, for President Trump and the midterms coming up. It's awful for Europe that obviously doesn't have its own sources of hydrocarbons and shut down refineries and so forth. So that's when immediately, strangely enough, the US decides to lift sanctions on Russian oil and on Iranian oil as well in a, in one of the world's.

A (11:02)

Was not on my bingo card for this year though.

B (11:05)

Great plot twists. Yeah. Was to allow them to fund themselves, your enemy to fund itself during the war. Because everyone needed the stuff. Right. Which is that is that can you now put some meat on the bones of. Might be a very unfair.

A (11:19)

Absolutely. So. No, I mean, that is correct. Licensing the sale of Iranian oil to anyone, including potentially U.S. persons, was not on my 2026 bingo card. Right.

B (11:33)

Did they lift sanctions or did they.

A (11:35)

No, they licensed it. So basically what these licenses did, and they're very similar to one another, was they allowed for the sale and delivery and transactions relating to that of oil that was already on the water at the time the sanctions or at the time the license was issued, because so

B (11:53)

much oil was in hulls, as they say, offshore, you know, this is all the oil on the water, the hydrocarbon glut that we entered the year with, supposedly. And it was all based all these sanctioned vessels that couldn't find a home because the US had been ramping.

A (12:11)

Exactly. And we've had the strategy for sanctions where we try and designate the vessel while the cargo's on the water to create this situation of stranded cargo. Right. So that's why if you go off of Malaysia, you see all these vessels sanctioned dark. Well, not just sanctioned, but also just yet to be sanctioned dark fleet vessels off there that had 10 to 14 billion dollars worth of oil on them. Right. And so the license allowed for the delivery of that.

B (12:39)

So just on that. So that's fascinating. So, okay, so you tactically, you want to sanction the particular cargo.

A (12:46)

Yes.

B (12:47)

Once it's been loaded on the water. Because that's a more painful experience for everyone involved.

A (12:53)

Absolutely. Yeah.

B (12:54)

That presents a lot of risk to your clients. I imagine that at the time what you're doing is perfectly legal. You're then making a risk adjusted. You're making a risk assessment as the possibility it might then get sanctioned once you've loaded that.

A (13:10)

Yeah. Buying $80 million of oil on a VLCC and then finding out halfway through it's Iranian is a nightmare scenario. Right. Because it's. I mean, you have all sorts of problems that come from that. You know, obviously you have the financial loss of it. Right. You also have. Now the ship owner that chartered out the vessel to you when you failed to exercise due diligence is going to start coming after you for charter fees for the 13 to 24 months the vessel can't be used. So, yeah, that's. That's exactly the situation we generally want to avoid.

B (13:44)

Yeah. I do find it fascinating about kind of the divergent interest between the ship owner and the charterer. Right. And the. You've got these different. As in one might want them to go through the straight of hormuz and the other is like, hell no, you're not kind of thing. Right?

A (13:59)

Yeah, yeah. I mean, I think. Well, I don't think when it comes down to war risk, I don't think either the charter or wants like to lose their cargo.

B (14:08)

But when, when. When the US Is trying to encourage you to get. Anyway, I don't want to sidetrack.

A (14:11)

Yeah.

B (14:12)

Okay, so. So your, your light. They. They essentially provided licenses to a selection of vessels on the water with Iranian crude in it and said, just, just get rid of it. Let's get into this.

A (14:26)

Exactly. And so, I mean, the phones of some of our clients start ringing the next day for these deals. The problem is that, like, okay, the US can lift or license these transactions relating to Russian oil, but you still have EU and UK sanctions. Right. So if you are a.

B (14:44)

So they did not commensurately do the same thing for the Iranians or the Russians.

A (14:49)

It created this massive sanctions divergence. Now the unfortunate thing is that I do feel like this was a major shot in the arm for the dark fleet and it gave them a fair amount of confidence that it used to be that they would try and get stuff past their clients by reincorporating the vessel and pretending they're a different company that's not involved. And since this license has been issued, we've had certain clients. I mean, I don't want to get too much into detail that might be confidential, but where literally a EU or UK sanctioned person is openly going to the client and saying, can we make a deal? Obviously our clients say no. Right. Because it's illegal. But just the fact that they now feel emboldened to sort of operate outside of the shadows is, at least for me, a bit jarring. Right. Because we're used to playing this cat and mouse.

