Pezeshkian and his cabinet begin dealing with challenges

Hossein Shamkhani’s father, Ali Shamkhani, served as the secretary of Iran’s Supreme National Security Council (SNSC) for almost a decade until last year, but he remains an advisor to Supreme Leader Ali Khamenei.

The Shamkhanis have been known to Iranians as insiders and Hossein, like the children of many other Iranian officials, has been implicated in several scandals over his diverse portfolio in shipping and international oil trade. However, the Bloomberg report has shed new light on his recent ventures, including his Dubai-based company, Milavous Group Ltd.

Read more: Tehran Media Speculate On Security Chief’s Dismissal

In the heart of Dubai’s corporate skyline, the relatively obscure firm quietly rented an office two years ago. Few had heard of the company, yet it soon emerged as a significant force in global energy markets. At the helm of the operation, according to insiders, is Hossein Shamkhani -- a man known in trading circles as “Hector” or simply H. Despite his low profile and sanctions on Tehran’s oil trade, Shamkhani has become one of the most influential figures in the distribution of Iranian oil worldwide.

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Based on interviews with more than a dozen sources familiar with the matter, who requested anonymity to discuss confidential business dealings, Bloomberg has uncovered details about Hossein Shamkhani's activities that suggest a complex, sprawling web of interconnected businesses are pushing vast quantities of Iranian and Russian oil into the market.

“People familiar with Shamkhani’s empire said he effectively oversees an intertwined web of companies, with Milavous operating as one of the parent firms. Business ownership, shareholding and control information are easy to obscure, and other executives have been formally registered as the owners and managers, the people said.”

His influence is so pervasive that the companies he oversees have a substantial global footprint, even though many in the industry remain oblivious to his true identity and the source of the crude they are trading.

Milavous, through its subsidiaries, engages in the blending and rebranding of crude oil and various petroleum products from Iran and Russia in third-party jurisdictions, such as the UAE port city of Fujairah. Additionally, it handles oil from countries that are not subject to sanctions. Such methods can obscure the origins of the oil and fuel, making it difficult for clients trying to determine its provenance, Bloomberg cited Matthew Levitt, a former counterterrorism official at the Treasury Department and FBI.

Milavous and other companies within Shamkhani’s network reportedly supply oil to the industry’s giants, including China’s Sinopec, Chevron in the US, and BP in the UK. While these corporations maintain they comply with all laws and sanctions, their connections to Shamkhani’s network highlight the opaque world of policing global oil trade. 

According to Bloomberg sources, Milavous has generated billions of dollars in sales with its turnover in 2022 amounting to some $15 billion.

Unlike his father, Hossein Shamkhani has not been listed as a sanctions violator. Additionally, the UAE has not banned companies from trading crude oil from Iran or Russia. Entities within his network also engage in significant business dealings with Chinese buyers, often conducting transactions in yuan and beyond the purview of American sanctions, Bloomberg sources said.

However, if the US government decides to sanction any UAE-based company involved in violating US regulations, it can add them to its sanctions list. This can be especially problematic for banks facilitating such trades.

Despite not being personally sanctioned, Shamkhani has faced scrutiny from US authorities. Dozens of ships believed to be under his control have been sanctioned by the US Treasury, but their links to him were not publicized. Apparently, the US Treasury Department can sometimes find it more effective to target tankers rather than individuals because of frequent changes in ownership.

Back in 2022, a cargo ship reportedly belonging to the Admiral Shipping Company that Iranian media said is owned by Hossein Shamkhani and his brother Hassan was impounded in one of India’s ports.

Shamkhani and Milavous have repeatedly denied any involvement in illicit activities. In a written statement, Shamkhani categorically rejected claims of a connection to Milavous, asserting that he has no control over any oil companies or trading networks. Mohamed Al Hashmi, the Managing Director of Milavous, likewise dismissed allegations of ties to Shamkhani or involvement in Iranian or Russian oil trading. However, multiple sources suggest that Shamkhani's influence extends far beyond public knowledge. He is believed to have been instrumental in establishing dozens of companies.

Shamkhani's network extends beyond Iran. He spent time studying in Moscow and Beirut before returning to Tehran to earn a Master of Business Administration. His ties to Russia have proven especially valuable as Tehran and Moscow have forged deeper economic and military partnerships in response to Western sanctions.

