Increase sanctions on Russian oil and Iran: Implications for the tanker market
THe recently tightened the enforcement of sanctions in Iranian and Russian oil by the US and EU to cause important changes in the trading pattern of global tankers. On Wednesday, July 30, the US Department of Finance announced sanctions targeting more than 100 individuals, companies and ships related to Iran involved in Iranian oil exports and petrochemicals.
Separately, the US has expressed concern over India’s sustainable purchases of Russian oil and defense equipment, increasing the possibility of trade-related sentences, including the 25% proposed tariff for Indian goods.
Previously, on July 18, the European Union adopted the 18th sanctions package against Russia, which revised the Russian crude oil price limit from $ 60 per barrel to $ 47.6 per barrel, effective from 3 September. Specifically, the US – Participants in the original G7 price hat – have officially supported the European Union updated hat.
In addition, the EU has introduced a ban on imported processed products made from Russian crude oil processed in a third country, with the exceptions given to Canada, Norwegian, US, Britain and Switzerland.
While these actions reflect efforts to step on to curb Iranian and Russian oil income, there seems to be limited harmony in their strategy. The EU remains focused on limiting Russian energy revenue, while the US is pursuing broader geopolitical goals, including trade leverage and new diplomatic involvement with Iran.
Previous sanctions on Russian crude oil, Iran and Venezuela have led to the emergence of parallel markets to transport approved oil. Apart from the list of ships subject to sanctions and price mechanisms for G7, Russian crude oil continues to reach certain buyers. Likewise, Iranian oil continues to flow into the Asian market, even with US sanctions in place since 2019. In the future, it is important to observe how the latest waves of sanctions on Russian oil and Iran affect the dynamics of the tanker market.
The impact of US sentence on Indian goods to buy Russian oil
Although the US has not yet determined a penalty to buy Russian oil, a significant sentence can prevent India from buying Russian oil and looking for alternative supplies. India is one of the main buyers of Russian oil and most of this trade is carried out on the Suezmax and Aframax tankers. However, all possible declines in Russian crude oil imports will cause a significant increase in the country’s imports from other sources, especially the Middle East. In such situations, VLCC demand will increase at the expense of medium -sized tankers because the first dominates loading in the Arabian Bay.
The impact of tightening US sanctions on Iranian oil
Apart from US sanctions since 2019, Iran has managed to sell its crude oil on the international market using dark boats. Nevertheless, the imposition of US sanctions recently to individuals, companies, and ships related to Iran involves exports of Iranian crude oil tends to disrupt the supply chain of Iranian crude oil in the short term. However, the possibility of the entry of ships that are not approved into the gray trade will squeeze the supply of tonnage for normal trade, the support level. However, the possibility of a decline in the overall exports of Iranian crude oil because this sanction will not have a big impact on global oil trading and tanker demand because the oil market is over supply and other Middle Eastern producers can easily replace the missing Iranian barrel.
The impact of lower price limits on Russian crude oil
The 18th UE Sanctions Package recently against Russia has significantly reduced the price limit from $ 60 to $ 47.6 per barrel, which will make Russia very difficult to use the mainstream international fleet for crude oil transportation because ural is not possible to trade below low price limits. Previously, every time Ural tends to trade below the price limit (especially in a low price environment), the mainstream fleet, especially from Greek owners, is used to carry Russian cargo. However, to sell ural above the new price limit, Russia needs to expand the parallel fleet (usually called the dark/gray fleet).
Figure 1: Price of Brent vs Urals
Source: Stabbed Maritime Research
Meanwhile, the list of ships approved by the US and the European Union which is even greater also indicates that approved countries such as Russia and Iran may get more ships that are not approved to facilitate their trade. All possible increase in parallel fleet for bypass sanctions will thus extorting tonnage supply in the mainstream market, supporting the Charter tariff.
Figure 2: Raw tanker transaction
Source: Stabbed Maritime Research
There was a sharp surge that was sold and purchasing activities in 2022, especially for ships that were older than 15 years, because many buyers were blurry or previously unknown to enter the market to get tonnage to transport Russian crude oil. The surge in the demand for this aging ship supports the value of used assets in the raw tanker market. In addition, an increase in demand contributes to a decrease in the real demolition activity between 2022 and 2024, because older ships continue to operate. In the current context, every new interest in vintage tonnage after the new round of sanctions against Russia and Iran can once again provide floors to soften the prices of assets in the former market.
Source: Drewry