B (15:41)

Yeah. And in those. In that. So just to understand. So the US says, oh, no, let's license these vessels. The UK and then we're talking about the Iranian crude at this point.

A (15:53)

So.

B (15:54)

And Russia.

A (15:54)

Yeah. So Iran, the Iranian crude has its own set of problems. So for Russia, we have sanctions, divergence. That's what's holding.

B (16:01)

Okay. So in Russia's case, they license it and Russian oil on the water get rid of, like, get into the system. Great. Iran, Iran has other issues. But on that, in the case of those Russian vessels, where the US said, okay, you can move it, and the EU didn't, is that effectively still completely stasis? Because at some point a European bank is involved in financing or like.

A (16:24)

So I think the real beneficiaries that was India in particular. Right. That India, with the Rosenafton Luke oil designations and with the 19 sanctions package and some designations like Nayara Energy was kind of very much on sort of the, okay, maybe we move off of this Russian oil. There's a lot of economic and political problems that could come with it. Whereas after that GL was issued, we saw a significant increase in deliveries to India. Right. So, yeah, I don't think it benefited like you know, a commodities trading house in Geneva. Right. Or the UK or because it just

B (17:03)

allowed that it did what it was meant to do, which was like, let's just get oil into refineries that I think. Yeah, I think the contagion stays east or like it was stemming that what was an incredible run up in products.

A (17:16)

Yeah, I think it very much benefited the buyer, not necessarily the intermediaries in the transaction that would be doing it.

B (17:22)

Yeah. Okay, so then what about, so Iran, what's the Iran sanction story?

A (17:29)

Okay, this is where the nightmare begins.

B (17:31)

Yeah. Okay.

A (17:32)

Because so the license was functionally identical to Russia. Right. That any Iranian oil on the water at the time, US Persons can engage in a transaction that involves the sailor discharge of the cargo and including virtually every dark fleet vessel. Right. And part of Russia also had that implication. Whereas virtually any dark fleet vessels. So like Hussein Shemkani, who is a big oil magnate in Iran, all of a sudden now we are allowing those transactions if it involved Russia. The problem with the Iran general license is that the National Iranian Oil company is under U.S. law considered a foreign terrorist organization.

B (18:16)

Okay. So the oil might be able to move, but you can't pay the guy who's a terrorist, who's designated terrorist.

A (18:21)

Well, you can't really even deal with the oil because so, and this is where it gets really messed up, that it's very clear that the administration did not go through the interagency process that normally if you're going to do something this major, Right.

B (18:35)

You would go to the State Department, say, okay, you need to start unplugging some of these people.

A (18:39)

Exactly. Or you're going to go to the DOJ to say, hey, is this going to be illegal here this fall in

B (18:45)

the category of suggesting the US And Iran could have a joint venture and toll ships as they go through international waters, which has, you know, suddenly we're back in the 16th century, we're back in the spice trade, and there's a couple of British gunboats going up the.

A (19:00)

Yeah, I think this is what happens when incompetent people make Policy. I'm just going to go ahead and say that. Right. Because the OFAC had no say on this license. I know that for a fact. I mean, I'm sure that, you know, obviously Brad Smith, the head of OFAC signed it, but, you know, it was very clear from the beginning that the agency was not providing input here. They also clearly didn't go to the Department of Justice who would have told them that. Okay, as president, you can license transactions involving sanctions which fall under a certain series of laws under IPA. Right? So this is 50 USC 1701. Right. But the US government can't say, waive criminal laws under other parts of US code. So 18 USC 2339B prohibits the financing and facilitating of actions of a foreign terrorist organization, which NIOC is, which the IRGC is. So what the license effectively said was that a US person can do this transaction, not violate sanctions, but they would still be in violations of all these other parts of US Law, that a prosecutor could come for them at a later date. Right. And this creates this crazy situation where like, okay, if we prosecute someone under this, are they going to argue that this was government induced entrapment where the government was saying do the intimidate, which

B (20:27)

would be a reasonable position. So what did that mean in practice? Does that mean that actually was only people who had no intention of going anywhere near the US or being a US Person that could operate?

