14 November 2024 Vortexa
Trump is likely to ramp up sanctions on Iran, following his policy pre-Biden when the United States left the JCPOA and sanctioned Iran unilaterally. We’ve already observed the Biden administration designate a record number of vessels in the Iranian trade in 2024. However, despite the effort, we’ve seen Iran’s crude exports average over 1.6mbd in 2024, the highest level since US sanctions were imposed in late 2018. This raises questions as to how Trump could have an impact.
Iran is in a different position to where it was four years ago. Iran could respond to heightened sanctions by expanding the dark fleet, bringing in more non-sanctioned tankers into the trade. They have expanded their shipping network over the last few years, so this shouldn’t be difficult. There are approximately 80 VLCCs currently in the mainstream market that could be ideal candidates to be sold into the dark fleet, given the age profile of 18 years old and older; the average age of VLCCs that join the dark fleet.
Source: Vortexa
Amid a broader decline in crude demand and weakening refining economics, Chinese refiners are increasingly favouring cheaper spot crude to improve margins. China’s January-October imports of Iranian crude rose 30% y-o-y, vs a 5% decline in the country’s total seaborne crude imports. Private refiners are primarily turning to heavily discounted Iranian and Venezuelan barrels, while state-run refiners are limiting their exposure to Russian crude. Imports of discounted barrels from Iran, Venezuela, and Russia remain robust, often at the expense of other crude grades (see insight for more).
Chinese buyers have already established sophisticated networks over the last few years, which has supported their increased purchases of discounted Iranian feedstock. Heightened sanctions may provide buyers the impetus to expand their network further to circumvent sanctions and allow the barrels to freely flow into its ports. For example, the logistics of longer STS chains involving more tankers and middle-men, which we’ve observed over the last few years.
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