Oil trade set to hit record at UAE ports as traders point to Russia, Iran cargoes

The UAE's key regional oil trading ports are on track to handle record volumes of fuels and other oil products this year in what traders say reflects displaced supplies from Russia, growing Iranian exports and new refineries in the region.

Some of the biggest gains in overall traded volumes have been seen at the Gulf oil producer's smaller, lesser-known oil ports, according to tanker tracking data from S&P Global Commodities at Sea data. The UAE's imports of Russian clean oil products alone have increased from practically zero before the war, to average 58,000 b/d in 2022, and further increased into 2023, with a year-to-data average volume of 96,000 b/d, the data shows.

"The trade flows have been essentially reshaped with Russian barrels displaced from European and US markets, following the Russian Ukraine war," said Dong Wang, Middle East oil markets senior analyst at S&P Global Commodity Insights. "The fact that Russian barrels flowing into not only Fujairah port, but all over UAE such as Jebel Ali and Hamriyah, signifies the deeper engagement of traders in UAE on Russian oil."

In terms of overall flows, volumes handled by ports in the UAE have surged this year, at a time when the OPEC member has found its own domestic production constrained by quotas.

Rising volumes

The Jebel Ali port in Dubai, better known for its container shipping, has exported a record 163,500 b/d of products this year, up from 139,700 b/d last year. The Hamriyah Free Zone port in the Sharjah emirate north of Dubai has loaded an average of 108,200 b/d of products this year, up from 107,000 b/d last year. Sharjah's Khor Fakkan port has loaded 47,700 b/d this year, well above last year's 19,100 b/d, the data show.

Fujairah, the major trading and bunkering hub on the UAE's eastern coast, has loaded an average of 475,000 b/d of product exports in 2023, the highest since at least 2016 and up from 422,000 b/d in 2022, according to CAS data.

UAE ports led by Fujairah have become key to Russia's efforts to divert its oil product exports away from traditional US and EU markets since the war in Ukraine, trading sources have said. Smaller ports are also accepting Russian cargoes, while Khor Fakkan has also offered bunkering for ships, at lower prices than Fujairah, traders added.

Nine Russian ports have been shipping more products to the UAE, led by Ust-Luga, according to the CAS data. Other Russian ports to have loaded material that was discharged in UAE ports this year include Novorossiisk, Kavkaz and, for the first time, Vysotsky, Kalliningrad ship-to-ship deliveries and Primorsk.

In response to Russia's invasion of Ukraine in February 2022, the US, EU and UK have imposed a wide range of sanctions on Russia's oil sector, including bans on oil imports, price caps on refined petroleum products and restrictions outlawing services for the trading of Russian crude above a $60/b price cap.

While each crude grade has its own characteristics so it's relatively easy to find its origin, oil products from different refineries can be identical in their specifications -- which makes it easier to disguise sanctioned products as barrels of other origins.

"[Once] the products are put into the tanks...It's difficult to track their origins," said Richard Matthews, research director of Gibson Shipbrokers.

The Port of Fujairah declined to comment on the matter. Emails asking for comment from the UAE ministry of energy and infrastructure were not immediately returned.

Iranian barrels

Iran's Bandar Abbas is also listed as a load port for products subsequently re-exported from UAE ports, according to the CAS data.

"The UAE's smaller ports such as Hamriyah and Khor Fakkan have been increasingly utilized, especially over the past year or two due to an increase in product exports out of Iran and Russian barrels which do not find an immediate home come to the UAE and stored and re-exported," said Iman Nasseri, managing director, Middle East, at Facts Global Energy.

"Increasing exports and imports into Jebel Ali are because an expansion at the ENOC splitter has also contributed to this incremental trade in barrels," he added.

Nasseri said the ENOC refinery in Dubai had added a third condensate splitter train used to split condensate into LPG, naphtha and other products.

ENOC did not respond to a request for comment.

Some of the ports, such as Khor Fakkan, offer ship-to-ship services at anchorage and there are no customs procedures, which lowers costs.

"They give us the manifest and it doesn't say Iran. It says a country of origin and the final destination," a port source said.

The UAE has long aspired to be a regional and global products trading hub but product pricing FOB Middle East Gulf "is not yet fully adopted as much as it is necessary for a trading hub," Nasseri said. Fuel oil used for bunkering has mostly been imported to Fujairah, now the world's third-largest bunkering hub, or produced at the port by its three refineries. More fuel oil is also coming in from new refineries in the region including Kuwait's Al-Zour as well as Russian fuel oil, he said.

"There is agreement that there is an increase in volumes and that it is likely rebilled product," a shipping source said, asking not to be identified. Rebilling is a practice that can be requested to hide the origin of the product, because the product has been blended or because there has been a change in parties involved.

Traders have said the regulatory oversight around Khor Fakkan -- which sits within the semi-autonomous emirate of Sharjah -- is less stringent than Fujairah, attracting fuel oil cargoes of sanctioned origins into floating storages along neighboring ports. Some traders have set up refueling operations at Khor Fakkan, aiming to divert bunker demand from Fujairah, traders said.

An official at Khor Fakkan port denied the facility was handling Iranian cargoes but was unable to comment further on the matter.

Oil products in storage in Fujairah -- including gasoil, fuel oil and jet fuel -- totaled 17.406 million barrels on Nov. 27, according to the Fujairah Oil Industry Zone, down from a 2023 high of almost 25 million barrels in mid-May, after the February price caps on Russian petroleum product exports filled tanks.

Fujairah expects to expand its oil storage capacity by 3 million cu m in the next two years, from a base of 11 million cu m.