A (20:39)

Yeah, I think in practice it meant that the general license was dead in the water.

B (20:45)

Oh, really?

A (20:45)

So, yeah, I have not heard from a single bank or a single commodities trader that's legitimate. Right? That isn't, you know, that they've engaged in these transactions.

B (20:57)

But this is dark fleet guys kicking action. And like, let's. I know, I know a teapot refiner which will come on.

A (21:03)

Exactly. Yeah.

B (21:04)

China, who'd buy this stuff. And frankly, none of us give too much care about the DOJ coming after us because yeah, wanted outside the system anyway.

A (21:12)

Once again, the license helped legitimize the dark fleet by saying, you can sell the oil, there were always buyers. This made it a bit quicker. Interestingly, unlike the Russia license where we saw kind of vessels jump on it quickly, there was still a lot of hesitancy. I think the Iranians were very much trying to find buyers that would take it and they did. But eventually what wound up happening is that look, the same buyers bought it, but as opposed to buying it at a 40% discount, they're buying at 20% market. Right. So they made handover money hand over fist using it, but not a single, you know.

B (21:50)

But, but, and how are those just out of interest? Are those transactions now just done in stablecoins and do we have any sense doing yuan?

A (21:59)

They also, I mean they still do US dollar transactions or Durhams. They just have a very elaborate network of front companies that, that facilitates that. So like OFAC talks a lot about using crypto and all these other things. One of the things that we see the bad guys doing is just structured check deposits into banks in the uae. And that's as old school as you get. But it's just the nature of them having a very elaborate web of front companies to facilitate this.

B (22:30)

Yeah. Which again we spoke about in the episode, we did our first episode together about kind of the cancerous like nature of the Dart fleet. Right. Like you know, you're setting up really effective structures to move. Okay. At the moment it's oil but at some point it's going to be drugs and guns and other stuff. Right. You're creating a lot of sophistication as a result. This is the double edged nature of sanctions about how to move illicit goods, whatever it is, around the world in a manner that's quite hidden and difficult. Well yeah, Although we did show, of course we know exactly what's going on. When the EU and the US start boarding these ships, they can figure it out. There was really the desire to.

A (23:13)

Yeah, yeah. I mean so obviously we have, I mean this is where everyone plays their part of, you know, for banks reviewing transactions, filing suspicious activity reports to identify this. I mean the first thing I tell people when sort of they join Blackstone or my team and stuff like that is that on the opposite side it's a person that needs to make a living. Right. And for them the possibility of failure means that they're sanctioned and they're banking out of their sister in law's bank account for the rest of their life. For us it just means like we need to try to find them. So I joke that the spice must flow. Anytime you have illicit activity, you have these networks that are developed. Right. And that is why sort of like organizations like mine exist to help people uncover it and say hey, there is an interest here but unfortunately look, if it's not sanctions evasion, it's non proliferation or it's arms trafficking or it's drugs. Right. And of course there's massive overlap there as well.

B (24:16)

Yeah, yeah. Might as well move.

A (24:18)

Yeah. These networks are always going, might as

B (24:20)

well move some AK47s at the same time. Okay. It's difficult to keep up with the story. Right. And. And sort of. And. But so where are we now? So the US Then, a couple of weeks ago, enforces a blockade on the strait. You know, did that, did the sanctions end? Did the licensing agreement stop? Where are we? Where's the story now?

A (24:45)

So they were set to expire. We did renew the general license for Russia. Right. And I think sort of.

B (24:52)

So the Iranian ones have expired.

A (24:53)

Yeah, yeah. I'd have to check the date, but yes, I think we are well past the expiration date at that point. Right. So. Because I think that's mid April.

