Iran-linked 'shadow fleet' uses ship-to-ship transfers near Malaysia to bypass oil sanctions

Waters off Malaysia’s southern Johor state have become a critical hub for clandestine transfers of Iranian oil, with Malaysian authorities acknowledging that foreign-linked tankers are exploiting “jurisdictional gaps” in busy international shipping lanes to evade enforcement action. According to the Associated Press, the operations centre on the Eastern Outer Port Limits (EOPL) in the South China Sea, an area roughly 70 kilometres off Johor that sits along one of the world’s busiest maritime corridors between the Middle East and East Asia.

The Malaysian Maritime Enforcement Agency (MMEA) said that many of the ship-to-ship oil transfers are carried out beyond Malaysia’s territorial waters and outside effective radar coverage. “The selection of such locations is intended to exploit jurisdictional gaps and limit direct enforcement action by local authorities,” MMEA Director-General Mohamad Rosli Abdullah told AP.

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The activity involves Iran-linked vessels commonly described as a ‘shadow fleet’, ageing tankers operating with disabled tracking systems, altered identities and opaque ownership structures to disguise the origin of crude oil shipments, much of which is believed to be destined for China. Industry observers note that China purchases about 90 per cent of Iran’s oil exports, despite longstanding US sanctions targeting Tehran’s energy trade.

Allegations of weak enforcement rejected by Malaysian authorities

US-based advocacy organisation United Against Nuclear Iran (UANI) claims the EOPL area has seen 42 ship-to-ship transfers involving Iranian oil since February 28, based on satellite imagery monitoring. Senior UANI adviser Charlie Brown accused Malaysia of enabling the trade through insufficient enforcement. “Because of Malaysia’s inaction, it is facilitating this business model by Iran and China and dark fleet actors,” he told AP, adding that the country risked becoming “a facilitator rather than merely a transit point”.

Malaysian authorities rejected the criticism, insisting enforcement is conducted strictly under domestic law and international maritime conventions. Rosli said the allegations “do not align with the actual situation on the ground” and pointed to limited real-time intelligence sharing between agencies as a significant obstacle.

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Malaysia discourages unsanctioned offshore transfers because they heighten the risk of oil spills, particularly when conducted using ageing vessels far from port facilities.

Indonesia reviews legality as shadow fleet activity continues

The issue has also drawn scrutiny from neighbouring Indonesia, whose maritime territory borders the transfer zone near the Riau Archipelago. Indonesia’s Foreign Ministry said authorities were reviewing the legality of activities in the area. Spokesperson Yvonne Mewengkang told AP: “Indonesia does not permit its territory or maritime zones to be used for unlawful activities.”

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Despite increased scrutiny and a US blockade of Iranian ports introduced in mid-April, UANI says Iranian-linked tankers continue operating near the EOPL. “It’s business as usual,” Brown said.

Earlier this year, Malaysian authorities seized two vessels involved in the transfer of two million barrels of crude oil within Malaysian territorial waters. One vessel was stateless, while the other sailed under a Cameroon flag. Both were later released on bond after being detained for conducting unauthorised oil transfers.