Hossein Shamkhani's ascent in the oil industry is inextricably linked to his family's legacy. His father has been a towering figure in Iran's military and security establishment for decades and like many of his peers, he is dogged by scandals. Apart from reports about his sons -- Hassan and Hossein -- owning dozens of businesses, there have also been reports about the extravagant lifestyle of his family members in Iran and abroad. Iran International’s investigative journalist Mojtaba Pourmohsen has published several exposés about the family corruption, including his nephews Mo’ud and Naji Shamkhani. 

Controversies reached their peak following allegations of extravagant properties and bank accounts held by Shamkhani’s family, including those of his toddler grandson.

In 2022, the Shamkhani family was implicated in the collapse of a building in southwestern Khuzestan province that killed scores of people. The owner of the building, Hossein Abdolbaghi, a well-connected businessman, had broken multiple regulations when constructing the building, having enjoyed the backing of officials including members of the Shamkhani family.

While the elder Shamkhani encouraged his son to pursue a career in the private sector, his connections and influence have undoubtedly played a pivotal role in Hossein's success.

Amanollah Kahrazehi, speaking to local media, pointed out that the strong US presence in Pakistan, funding military expenses, is the primary reason for the complexities in Tehran's economic ties with -Islamabad.

Nonetheless, he discussed the imports, which appear to serve as a potential substitute for monetary transactions: “Since the beginning of this year [20 March], the trade volume between the two countries has exceeded $928 million, with rice, cotton, and sesame remaining the primary commodities imported from Pakistan to Iran.”

Earlier in August, Iran’s Customs Administration reported that new restrictions imposed by Pakistan on the entry of Iranian goods have resulted in a downturn in trade between the two nations, without providing specific details.

Meanwhile, last year, Iran, under the weight of sanctions, enthusiastically highlighted its ability to export gas and oil to Pakistan and "reduce reliance on the dollar," as Pakistan unveiled a list of goods open for a barter arrangement between the neighbors.

Amid critically low foreign exchange reserves last year, barely enough to cover one month's imports, Pakistan urgently sought to manage a balance of payments crisis and control inflation, which had surged to nearly 38%. The Pakistani government issued a special order allowing barter trade with Afghanistan, Iran, and Russia for specific goods, including petroleum and natural gas, as announced by the Ministry of Commerce.

Russia, also under heavy sanctions, was also an eager supplier of energy to Pakistan as the West moved away from its resources following Moscow's invasion of Ukraine in February 2022.

Last year, Pakistan, traditionally an ally of the US, received its first shipment of crude oil and liquefied petroleum gas from Russia. The Russian embassy noted that the gas delivery was facilitated via the Sarakhs Special Economic Zone with Iranian assistance.

Nonetheless, it was later revealed that the plan had fallen short of Pakistan's expectations, with the anticipated benefits being undermined by higher shipping costs and the inferior quality of refined products compared to those produced from crude sourced from Pakistan's primary suppliers, Saudi Arabia and the UAE.

Dalga Khatinoglu, an oil, gas, and economic analyst for Iran, told Iran International that Iran exports a range of petroleum products and electricity to Pakistan, including approximately 500 gigawatt-hours of electricity annually.

He noted that Iranian customs data reveals the sale of around $20 million in propane and $50 million in butane to Pakistan last year—both of which are raw petroleum products in the form of liquefied gas. Additionally, he highlighted that Iran exports fuel oil (mazut) to Pakistan, a trade that does not appear in the official statistics.

While Pakistan produces crude oil and natural gas, its output is insufficient to meet domestic demand, necessitating the import of both crude oil and refined petroleum products to bridge the gap.

In May, it was revealed that Iranian traders are smuggling over $1 billion worth of fuel into Pakistan annually.

The crippling sanctions, levied for Iran's nuclear program, human rights abuses at home and support for Russia's war on Ukraine, have prompted Tehran to seek alternative markets. It has led to a substantial rise in smuggling operations across the 900-kilometer Iran-Pakistan border.

The report disclosed that, in the past year alone, approximately $1.02 billion worth of Iranian petrol and diesel was illegally transported into Pakistan, accounting for about 14% of the country's annual fuel consumption

The significantly lower cost of Iranian fuel compared to domestic supplies caused challenges for Pakistani refineries in maintaining stock uptake, further exacerbating the country's own economic difficulties.