C (25:03)

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A (25:36)

Learn more@encoinsight.com we have renewed the Russian general license. And I think, unfortunately, because of US Policy, that's something that is going to be continually renewed. But I do not expect that we're going to issue a separate. Another license regarding Iranian oil.

B (25:58)

April 19, it expires.

A (25:59)

Yeah, it was the expiration date.

B (26:01)

Yeah. Okay. But Russia is able to sell its oil, which is why Vladimir. Vladimir Zelensky has doing sanctions by other means.

A (26:11)

Yeah.

B (26:13)

You know, in terms of attacking. Attacking infrastructure. Okay. So. So the state at the moment, right now, there is no Iranian oil flowing.

A (26:24)

No, there is. I mean, so we, we talk of a blockade. It's actually very confusing what the administration strategy is because this is where, like, I want to avoid going down the rabbit hole of legality. Right. You know me, where it's like when we start talking about this, I'm like, no, you can only actually do a blockade under these conditions. So in this case, the model that the US Would have to use is that they would need to obtain a warrant to seize the cargo. Now, that is easier to obtain for Iran than it was for Venezuela because our asset forfeiture laws are much broader and allow for extraterritorial seizures when it involves a foreign terrorist organization, which, as I said, NIOC and the IRGC is. But it's very clear that CENTCOM is boarding and seizing certain vessels. They may be bringing them to certain ports that they can serve the war. Right. Like potentially Diego Garcia or if they really want to make the long trek to Marshall Islands. Right. But Once we seize those vessels, it's incredibly expensive to maintain them.

B (27:32)

So. And that's going on right now.

A (27:34)

So that's what's going on right now. Yeah.

B (27:36)

Is that in the press? I mean, I don't know.

A (27:38)

Yeah, yeah. Like, so we do have seizures. Like, so the press has reported, like, say the Tefani was seized, we put two holes through sort of the screws on another Iranian vessel, stuff like that. We are boarding other vessels. But it has been largely a catch and release thing that we have.

B (27:56)

Not because we can't. Because a blockade of international waterways is

A (28:00)

an act of war and we don't have Congress's authorization to go to war. Right, right. And we don't even necessarily have a sense of Congress to enforce a quarantine, which is what JFK did during the Cuban missile crisis. Right.

B (28:13)

Yeah.

A (28:14)

So the only thing that we can rely on is asset forfeiture. And so the blockade, like, it is

B (28:20)

very confusing even for my asset fortune under the sanctions legislation.

A (28:25)

No. Under a separate part of US Law.

B (28:27)

Right.

A (28:27)

Yeah. This is where, like, it gets very confusing. Right. That you have, like, all these various laws that are happening. Right. That we have sanctions which prohibit persons from dealing in certain transactions. We have our asset forfeiture laws that say what law enforcement can and cannot seize from people. We have laws regarding the financing of terrorism. And, you know, this is one of the things that I don't think the administration has been very effective in marshaling is taking all these laws and sort of putting them all on the same page so they can work in conjunction with one another. Right. It's very much the helicopter of this is 50 random things that like, is it flying or is it not?

B (29:07)

Yeah. On the basis as well that there's throw stuff at the wall and see what sticks. And knowing that the courts are pretty backed up. But the OFAC did come out a week ago also talking of like, I guess, clarifying or extending and saying like, we. We treat these sanctions with regards to anyone who's subsequently involved in kind of refining and processing Iranian crude as well. Right.

A (29:33)

That's always been the case.

B (29:34)

Was that it. Was that a clarification? I mean, no, this is this. I guess they tied it to a specific teapot. Teapot refinery.

A (29:41)

Correct.

B (29:42)

Is the bit there they said.

A (29:43)

So I mean, that's always been. And I don't want to go down the full rabbit hole with causation and a US Nexus, but US Sanctions have always been incredibly broad. And both the DOJ and OFAC have used a provision called causation that gives them very broad authority in their minds to go after and conduct enforcement actions or designations. Right. And U.S. sanctions have always had this material assistance trigger, saying that if you're providing material assistance to a sanctioned party, we can sanction you. So being a massive oil terminal in China, right. If you're buying a lot of Iranian oil, that is by definition the material assistance.

