The court ordered them on Monday to also pay a $2.4 million fine or face more prison time.
“The key message is that the good times are over for the organised oil smugglers,” said Colonel Mike Kelly, a member of the US occupying administration in Iraq who worked on the case.
He warned that smugglers would lose their vessels and cargoes and that the captains would be imprisoned.
The occupying administration in war-torn Iraq is trying to crackdown on oil smuggling from the south, which it says costs about $200,000 a day.
Lawyers for the defence said their clients were being unfairly held up as examples to deter others and that they would appeal.
The 67-year-old captain of the Panamanian-flagged Navstar, Mykola Mazurenko and first mate Ivan Soshchenko, 57, were found guilty of illegally loading aboard 3500 metric tonnes of diesel worth more than $800,000 from the Iraqi mainland.
Handcuffed and escorted by US soldiers and Iraqi police, the two men were driven back to the notorious Abu Ghraib prison where they will begin their seven year sentence.
If the fines are not paid, they will serve a total of 10 years, pending appeal.
Mazurenko (L), Navstar captain,
Under ousted Iraqi President Saddam Hussein they could have been sentenced to death for their crimes. The maximum sentence under the new provisional law is life in prison.
As the defence made its final arguments during the trial each defendant made a short statement to the judges.
Mazurenko said that a doctor had told him that he only had three years to live and he would die in prison within two months.
Kelly said the evidence against the two men was overwhelming.
The defence argued their clients were unaware of Iraqi law, denied they had forged receipts and said the capitain was ill.
Defence lawyer Talib al-Zubaidi said they would appeal the sentence next week.
The Navstar was intercepted near the southern port of Umm al-Qasr earlier this year. The diesel and ship will be sold and the money given to the Iraqi administration, said Kelly.