Iran struggles to maintain oil fleet as sanctions bite
Iran is discreetly scouring the globe for second-hand oil tankers to replace its ageing fleet and keep crucial crude exports flowing as US sanctions start to bite, Iranian and Western sources said.
Since US President Donald Trump reimposed sanctions in November, exploratory talks with South Korea for up to ten new supertankers have stalled, Panama has removed at least 21 Iranian tankers from its registry and Tehran is looking for extra vessels in places such as Vietnam, the sources said.
Washington put restrictions on Iran’s port, energy and shipping sectors but it has given waivers to the country’s eight biggest oil customers, which include China, India and Japan, so they can keep buying Iranian crude.
With oil exports accounting for an estimated 70% of Iran’s revenues, maintaining an effective fleet of tankers to store and move that oil is crucial for Tehran but potential sellers of used vessels are more wary this time round after a Greek network that helped Iran buy tankers under previous sanctions was blacklisted. Western insurers are also steering clear, complicating Iran’s attempts to export crude to US-approved buyers.
If Iran runs into difficulties exporting its oil it could have a significant effect. Besides the importance of oil for its budget, Iran is estimated to produce about 2.8 million barrels a day, more than 9% of OPEC’s output.
“Whatever sector you look at, companies will keep in mind being cut off from the US financial system when deciding whether to trade with Iran,” said Mehdi Varzi, an independent oil consultant who has previously worked at the state-run National Iranian Oil Company.
Israel warned that its navy could act against Iran, which it said was smuggling oil using clandestine measures like those employed during the previous round of sanctions.
Maritime specialists said methods used for skirting sanctions in the past included changing the names of ships, switching off Automatic Identification System (AIS) location transponders and conducting ship-to-ship transfers of oil.
Since the round of sanctions in 2012, ship tracking has become more sophisticated and more available. Washington has also cracked down on more Iranian networks, making it riskier to get involved with Iran, bankers said.
Iran reached an agreement with world powers in 2015 over its nuclear programme which led to the lifting of sanctions in 2016 but Trump pulled out of the deal last May and reimposed US restrictions in November.
“Many big oil traders are very worried about going into Iran due to Trump and even the Chinese are trying to comply with what the Americans want,” said Varzi.
A senior Iranian official played down the threat to its oil exports because of pressure on its fleet.
“Plenty of countries are happy to do business with Iran,” the official said. “As we have done in the past, there are several ways to overcome the shortage, including using tankers of other countries.”
A second Iranian official said discussions with South Korea over the possibility of ordering as many as ten supertankers, each large enough to carry 2 million barrels of oil, had been delayed by US sanctions.
“We are working on it,” the official said.
A South Korean government official had no comment on the matter.
After Western sanctions were lifted, Iran started talks with South Korea’s Daewoo Shipbuilding and Marine Engineering Company about forming a joint venture to establish a shipyard in Iran.
A spokesman for Daewoo said it signed a preliminary agreement with Iran in December 2016 to cooperate on developing the shipyard but added that no progress had been made since then. A third Iranian official said talks were ongoing.
One shipping source said Iran has been searching for more ships in places such as Vietnam and two sources said it had been looking for middlemen in the Greek market, one of the main hubs for second-hand ship deals.
“Iran has been looking for ships but this time around it is going to be harder [because] there is so much more scrutiny now. It is going to take them longer,” one of the shipping sources said.
When asked about Iran’s efforts to secure ships, a third Iranian source said they were looking at all options.
Vietnamese officials did not respond to requests for comment.
Iran has more than 50 tankers but needs them for both transporting oil and storing unsold stocks in its territorial waters, given its limited onshore storage capacity.
Data based on AIS tracking by shipping intelligence platform MarineTraffic indicated that 12 tankers — more than one-fifth of Iran’s fleet, were being used for floating storage in March.
Iran is struggling to keep its ships flagged to foreign registries, too. All commercial ships must be registered in a particular country, partly to comply with safety and environmental laws.
Following the reimposition of sanctions, Panama, the world’s leading flag state for commercial shipping, decided to de-flag Iran’s ships, a fourth Iranian official said. Shipping data show nearly all Iran’s tankers had been registered with Panama.
A source at Panama’s flag registry said the cancellation “affects approximately 60 Panama registered ships that are related to Iranian and Syrian owners.” The source did not provide further details.
A US Treasury spokesman said: “We intend to fully enforce these sanctions and we encourage the cooperation and compliance of our allies and partners.”
Renewed US sanctions have also meant Iran has been unable to secure certification services from foreign providers to ensure its ships remain seaworthy, shipping officials said. Shipping records show that 16 of Iran’s tankers are at least 19 years old and three of the vessels have been in service since 1996.
Iranian tanker Sanchi sank off China in 2018 after colliding with another vessel and five of the eight tankers Iran bought via the Greek network under previous sanctions have since been scrapped, adding to the need for more ships.
US Special Representative for Iran Brian Hook, in November, described Iran’s tanker sector as a “floating liability.”
Shipping data showed at least two Panama flagged tankers — the Sarak and the Sobar — were reflagged to Iran as of January 1. The owners of the vessels, who were listed in the British Virgin Islands, could not be contacted.
More than 20 other tankers in Iran’s fleet have been reflagged to Iran this year.
Having its tankers flagged in Iran rather than a third country such as Panama presents further problems for Tehran, even if it can secure more vessels and approved buyers for its oil, shipping experts say.
Besides China, India and Japan, Washington gave South Korea, Taiwan, Turkey, Italy and Greece approval to keep buying Iranian oil. It’s unclear whether the waivers will be renewed when they expire in May.
Dealing with Iran’s flag registry raises compliance issues for counterparties because there is a risk they might interact with individuals or entities blacklisted under US sanctions.
With few buyers willing to take all the commercial risks involved in oil sales, Iran is also having to cover the shipment of cargoes, including securing insurance in most instances, shipping sources said.
Mike Salthouse with the International Group, which represents companies that insure about 90% of the world’s commercial shipping, said Western insurers were very unlikely to do business with Iranian shipping companies.
“The biggest problem for insurers these days is finding a bank willing to handle a payment for goods or services where the beneficiary is designated by the US,” said Salthouse, chairman of the International Group’s sanctions sub-committee. “Banks will not engage when you mention the ‘Iran’ word.”