B (30:25)

Now them calling that out though, has.

A (30:28)

So that was. Yeah, so OFAC has been focusing on these teapot refineries, Right. And this actually started under the Biden admin. But recently the Trump administration has designated several. When there is a pattern of activity or a concern, OFAC sometimes issues advisories or alerts to the wider community saying, hey, watch out for this threat. Right. And one of the things those advisories does is not just educate the public as to, hey, we expect you to be looking out for these transactions. But if someone was to violate sanctions and OFAC was to go and subpoena them, you know, the first thing OFAC would ask is, hey, we issued this advisory last year about this risk. What controls did you put in place to accommodate for this risk? Right. And if the answer is nothing, you're going to be in a lot worse of a situation when it comes down to enforcement as opposed to like, if the answer is we did something, but the bad guys are always trying to hoodwink us and. And they got one past us. Right. And so I think that's what we saw.

B (31:34)

Am I being naive or overly cynical in that there is a broader geopolitical or political context to that particular alert? I, you know, like. Or is it just like, this is where we know the oil is going there just a reminder, you can't do that. They're doing it. You need to be aware of this. Or is this some kind of signal that like, hey, we don't like China doing X and Trump is due in China in a couple of weeks? I don't know. I doubt. I personally don't think that's going to happen. But, you know, like, yeah,

A (32:10)

sometimes it can be that. Right. And particularly with this administration. I think, like the economic fury campaign that OFAC is releasing is kind of to make up for general license view. Right, right. Which was that general license involving Iranian oil. The sanctions risks associated with these teapots have been around for a while and people have known about it. I think sometimes there does have to be a political will to designate them. I don't see that the designation of these teapots in this case is like a cynical move. I think it's just this is the trajectory of where Iran sanctions have been going and that this is a key component that we're now willing to crack down on.

B (32:57)

Does that not impact Canadian oil? Because on the basis that lots of, you know, Trump's campaign to make Canada great again and discover its wealth and opportunity to sell its commodities to the rest of the world, you know, there is a certain amount of crude going westwards that's then ending up in, in China. Is that. I don't, Am I overly.

A (33:19)

Yeah, I don't really see a connection there. I mean, this. I. In the, in the context of teapots and you know me, like when something smells funny, I'm the like first person to call it out. Right. In this context, I think this has just been something that's been a long time coming that look, you know, China has done a very good job of firewalling off, you know, they're big four banks and they're big, you know, PetroChina, Sinopec.

B (33:43)

Right. Yeah. They've got different systems that they've got one system that can operate in the, in the sunlight and the other.

A (33:50)

Exactly. And we see this on the banking side, right, where the banks that are providing a lot of services, these Ronnie networks aren't, you know, your bank of China's or your ABCs and stuff like that. It's your like bank adjusting. My wife's from joshing, so she hates it whenever I say that.

B (34:07)

So that's why shout out to you.

A (34:10)

But like, you know, and the teapots are the same context where China made a decision, you get to exist and

B (34:18)

you're going to perform a specific role in the economy.

A (34:20)

Yeah. And look, they're buying oil on discount and then they're selling it at net, not discount, I'd say very lucrative.

B (34:28)

It's a good business right now. Yeah. Okay, so a couple of more pieces. A couple of pieces to get in place. I think people really interested in your views on one would be kind of the, you know, the state of sanctions in general and kind of. And managing from a perspective of your clients, banks, trading houses, etc. Just managing all that. And then the other bit is the jcpoa, the Iranian deal that we did have, that's starting to look daily more cheaper and more effective than what's potentially on offer now. But just what the bits of the components of the sanction, components of that tools that are no longer available, effectively, kind of. We had an interesting discussion on that before we hit record, but let's just go to the problem. So sanctions, we know sanctions as a tool have diminishing returns over time because people figure out ways around them. They're a double edged sword in that, you know, like any prohibition, it creates more value on the illicit product. All this, you know, all this stuff we know. I guess the element here for your clients is there's a whipsawing effect. There's on and off again sanctions, there's multiple, you've got different jurisdictions, different levels of complexity, all of which is a massive cost. Attacks on doing business, setting up the compliance infrastructure to be able to know whether the deal you're about to make is, you know, is going to get sanctioned on the water, you know, is there, can you just give us some sense of that cost and the compliance teams required to manage this world? And is there, I don't know if it's the right phrase, but is there sort of sanctions fatigue out there? And at some point asking forgiveness is less damaging than.

