Israel-Iran Shadow Tanker War

The recent spate of attacks on shipping in and around the Mideast Gulf shines a light on an otherwise shadowy conflict being waged between Israel and Iran. By attacking Iranian tankers en route to Lebanon, Israel seeks to deny Hezbollah a critical source of income. However, the Israeli attacks open Israel up to retaliation in kind. Neither side seeks to escalate this covert war to the point of a general conflict, which means the region will continue to witness a tit-for-tat series of attacks on merchant shipping for the foreseeable future.

The attack on the Liberian-flagged merchant ship Mercer Street on Jul. 29 was the latest in a spate of attacks on shipping in and around the Mideast Gulf. Mercer Street is operated by a company that is owned by the Israeli shipping magnate, Eyal Ofer. Israeli, British and US intelligence believe the attack was carried out by a so-called suicide drone — a pilotless aircraft containing high explosives that is controlled by an operator hundreds of miles away from the point of attack. The attack killed the Romanian captain and a British security guard. Mercer Street was sailing under the ostensible protection of the US Navy. The US and UK have both condemned the attack and, like Israel, cast the blame on Iran. Iran denies the allegations.

The Mercer Street attack puts the US, UK and Israel on the horns of a dilemma. Treated in isolation, the fatal attack on an Israeli-owned ship operating under the protective umbrella of the US Navy would seem to call for some form of military retaliation. But the situation is not that simple. The Mercer Street attack is just the most recent one against shipping in the region. Moreover, many of the ships that have been attacked in recent years were of Iranian origin, and those attacks are believed to have been carried out by Israel. If Iran was, as alleged, behind the attack on the Mercer Street and other Israeli-owned ships, then these cannot be viewed in isolation as unprovoked attacks. And given Iran’s demonstrated ability to respond forcefully, as with the September 2019 drone attack on Saudi Arabian oil facilities at Abqaiq and Khurais, a direct military response to the attack on Mercer Street could risk triggering a swift escalation.

These tit-for-tat attacks on shipping by Israel and Iran are one aspect of a broader proxy war between the two countries, much of which centers on Hezbollah, a Lebanese political party and armed militia that is increasingly viewed by Israel as an existential threat. To neutralize Hezbollah, Israel is working with the US, Europe and other nations to classify it as a terrorist organization and thereby delegitimize it. Israel is also trying to diminish the military capabilities of Hezbollah by interdicting lines of communication and supply linking it with Iran, its major benefactor, most visibly through air strikes on targets inside Syria believed to be involved in illicit arms trafficking on behalf of Iran and Hezbollah. Financially, Israel is pushing for international sanctions to starve Hezbollah of funds needed to carry out its expansive military and political operations in Lebanon, the Middle East and elsewhere.

A critical part of the Hezbollah financial engine involves the sale of gasoline and other oil products brought into Syrian ports by Iranian tankers and transported via trucks to Lebanon, where they are distributed under the auspices of Hezbollah-controlled front companies. Israel’s attacks on Iranian tankers seem designed to disrupt this source of financing for Hezbollah. Israel’s resort to the use of force in this way, rather than relying on other less aggressive measures, points to the success of the Iran-Hezbollah operation and the growing desperation of Israel.

While Israel has shown a willingness to strike Iranian targets inside Syria and interdict Iranian shipping to Syria, the purpose of these Israeli attacks is to curb Hezbollah, not the provocation a larger war with Iran. For this reason, the likelihood of the Mercer Street incident, or any future incident like it, escalating into a full-scale war seems low.

The Israeli objective in attacking Iranian shipping is to deter the delivery of oil by Iran to Syrian ports. While much of this oil is used by the Syrian government to meet its own domestic needs, a significant quantity also goes to Lebanon, where it is sold by front companies acting on behalf of Hezbollah. Such sales serve as a major source of income for Hezbollah because the oil products are received for free and resold in Lebanon at prevailing retail prices.

A key component in the Hezbollah fuel-for-cash operation is Atlas Holding, a management company established in 1990 by the Martyr’s Foundation, an entity linked to the Iranian Revolutionary Guard Corps. Atlas Holding is subordinated to Hezbollah’s Executive Council, and operates at least eleven subsidiaries, the majority of which are involved in the sale of fuel and fuel products, on behalf of Hezbollah.

Among these subsidiaries is the Amana Fuel Co. which has been registered in the Bekaa Governate of Lebanon since 2005. The Amana Fuel Co. is involved in the importation, marketing, and distribution of fuel products, operating some 42 gas stations throughout the Shiite-controlled areas of southern Lebanon, the Bekaa Valley and Beirut. A second company operating under the umbrella of Atlas Holding is the Amana Plus Co., which is engaged in the marketing and distribution of oil products.

Hezbollah’s Executive Council used the legitimate civilian functions of these companies to shield them from international sanctions. But this came to an end in February 2020, when the US Department of Treasury’s Office of Foreign Assets Control added Atlas Holding, Amana Fuel Co., and Amana Plus to its Specially Designated Nationals pursuant to Executive Order 13224.

The Lebanese transportation fuel market is saturated with more than 13 licensed oil importers and distributors operating around 2,200 registered service stations and another 1,000 unregistered stations. Companies such as TotalEnergies, Medco-Phonecia and Hyco dominate the market, with a combined market share exceeding 50%. The Hezbollah operation is a minor part of the fuel supply system, but it makes much larger profit margins than the big companies. Unlike other importers, Atlas Holding and its subsidiary companies receive their bulk supplies for free from Iran.

Hezbollah has made it clear to Israel that any air strike on southern Lebanon would be met with a retaliation in kind against northern Israel. Given this reality, Israel is precluded from striking targets inside Lebanon belonging to Atlas Holding unless it wants to trigger a larger conflict with Hezbollah. This leaves the shadow war against Iranian tankers as Israel’s only viable option for shutting off the fuel supplies that play a big role in funding Hezbollah. In pursuing this strategy, Israel also opens its own shipping up to the kind of retaliatory attacks that struck Mercer Street.

These tit-for-tat strikes seem likely to continue for the foreseeable future, but with little chance of changing the strategic posture of Hezbollah, Iran or Israel. An explosion this week on a Syrian tanker docked at the Syrian port of Latakia may indicate that Israel is continuing this conflict. The tanker involved has been used to transit oil from Iranian tankers to Syria in violation of UN sanctions. While threats by Iran and Hezbollah to retaliate against direct attacks on their interests may help deter a broader regional conflict, nothing, it seems, can stop the ongoing war in the shadows between Israel and Iran over the future of Hezbollah in Lebanon.

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