According to draft regulations released by the Saudi Ministry of Hajj and Umrah, pilgrims are forbidden from bringing any prohibited items, such as pictures, books, flags, slogans, political publications, or other banned materials, into Saudi Arabia, according to the Saudi Gazette.

Pilgrims are strictly barred from engaging in activities or gatherings that could disrupt public order, security, tranquility, or health, as part of Saudi Arabia's efforts to ensure a peaceful pilgrimage.

The Islamic Republic of Iran, which places significant emphasis on the intertwining of religion and politics, has long marked the "Disavowal of Polytheists" ceremony as a politically charged ritual. Since the 1979 revolution, Iranian pilgrims in Mecca have observed this ceremony, traditionally accompanied by the chant of "Death to America." However, in 1987, this ritual led to a tragic confrontation between Shia demonstrators and Saudi Arabian security forces, resulting in the deaths of over 400 individuals.

In the aftermath of the 1987 incident, the Islamic Republic refrained from holding the ceremony for several years. It wasn't until 2001 that it was reintroduced, albeit in a symbolic and significantly scaled-down form. Since then, it has been conducted within the confines of a closed tent operated by the office of the Supreme Leader of the Islamic Republic.

However, almost during every annual hajj pilgrimage there have been incidents involving some Iranians and Saudi authorities related to political manifestations. The Iranian regime, sending its supporters to the hajj, seems eager to use the opportunity to steer up sentiments during the most important Islamic gathering.

Iranian authorities and state media also describe another religious act, the Arbaeen Walk to sites in Iraq, which attracted over 3.6 million Iranian participants this year, as an expression of “Shia soft power.” This characterization highlights a divergence in how mass religious gatherings are perceived and managed, with Iran framing such events as a display of cultural and sectarian influence, while the Saudi regulations for Hajj stress the importance of maintaining political neutrality and public order during religious pilgrimages.

The Arbaeen ceremony, marking the conclusion of the 40-day mourning period following Ashura—which commemorates the martyrdom of Hussain ibn Ali, the third Shia Imam and grandson of the Prophet Muhammad in 680 AD—is recognized as the world's largest annual gathering.

Traditionally, Shia Muslims convene in Karbala, Iraq, at the burial site of Imam Hussain to observe Arbaeen. Pilgrims often undertake extensive journeys on foot, spanning hundreds of kilometers, to reach the shrine of Imam Hussain and other significant Shia sites. This mass pilgrimage not only serves as a religious expression but also provides a fertile ground for the dissemination of Iranian propaganda and influence among other pilgrims during the ceremonies.

In remarks that some netizens labeled as racist and misogynistic, Pezeshkian recounted: "We arrived, and a woman approached us. Our appearances contrasted with those around us, as we had traveled to the East, to Thailand, for management training."

He continued, "To be honest, we felt quite offended. There we were, nine university presidents in Thailand, being instructed on leadership. We led a revolution with aspirations to change the world, and yet they sent us here. To make matters worse, a woman—of short stature, no less—was expected to tell us what to do."

During the farewell and introduction ceremony for the outgoing and incoming ministers of Science, Research, and Technology—an event aired live on state television (IRIB)—Pezeshkian, in a disparaging tone, recounted that the woman assigned to train them had reacted to the large number of universities in Iran with a curious remark:

In what appeared to be a reference to the abundance of universities in Iran, the instructor asked Pezeshkian, "Are you planning to eat your own students?" She explained that economics addresses four key questions: What to produce, at what quality, in what quantity, and where to distribute it. She added, "We have failed to answer these four questions properly."

His speech caused a backlash on social media. One user, sarcastically referring to violence by security forces against students told Pezeshkian: "You should have told her, 'No, we want to imprison and torture them [the students], and then claim they committed suicide by hitting themselves with a hard object."

Another user wrote on X: "this speech hints at a comparison between Pezeshkian and Raisi; an educated fool is more foolish than an uneducated one."

"Because the instructor was a woman and short, he was offended. Of course, it’s not surprising that someone whose mindset is shaped by Nahj al-Balagha [Shiite religious book] would have such a view of a 'short woman.' His leader has said that women are deficient in intellect. Naturally, the shorter ones must be even more deficient in intelligence!" wrote a critic on social media.