A (36:15)

Yeah, I would never suggest asking for forgiveness. Right. You know, I mean, so I think banks and commodities trader. So the cost is significant. Right. And that's actually one thing we've been working with clients is that it doesn't have to be a significant cost. I think there are certain expectations, particularly on the banking side, like name screening that are becoming less effective, but they've become these massive cost centers, right. And this is impacted by like if you're expected to screen 700,000 wires a day, right. And you have, and the sanctions list has doubled in the past three years, right. That's a massive additional cost that, you know, you're, you're paying fte to look at these wires. You have the infrastructure, you have to bring in expensive consultants, like maybe myself that tested things like that. So, so the cost. But you know, if we're talking about commodities, oftentimes the investment in compliance pays off. So to give you a few examples, like as I said, the last thing you want to do is find out that that $80 million of oil that you just purchased, that someone said Iraqi was Iraqi, is actually a rotty. Right.

B (37:33)

Yeah.

A (37:34)

And at that point you're looking at, between legal fees and charter, I think,

B (37:38)

I mean you have clearly, if you are, and this is one of the forces that ironically isn't pro consolidation, everything else in the world is consolidating the commanded sector. Clearly you face existential risks. And we saw that, right. Like we saw effectively the whole Letasco gumball story was a demonstration of the power of the risk of being on the wrong side of the Western economic juggernaut that you now need to be much, I guess, more broadly, it's kind of, you know. But if sanctions become so confused.

A (38:24)

Yeah. The, the conflicts of law, divergence between different.

B (38:28)

Like I'm just sort of wondering at some point whether kind of the. They do stop this. You have, you. You do have the ability to say, well, you know what? Like, I don't know. I mean.

A (38:39)

Yeah, no, I mean, so in sanctions, divergence is real. Right. And where we're finding the most impact is actually the courts where, like in the UK there have actually been a series of rulings by the courts that have been adverse to practicing U.S. sanctions. Right. So, yeah, I mean, so it makes it difficult that, you know, you. Because we've had these adverse rulings elsewhere. Right. And because different jurisdictions are implementing it different. You don't want to be a person stuck in the middle of it. Right. And choosing, do I violate US law or do I violate UK law? Right. Because we do have to remember that sanctions aren't just penalties. Right. It's not just a civil enforcement act

B (39:19)

criminal, and it's also jail for it.

A (39:22)

Right.

B (39:23)

Yeah. You pissed corporate bail. Right.

A (39:27)

I mean, and particularly in the maritime world, the DOJ is actually much more active than OFAC is. Right. So, I mean, what I'd say to that is that the best way to avoid these problems is to conduct sufficient due diligence and have the process in place so you can spot a problematic transaction or a problematic actor and just not engage. Right. The best way to get away with this is just to not get stuck in the middle of it at all. Right. It is very common, even with sanctions divergence, for companies to have sanctions policies that commit to not just US sanctions, but also eu, UK and Swiss sanctions. Right. And to the degree that the UN exists, there's that too. Right. And that helps sort of normalize. These are the transactions that we will deal with. These are the ones that we won't. So you don't get stuck in those sticky situations. So, I mean, there is a massive cost. Unfortunately, that's a whole nother discussion.

B (40:26)

But.

A (40:27)

Well, there's also good reason why we.

B (40:29)

It is a big cost, but it's, you know. And this is the case with all insurance. Right. Like it's the unrealized massive loss.

A (40:35)

Exactly.

