The announced reimposition of sanctions against Iran by the Trump administration creates an unnecessary extra uncertainty into a market which is under extreme pressure already, as explained by BIMCO’s Chief Analyst, Peter Sand.
The tanker market has been faced with severe headwinds amid tonnage overcapacity coupled with weak trading demand and weak OPEC output. Overordering of very large crude carriers (VLCC) since the beginning of this year has put additional strain on the market, with a total of 24 VLCCs booked so far this year.
“Adding sanctions on top of a bad market normally doesn’t bring around much good to an industry, ” Sand told World Maritime News commenting on the U.S. decision to pull back from JCPOA.
National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO), and National Iranian Tanker Company (NITC) will be directly impacted by the sanctions together with the Islamic Republic of Iran Shipping Lines (IRISL), South Shipping Line Iran, or their affiliates.
Iranian energy and financial sectors are also being targeted by the sanctions.
“For an international tanker company, being unable to trade in the US – that’s a big issue,” Sand said.
The new wave of sanctions could prompt European buyers to refrain from buying Iranian crude, resulting in the country’s export cuts. However, exports to China, India, Korea and Japan are likely to be resumed, as they did when previous sanctions were in place.
“On the commercial side, we may see Iranian exports cut, as European buyers shy away. Basically a reversal of what has happened this the JCPOA came into force,” Sand said.
“Essentially, no one wants to be in breach of any sanctions, so as long as uncertainty around sanctions that may or may not be ‘snapped back’ exist, owners and operators prefer to stay on safe ground – i.e. avoiding doing business with Iran – if that would prevent them from doing tanker business with the US.”
Consequently, a question arises on where European buyers will go for the oil they need.
According to Sand, it is likely they will stay in the Middle East, with Iraqi oil being an alternative that would limit the impact on tankers.
As explained earlier by Gibson, what really matters for the tanker market in general, are total volumes out of the Middle East, as opposed to Iran alone. In particular, the impact from Iranian’s export cuts could be offset if other Gulf states were to make up for any Iranian shortfall.
Nevertheless, it is still early to determine clearly what will be the overall impact of the sanctions on the market. Namely, JCPOA provisions on dispute resolution need to be scrutinized closely, which could take weeks or even months. Furthermore, there is a question whether the U.S. can, in fact, withdraw from the agreement, as the EU insists, this is not a bilateral deal.
“But a bit of patience and wait-and-see, while preparing contingency plans is a good strategy for a starter,” Sand concluded.
World Maritime News Staff; Image Courtesy: Illustration/ Pixabay