Since the presidential campaign, Pezeshkian's frequent references in Arabic to Nahj al-Balagha—a centuries-old compilation of sermons often perceived as misogynistic—have drawn considerable scrutiny.

Pezeshkian has consistently expressed a disregard for formal protocols, openly admitting his reluctance to adhere to prepared scripts. He has come across as an unusual Islamic Republic politician who makes off-the-cuff candid remarks.

While his supporters interpret these actions as evidence of "simplicity, authenticity, and being of the people," they are likely to provoke more controversy.

However, in the role of President, Pezeshkian's remarks concerning citizens of foreign countries could carry significant diplomatic consequences.

With the United Nations General Assembly's annual meeting less than a month away, he is poised to deliver a speech and likely engage in additional interviews on the sidelines.

In an article entitled “Shia Soft Power in the Light of Arbaeen Diplomacy” last week, Defa Press, the news agency of Iran’s Armed Forces, argued that the annual millions-strong gathering of Shia in Iraq serves as an “effective tool to bolster the soft power of these [Shia] communities against the cultural and social assaults from regional and extra-regional enemies.”

“In my view, Arbaeen goes beyond a religious ceremony and plays a crucial role in public and cultural diplomacy,” the author stated. “This event allows Shia communities worldwide to forge stronger communication and cultural networks, ultimately reinforcing their collective identity and enhancing their soft power in the face of foreign threats,” the author argued.

Iran's clerical regime holds various events to discuss and promote the idea. Last week, the International Culture Convergence Institute, Tehran University’s Theology Faculty, and a think tank called Zharfa held a webinar called “Arbaeen, Manifestation of Soft Power in Global Equations,” in which figures from several countries, including Pakistan, Iraq, and Lebanon, participated.

Supreme Leader Ali Khamenei has on many occasions referred to the Arbaeen Walk as a manifestation of Shia power and a “great and astonishing combat rehearsal”. Some pundits believe Khamenei recognized the political potential of the event as an alternative to the pilgrimage to Mecca (hajj) where the Shia are only a minority.

The Arbaeen ceremony, which marks the end of the 40-day mourning period following Ashura—the religious ritual commemorating the death of the third Shia Imam, Hussain ibn Ali, the grandson of the Prophet Muhammad, in 680 AD—is the world's largest annual gathering.

Some Shias have traditionally gathered every year to mark Arbaeen in Karbala, Iraq, where the Imam is buried. Many walk long distances, even hundreds of kilometers, to the shrine of Imam Hussein and other Shia shrines providing ample opportunities for Iranian propaganda among other pilgrims during the ceremonies.

Participation in the ceremonies held in Iraq has hugely grown over the past decade thanks to Iranian government's propaganda, and huge expenditures on infrastructures such as roads, healthcare for pilgrims, and security.

Small numbers of Shia Iranians had always privately taken the pilgrimage in the years following the fall of Saddam Hussein in 2003. The number of pilgrims grew from 40,000 in 2010, when it was first recorded, to three million in 2019, then hugely dropped during the pandemic.

In 2022, three million traveled to Iraq, and the number grew to four million in 2023. However, this year, according to the Arbaeen Central Headquarters, over 3.6 million Iranians participated in the walk. This was almost a million and a half less than officials’ forecasts.

Pundits suggest the decline may be attributed to the extreme summer heat or the fading novelty of the pilgrimage for those who have already participated once or even several times.

The current year’s budget included allocations of 1.24 trillion rials (around $2m) to several government bodies including the Ministry of Interior, Arbaeen Central Headquarters, and Islamic Propaganda Organization to “provide infrastructure and support” to hold the walk. However, this was in reality a tiny fraction of what the government spent. By some estimates, up to $500 million was spent.

Government organizations and state-affiliated charities as well as municipalities and city councils often allocate considerable budgets to organize the Arbaeen Walk as well and offer various services, including free Wi-Fi, along the way and in Karbala to hold the event as “gloriously” as possible.

The new government continued to support the event. The very first action that Vice-President Mohammadreza Aref took after his appointment was ordering 4 trillion rials (around $650,000) to be paid for the prevention of unforeseen incidents, contagious diseases, and other similar health-related issues among pilgrims.

Several newly appointed officials, including Farzaneh Sadegh-Malvajerd, rushed to the border area to inspect the infrastructure and services offered to pilgrims.