B (40:36)

So it's hard to quantify that. I guess it's probably. Are we on the. Are we on a path where actually there's so much diversion, so much complexity, they're being used, you know, with. Without necessary due care and diligence or removed without that as well, that you're sort of on a path where actually we're accelerating the devaluation of a lot of tools that we have in place.

A (40:57)

So there has been whiplash. That one example is that my voice is just losing. I'm just going to roll with it, guys here. It's been a long two weeks, what can I say? But where there has been one example is that we were going to implement what we call the 50% rule, that if a sanction party owns another company or another asset majority owns it, then that's also subject to sanctions. Right. And so the Bureau of Industry and Security, which enforces export controls, was going to implement that rule to their list and it was going to be an expectation that banks may have to screen against it. That was going to be massive. And a lot of banks had invested a lot of money and a lot of time to building this list out into preparing for the tsunami. But then in trade negotiations with China a year ago, and this is actually coming up, that it was only a one year reprieve, so we don't know if it's going to be extended. We basically said, nope, okay, we're not going to implement that. And that did create this sort of frustration with clients, right. That where it's like, okay, we spent a ton of money preparing for this and then it was just chopped off like it was a side order to a negotiation, like, why are we spending this money? What is the point in doing this? And I think we only get to play that a couple times before people stop proactively investing in compliance, which is where we want them to be doing it, and that they just sort of start reactively investing because they don't know, hey, is this going to be around or not? Right. And that is the danger of these general licenses of export of Russia or Iranian oil. I don't think we're fully there yet. But there's a risk, though.

B (42:42)

There's a risk. Yeah. Okay. So the final bit would be just thinking about. It's clear obviously that there's no one wants to. Well, the US do not want to escalate this war in Iran. Right. For domestic political reasons. I would argue it's a bonus episode. My clear indications would be that the Trump administration wants a deal and wants a cool victory and get the hell out. Right. I would argue one of the challenges is whatever, what deal? What does that deal look like? And as you and I were talking or you were sharing with me prior to recording, there are tools in place Back in the day that probably aren't available right now. And some of those were quite smart and effective tools in that initial deal, for example, that you would be able to sell. Iran would be able to sell its crude, its oil, but the, the money would stay in the country that bought it. So the money would stay in China and they would have to spend that money locally. Right. Which, which was great news for the country buying the oil because they, you know.

A (43:48)

Yeah.

B (43:49)

I mean, so but that you were saying that, that, that probably couldn't be part of any deal today.

A (43:55)

No. So, I mean, yeah, we were in a significantly worse spot. Right. And you know, as much flak as the Iran deal got from partisan reasons. Right. I remember when it came out, I was very nervous. I was like, what are we giving up? And then, you know, I, this was back when you actually would print something out and go through it with a highlighter. And I got to the end of it, I'm like, this is awesome. We gave up nothing. The Iranians got snookered. And the reason that we were able to make an effective Iran deal, the Joint Comprehensive Plan of Action, or JCPOA back then was that several things. So first we had buy in from Russia and China. Right. That this was, we called it the P6 plus one negotiations. And that included all the UN Security Council members plus Iran. Right. You know, and we don't have that buy in obviously from Russia and China today. The other thing is that, yeah, we had a very strong bipartisan series of sanctions focused on Iran's nuclear program. Right. And these are the secondary sanctions that came in that very much discourage businesses from engaging in this. And that stick still exists. But as you're mentioning, we also had carrots and inducements. And so what you were talking about in that was part of it. We called it the part 504 waiver because it was part 504 of a piece of legislation, the Iran Threat Reduction Human Rights Act. The acronym actually comes out as itrashera. So. But I felt like I had to say the full name before I start calling it I Trash, you know, and what that did is exactly what you said, right? That if a country agreed to significantly reduce their consumption of Iranian oil, the US allowed them to buy it and then place the money into a suspense account which could be only used for bilateral trade of non sensitive goods and stuff like that.

B (45:48)

Right. It's great for selling, yeah, Chinese close to the Iranians.

