New US sanctions to boost global tankers' freight; Russian trade to likely continue

A fresh round of sanctions on tankers trading in Russian crude and gas will further squeeze the supply for conventional trade and support freight, but the targeted shipments may continue, albeit with more complications, according to brokers, analysts, and shipping industry executives Jan. 13.

"There are hundreds of oil and gas tankers that specialize in sanctioned trade. If the list of such tankers is expanded they won't stop such shipment but their availability for non-sanctioned trade will get squeezed," said a chartering executive tracking such trade flows.

He cited the example of oil tankers on time charter to an oil trading major, which regularly moves Iranian oil outside the port limits of Malaysia's Tanjung Pelapas. A Suezmax tanker recently did a partial discharge of Iraqi crude in Singapore and then moved to Tanjung Pelapas to load the vacant space with another grade for an eventual voyage to China.

Most market participants dismissed the possibility of India and China reducing imports from Russia, and termed it a "worst-case scenario". However, some market participants highlight the fact that these sanctions now target not only shipping but also maritime insurers and oil producers.

"They [sanctions] are broader and deeper and look the real deal, at last," said Ole-Rikard Hammer, Oslo-based senior analyst of oil and tanker markets at Arctic Securities. He was referring to Russian energy producers, Gazpromneft and Surgutneftegas, with a total export volume of 1 million b/d last year; and two of the country's largest insurance companies, Ingosstrakh and Alfastrakhovanie, which have been brought under sanctions for the first time.

The benchmark Persian Gulf-China VLCC freight is set to cross above the key psychological barrier of w50, sources said. The route was assessed at w48.50 Jan. 10, S&P Global Commodity Insights data showed.

A longer list of sanctioned tankers implies a shortened list for conventional trade, said a broker in UAE. For almost two years, it has been a standard practice for clean Long Range, or LR, tankers to move gasoil and jet fuel cargoes from the Persian Gulf to Europe before returning to Russia to pick up their next cargo. The broker said if any of these tankers are sanctioned, it will reduce the number of LRs in the market and push up freight.

Platts, part of Commodity Insights, assessed the Persian Gulf-UKC LR2 route via Cape of Good Hope at $3.95 million on Jan. 10, up $50,000 day over day.

Dirty tankers' freight is also set to increase. Kozmino-North China Aframax freight is expected to receive a massive boost of around $4 million-$5 million, sources said. The route was assessed at $1.625 million Jan. 10, according to Commodity Insights data.

The US on Jan. 10 sanctioned just over 180 ships in addition to almost 300 already governed by this sanctioned regime. There is a winding down period to end transactions until March 12. Several market participants said that the actual shadow fleet partaking in sanctioned trade from Venezuela, Iran and Russia is much bigger than these 480 ships and is expected to continue its business though with more hurdles and complications.

"The new round of sanctions is evidence of the fact this system has not produced the desired results for the West even three years after the start of the war in Ukraine," said a tankers' broker in Tokyo.

There is also uncertainty over how effectively these sanctions will be implemented as they come barely days before a new government assumes charge in the US. "Much will depend on the implementation of sanctions. It appears as though the new US President, and to some extent also the European Union, will seek to tighten them," said Arctic's Hammer. This can shift more of the oil trade onto the open market, which will be positive for the non-sanctioned fleet.

The new sanctions come at a time when the oil production outlook is positive, said Enrico Paglia, a Genoa-based research manager with shipping brokerage and consultancy Banchero Costa, or Bancosta said. Citing the US Energy Information Administration, Paglia said the crude oil output is expected to increase by more than 1.6 million b/d this year, almost three times faster than 2024, to 104.2 millon b/d.

A lot will depend on whether it is business as usual for the dark fleet, or tankers will leave this trade to become idle or get recycled, said Edward, Finley-Richardson, a Bordeaux-based shipping analyst with Contango Research. More than half of the global tankers' fleet is now over 15 years of age, and over one-fifth is above 20 years old, added Paglia.