Smuggling Oil The Latest Possible Maneuvering by Private Equity

Oaktree Capital has been named in reports of alleged illicit Iranian oil smuggling in possible violation of sanctions, in addition to the private equity firm’s extensive portfolio of oil and gas investments.

A non-profit organization that monitors Iran identified alleged illicit Iranian oil smuggling through a Ship-to-Ship Transfer to the vessel Suez Rajan in February. The Suez Rajan received financing from Fleetscape, which is backed by Oaktree.

Reuters reported that UK-based maritime company Fleetscape is backed by U.S. investment firm Oaktree Capital Management. The non-profit organization, United Against Nuclear Iran (UANI) contacted Oaktree to alert it to the possible breach.

Reuters, February 21, 2022: Greek manager of Oaktree-backed tanker says probing possible Iran oil transfer

A recent report by PESP and LittleSis found that Oaktree is a major investor in fossil fuels. Oaktree is a large private equity firm in its own right – and also a subsidiary of the giant Brookfield Asset Management, which took a majority stake of the firm in 2019. While Brookfield has some investments in renewable energy, it continues to invest in fossil fuels, and nearly all of Oaktree’s investments in the energy sector are in fossil fuels. The firm acquired several new oil and gas assets in recent years.

One concerning deal took place in 2020, when Oaktree signed a $1 billion joint venture with Diversified Energy, an oil and gas acquisition company with a problematic environmental history. In an investigative report, Bloomberg found that Diversified’s Appalachian operations were an “Empire of Dying wells,” about 69,000 of them, that are producing low amounts of usable gas while some wells are emitting enough methane to trigger detector safety alarms to sound, indicating soaring levels of harmful emissions.

In May, the Oaktree/Diversified partnership added new gas drilling assets in East Texas, announcing that the deal is the “fifth acquisition in the Central Region within the last twelve months.”

The allegation of an illicit trade with Iran links Oaktree’s investments to additional risks related to the oil and gas industry.

UANI tracks Iran’s oil exports to interpret if sanctions are effectively stopping the flow of revenue to Iran. On February 23, UANI called on Fleetscape and Oaktree to announce the results and review of UANI research revealing Iranian oil smuggling.

As of February 2022, UANICEO Ambassador Mark Wallace stated, “To date Fleetscape/Oaktree have not revealed the conclusions of their internal investigations. The Suez Rajan continues to remain in place off the Riau archipelago. UANI calls on Oaktree and Fleetscape to make transparent immediately all information related to the Suez Rajan’s smuggling of Iranian oil, to divert the Suez Rajan to a U.S. port and to cooperate with enforcement counsel in the appropriate administration of the sanctioned oil. This matter must be resolved immediately.”

The Associated Press (AP) reported on UANI’s letter to Oaktree Capital Management, which holds assets worth over $160 billion. According to The AP, satellite images and maritime tracking data it analyzed correspond to the UANI’s identification of the vessels allegedly involved and showed them side-by-side off the coast of Singapore.

AP, February 17, 2022: Group alleges US firm’s tanker illicitly traded Iran oil

The AP also said, “A tanker owned by a Los Angeles-based private equity firm likely took part in the illicit trade of Iranian crude oil at sea despite American sanctions targeting the Islamic Republic amid the collapse of its nuclear deal with world powers, an advocacy group alleges.”

Reuters said that “A breach of U.S. sanctions could lead to a company losing access to the dollar financial system, having assets seized, and insurance cover for ships canceled.”