A (45:52)

Exactly. And it got China to the table, it got Russia to the table, and it also got Iran on The table. Because with the deal, you know, they wanted that money that was locked abroad, Right. Under the nuclear related sanctions. And so we were able to give that. We don't have any of that here today. Right. We don't have the same negotiating team. There were a lot of advantages as to like who we were bringing back in JCPowa. Like, so Oscar Muniz was the head of the Department Energy. He was actually a nuclear physicist. So when he attended these talks, like, and we were talking about enrichment and what was loud and I. He knew what he was talking about.

B (46:29)

He knew what the dust was, literally.

A (46:30)

Yeah, he knew exactly what the dust was. Right. So, you know, and so we had all that to negotiate on when we made this deal today. Iran clearly threatens the Strait of Hormuz. That didn't happen.

B (46:48)

It has realized the power it actually has. Right.

A (46:51)

And the dust, quote, unquote, is buried under tons of rubble. So even if they were to agree to give it up, it would still have to be dug out. Right. And so it raises the question that if we're going to negotiate a deal, what sanctions are we going to cut into? And my fear is that during the last Iran deal, we made very clear that we were not lifting sanctions relating to terrorism to the IRGC and stuff like that. That's what we have to lift today.

B (47:22)

Well, and that's the only ones in power now.

A (47:24)

Exactly. So, like, are we going to lift sanctions on Hussein Shemkani and IRGC nepo Baby Running 120 Dark Fleet vessels and billions of dollars of the oil trade? Right. That would be disastrous for U.S. foreign policy. You know, that would give so much money to the irgc. Right. So I'm just not sure what deal we're going to negotiate right now, what we're willing to cut into, you know, without arriving at something like sort of a TEMU branded JCPOA and stuff like that.

B (47:57)

Right. So TEMU branded, nice.

A (48:01)

I don't make my views hidden.

B (48:03)

Yeah, yeah, yeah. No, as you say, it's substantially worse. Well, the power, the, the power dynamics have changed. And also, you know, if you're a Gulf ally, you're suddenly potentially thinking that these US bases are more liabilities than assets. And we also don't quite know. We had Doomberg on last week who thought I'd, I'd been propagandized in the extent of the damage that had happened to the US bases and the depletion of missiles. But I, you know, I think there's, we still don't know the state of the the extent of the damage and the state of the, you know, the technology, the asymmetric warfare between the very expensive missiles and shahed drones and all the rest of it. Right.

A (48:47)

I mean there's lots, we've blown through a lot of our Jassams and you know, higher end stuff and there have been times where the DoD is like, you know, an AWACS was damaged and then you look at the photo and it's in half.

B (49:01)

We don't also know, you know, the impact on, well, the, the, obviously we know some of the, the losses, but we don't know the actual extent of injuries.

A (49:09)

Yeah.

B (49:10)

You know, casualties more broadly, I think,

A (49:12)

I think our biggest loss is credibility. Right. That our European allies probably hate us now. Japan and Korea, who would be an essential partner in the fight in the Pacific are now wondering do we want to be their allies? Are they going to embroil us in something that we don't want to be? I think that's going to harm us significantly.

B (49:34)

Yeah. I mean from a sanction standpoint it's been quite a volt fast for you, I imagine. Sort of like some. There was a point there into the January when sort of it felt like the Dark Fleet was on the, on it was on its heels and the people were actually finally backing up enforcement with you know, sanctions and enforcement was sort of one and the same. And to now. Yeah. Like we said at the start of the conversation, the, the Dark Fleet is re. Empowered and potentially has quite a lot to gain out of any agreement with Iran.

A (50:06)

Yeah, I mean I, Exactly. It's, it's. I'm not sure I can do another regime change this year.

B (50:13)

Which is why you're a man in demand Conferences and I'll put links to Blackstone in the show Notes. I hope you finally get home to get home and get some rest and it's been great having you here.

A (50:24)

Well, thank you for having me.

B (50:31)

Thank you for listening. To find out more about HC Group, our global offices and our expertise in search within the commodities sector, please visit ww.hcgroup.global.