Washington weighs allowing sanctioned tankers to carry legal oil amid shipping pressure

Key Facts

Washington is considering easing restrictions on shadow fleet tankers to allow them to carry oil not subject to sanctions, in a move aimed at expanding shipping options amid disruption to tanker traffic. A U.S. official said, as reported by Reuters via G Captain, that companies seeking to use the vessels would need to apply to the Treasury Department. The discussion centers on allowing "legal oil" to be carried aboard ships previously sanctioned, not opening the way for prohibited Russian or Iranian oil shipments. The U.S. Energy Department said any easing of restrictions on the shadow fleet would not help Russia transport oil or its products. Details of the proposal have not been disclosed, despite Energy Secretary Chris Wright's remarks about allowing legitimate companies to buy sanctioned tankers to carry cargoes not subject to sanctions.

The individual-application mechanism means that making the tankers available does not automatically amount to their return to the market; each company would need approval before deploying a vessel in the proposed transaction. Guidance from the U.S. Treasury Department's Office of Foreign Assets Control allows it to issue a specific license, on a case-by-case basis, for a transaction otherwise prohibited by sanctions if no general license or exception applies. That general rule, however, does not establish that a review specific to the tankers under discussion is taking place. Nor does permission to carry a cargo not subject to sanctions in itself remove the operational and regulatory obstacles a tanker may face. This comes as sanctions restrictions overlap with capacity shortages on sea routes, making licensing and insurance terms part of determining whether a vessel actually returns to service.

The amount of capacity that could become available is likely to remain limited: Reuters cited industry sources as saying that an easing of restrictions could make a small number of tankers available for specific shuttle voyages through the Strait of Hormuz. The sources said the move would have no broad effect on freight rates as European and British restrictions on insurance companies remain in place. The policy may therefore change the deployment of existing vessels more than add a new fleet. Analyses cited by S&P Global said easing sanctions could shift tankers from the Russian oil trade to the Middle East, potentially raising Russian shipping costs and easing some of the shortage near Hormuz. The analyses concluded that the measure could redistribute existing capacity rather than release large volumes of idle tonnage.

Past market data provides context on the severity of shipping pressures, but does not represent a measurement for the November 6 session. Very large crude carrier freight rates on the Brazil-to-Asia and U.S. Gulf Coast-to-Asia routes rose 274% and 260%, respectively, from the start of the war through October 12, according to S&P Global Energy. In September, the average number of ships transiting the Strait of Hormuz each day was 21, compared with 135 before the war. The decline in transits underscores the sensitivity of available capacity to the passage on which regional energy routes depend. Analysts said they expect freight rates to continue rising as the winter demand season approaches and tensions in the Middle East remain elevated. This backdrop places any potential additional capacity in a market already facing constraints on movement and insurance.

Tanker movements show that approvals alone do not guarantee the completion of a commercial voyage to the United States. The Associated Press said two sanctioned tankers left the Baltic port of Primorsk after initially declaring destinations on the U.S. East Coast, then changed course; one headed to Brazil and the other to the Mediterranean, according to information available through November 5. In a separate case, the agency said a temporary exemption issued by the Office of Foreign Assets Control covered transactions involving the sale, delivery, discharge and import of Russian diesel through April 7, 2027. But as of the publication of the agency's report, the arrangement had not resulted in a confirmed delivery to the United States. The agency quoted an analyst at Kpler as saying regulatory and sanctions concerns could prevent the cargo from being discharged on the U.S. Atlantic coast, and that there was reluctance to unload it because of the consequences.