Iran is becoming increasingly creative in dodging Western sanctions, managing to sell a rising volume of fuel oil to generate revenue equal to up to a third of its crude exports, which have been badly hit by restrictions.
Compared with the first half of the year, Iran has on average exported more fuel oil per month since July, when European Union oil and shipping insurance sanctions came into effect and more than halved its crude exports.
EU sanctions prohibit the import, purchase and transport of Iranian petroleum products in an attempt to curb revenues that might be channelled into a nuclear programme that Iran says is for peaceful purposes but the West fears is to enable it to make weapons.
Even for companies with no link to the EU, sanctions on financing and shipping insurance discourage would-be customers.
Iran uses fuel oil for electricity generation and to power ships, but unlike other more valuable refined products such as diesel or gasoline, it has a surplus to export from the 70,000 tonnes a day it produces.
The July sanctions slashed the OPEC member's fuel oil sales initially, traders and analysts say, as term customers cancelled contracts, but sales have since rebounded thanks to the innovative methods of Gulf-based middlemen and Iran's market-savvy oil officials.
The Islamic Republic sold an average 648,000 tonnes of fuel oil monthly from July to October, up from 636,000 tonnes for January to June, according to data from a company that tracks Iran's oil shipments.
That brought in an average of US$410m per month. August income was more than double that figure, helping Iran to recoup a portion of the US$3.8bn it has lost in monthly crude export revenues since July.
Salar Moradi, oil analyst at FACTS Global Energy, said Iran fuel oil exports have risen from lows of around 400,000 tonnes a month this summer.
"The National Iranian Oil Company has been very successful in finding new strategies to circumvent sanctions and sold its fuel oil to Asia in August and September. Now we think Middle Eastern buyers of Iranian fuel oil have reappeared," he said.
Using ship-to-ship transfers, discharging and loading at remote ports and blending the Iranian fuel oil with other fuels to disguise the origin have become popular tactics for the Gulf-based middlemen and helped keep sales steady, several trading and industry sources familiar with the region said.
Data from the firm tracking Iran shipments showed sharp fluctuations in fuel oil flows, which sources said could be attributed to shipping delays and tanker availability. Exports dived to zero in July and then jumped to 1.389 million tonnes in August, with a third of the sales going to the Middle East.
Iran's fuel oil exports stayed above 1.1m tonnes in September, and the Middle East received nearly 900,000 tonnes of this. In October, exports plunged to about 35,000 tonnes.
Reuters data for Iranian fuel oil flows to East Asia showed a new record of around 1.4m tonnes in September and 1.1m tonnes in October.
Requests for comment from officials at the NIOC were not answered.
Iran is no stranger to international sanctions, and one common tactic to skirt them has been to cooperate with small Gulf-based oil traders who act as middlemen for buyers who might be unaware that the cargo is of Iranian origin.
Several Middle Eastern traders said they had been approached by small UAE-based companies offering a type of fuel oil dubbed in the market as "Iraqi special blend" that included a combination of different fuel oil blends from the Middle East, or with an origin described as Iraqi.
The specification indicates this is a cocktail of products blended in storage tanks and usually offered from the quiet Gulf port of Hamriyah and bunkering hub Fujairah mostly via ship-to-ship transfers (STS), trading sources said.
"This Iranian fuel oil, disguised as Iraqi origin, has been flooding the market in Fujairah and depressing both cargo and bunker premiums in September," said a Middle East-based trader.
Some oil traders afraid of falling foul of western sanctions said a close examination of the so-called "Iraqi special blend" gives them reason to be suspicious.
A certificate of quality for one such cargo showed the density of the product to be around 0.9655 kg a litre - a level suggesting it was probably Iranian, the traders said.
The Islamic Republic usually exports 280 cst viscosity straight-run fuel oil from its Bandar Mahshahr port, with a density of around 0.965.
AIS Live shiptracking data on Reuters showed that tankers were regularly shuttling towards Iran's main fuel oil export terminals of Bandar Abbas and Bandar Imam Khomeini, then turning off their satellite signals before reappearing soon afterwards next to the UAE storage hub Fujairah.
In another tactic, small barges have left the port of Bandar Imam Khomeini, near Iran's largest refinery Abadan, and then transferred their cargo onto bigger tankers destined for Fujairah, two industry sources said.
Separately, Chinese e-commerce website Alibaba showed an Iranian seller offering volumes of at least 100,000 barrels of Iraqi fuel oil for sale.
Reuters previously reported that Iran had exported its own fuel oil to Malaysia on a National Iranian Tanker Company vessel, before transferring it at sea to a Vitol-chartered tanker.
Refinery upgrades planned for late 2012 or early 2013 at the Arak and Bandar Abbas plants should curb the amount of fuel oil Iran has for export, but refinery runs have been on the rise this year. Reducing them is seen as an unattractive option, since this would also cap production of gasoline badly needed for domestic use, shortages of which can stir up social unrest.
Oil traders say disguising Iranian exports as Iraqi is the perfect cover story, since in reality a small volume of Iraqi fuel oil is smuggled over the border and out of Iranian ports.
"Some fuel oil does come out of Iraq overland smuggled in trucks. I imagine that some of the Iranian volumes may be piggy-backing on this trend," said a senior source at a Swiss-based trading house familiar with the region.
Another sign that the special blend cargoes are likely to be Iranian is the suspiciously cheap price.
"They're being offered at ridiculously low prices, with a huge discount to the market. Like US$10-US$15 discounts," said the Middle East-based trader.
Traders said that from Fujairah, the "Iraqi special blend" cargoes are then transferred onto larger vessels such as Suez Max tankers and VLCCs and then sent to Asia.
A partner at a law firm who asked not to be named said the confusion over the origin of fuel oil was causing havoc in the Singapore bunker market - the ultimate destination for most Iranian fuel oil volumes.
"It's becoming a big issue in Singapore as there's a lot of bunker fuel there which may have Iranian fuel in it. People are very aware of the issue and they are trying to get warranties for the product," he said.
"The Singapore bunker market is a black hole," said another Swiss-based trader."You never know where it has really come from once it gets there."