How the Biden Admin Allowed Iran To Rake in Illicit Oil Cash Amid Tehran's Terror Spree

Earlier this year, officials from across the Biden-Harris administration reviewed intelligence detailing Iraq's central role in a billion-dollar Iranian oil smuggling scheme. But they largely ignored that intelligence, according to those briefed on the matter, giving Tehran what one former U.S. official described as a "free pass" to evade American sanctions and rake in illicit cash.

Officials from the State Department, Treasury Department, and intelligence community received the 45-page intelligence report in April and sat for multiple briefs on its material. Assembled by a number of international intelligence agencies and reviewed by the Washington Free Beacon, the report identified Iraq, the world's fifth-largest oil producer, as central to an Iranian "oil and fuel smuggling" operation that significantly expanded in 2022.

Iran generates roughly $1 billion from the smuggling scheme annually, Reuters reported, money that is "directly funding the Iranian threat network," according to the intelligence report. The briefing on that report came just months after Iran-backed terror group Hamas's Oct. 7 attack on Israel, sparking a war that later spread to Lebanon, where fellow Iranian terror proxy Hezbollah launches near-daily missile barrages at the Jewish state.

But the Biden-Harris administration apparently did little to act on the intelligence. The Treasury Department's Office of Foreign Assets Control (OFAC), which administers and enforces trade sanctions, responded to the report by drawing up sanctions packages targeting Iraq—but never actually put them in place, according to a former U.S. official briefed on the matter.

The administration's intimate knowledge of the smuggling operation has not been reported. It reflects a lax approach to Iran that has allowed the Islamic regime to rake in around $200 billion in illicit funds after Trump-era sanctions nearly bankrupted Tehran. And while Israel's war on Hamas and Hezbollah has crippled Iran's terror proxies, Tehran's financial resurgence could spark an early diplomatic confrontation when President-elect Donald Trump returns to the White House later this month.

"The reality here is that this was a very inconvenient truth for the U.S. government," Michael Knights, a Middle East security analyst with the Washington Institute for Near East Policy think tank, told the Free Beacon.

"It's clear when the U.S. government received detailed information on the commingling and Iranian militia oil smuggling that they already knew" of the scheme and Iran's profits from it, Knights added.

The sanctions evasion scheme allegedly involves Iraqi prime minister Mohammed Shia al-Sudani and an array of Iranian-controlled militia groups, most notably the U.S.-designated terror outfit Asa'ib Ahl al-Haq (AAH). Al-Sudani’s government, which has become increasingly loyal to Tehran’s hardline regime, enables Iranian proxies to "smuggle illicit fuel allocations across Iraq," according to the intelligence dossier, resulting in Iran’s heavily sanctioned crude oil being mixed into global supplies exported out of Baghdad.

By shielding Iraq from punitive measures in an attempt to build relations with al-Sudani, the Biden-Harris administration has brought Baghdad and Tehran closer than ever before, one former U.S. official told the Free Beacon.

"Despite Iran’s growing and dominant role in Iraq, the Biden administration has refused to sanction or meaningfully confront their role in an effort to protect the current Iraqi prime minister, Sudani, and to portray Iraq as a constructive regional partner," said the official, who spoke on background to discuss private briefings and deliberations.

"This approach deliberately ignores the reality that Iran and its proxies effectively control Iraq’s institutions, including the industrial fuel smuggling and crude commingling. It’s as if the Biden administration wants to hide the fact that Iraq remains Iran’s most important client state."

The Treasury Department declined to comment. The State Department, which also administers sanctions on Iran’s oil exports, did not respond to a request for comment. The Iraqi embassy in Washington, D.C., declined to comment.

The intelligence report in question lists a constellation of companies in Iraq, Iran, and other Middle East nations that divert a portion of Iraqi fuel exports and allow them to be smuggled on the black market for a profit. The cash is then diverted to Iranian militias in Iraq as well as the Iranian Revolutionary Guards Corps (IRGC), which oversees the militias.

Iran’s AAH terror group conducts "direct oversight" on the operation and coordinates with "Iraqi government officials and ministries," according to a copy of the intelligence report reviewed by the Free Beacon. The illicit revenue is ultimately converted into dollars and "returned to Iranian proxies and Iran."

"This significant level of Iranian threat financing by Iraq and its institutions has been reported to the relevant U.S. and international authorities," the report states.

In addition to the smuggling operation, Iraq’s oil sector blends illicit Iranian fuel products into their own legitimate supplies, allowing them to be openly sold on the international market in defiance of strict U.S. sanctions. The proceeds from these sales are also "returned to Iran’s proxies and the IRGC," according to the report.

Iraq’s offshore oil sites, the intelligence indicates, have effectively become a "laundromat" for sanctioned Iranian crude.

For Knights, the Washington Institute for Near East Policy analyst, the intelligence report outlines the need for the incoming Trump administration to take action.

"The good news is that the Trump administration has a large potential set for sanctions," Knights said. "Iranian commingling of sanctioned crude into Iraqi exports is now well understood. And militia diversion of Iraqi government oil can also be sanctioned very easily. In 2025, Iraqi oil exporting institutions are likely to be sanctioned, in part or in full, by the United States."

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