- Lower oil prices could lead to tightened sanctions on Russian and Iranian oil exports, with the West exploring stricter enforcement strategies.
- Increased participation from compliant tanker fleets in Russian and Iranian oil trades may push tanker rates upward.
- Effective enforcement remains challenging, with a proposed focus on tackling underinsured tankers in major transit routes.
Lower oil prices are creating opportunities for Western countries to introduce tighter sanctions on Russian and Iranian oil exports. These developments aim to limit the flow of oil from these regions while maintaining stability in the global oil supply, reports Breakwave Advisors.
Impact of Israel’s Strike on Oil Prices
An Israeli strike on Iran over the weekend avoided oil facilities, helping reduce the “war premium” on oil prices. This led to a sharp drop in Brent prices, down to $71.39 per barrel, before partially recovering.
With low demand growth, expected production increases from Saudi Arabia and the UAE by year-end may further drive oil prices down, supporting room for increased sanctions.
Benefiting the Compliant Fleet
As sanctions tighten, compliant Very Large Crude Carriers (VLCCs) could benefit from shifting trades away from non-compliant “dark” fleets to compliant vessels.
Lower oil prices may prompt increased compliant fleet participation in the Russian oil trade.
G7’s Commitment to Targeting Dark Fleet
G7 finance ministers recently reaffirmed their commitment to enforcing oil price caps.
They also aimed at tackling Russia’s “dark fleet,” with 160 oil tankers sanctioned in 2024 alone, compared to fewer than 30 in the previous three years combined.
New US and UK Sanctions on Tankers
The United States expanded sanctions on Iran’s oil sector, listing 17 tankers involved in illicit shipping.
The UK also sanctioned 18 tankers linked to Russian energy exports, reflecting an increase in enforcement activity.
Mixed Sanction Effectiveness
U.S. sanctions have been more effective than those by the UK and EU.
Data shows that 60% of tankers sanctioned by the UK remain active, whereas only 20% of US-sanctioned tankers are operating, due in part to India’s caution with US sanctions.
Enhancing Sanctions Enforcement at Chokepoints
Proposals to challenge shadow fleet tankers on insurance in chokepoints such as the English Channel could help restrict underinsured tankers.
However, practical implementation challenges may limit effectiveness.
Effect of Price Caps and Declining Oil Prices on Compliant Tankers
Price cap-compliant owners, sidelined from Russian crude trades, remain engaged in refined product transport, especially if prices fall below the cap.
Lower oil prices may attract more mainstream fleets to both crude and product trades.
China’s Increased Reliance on Iranian Oil
China’s imports of Iranian oil surged in recent years, facilitated by sanctioned tankers that operate beyond typical retirement ages.
Cost incentives, alongside economic pressures, encourage China to continue relying on attractively priced Iranian oil.
Environmental Risks and Stricter Sanctioning
Recent high-profile tanker accidents underscore the environmental risks posed by aging vessels in the sanctioned fleet.
Stricter enforcement on Iranian oil trades may target these older ships, increasing demand for compliant vessels.
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Source: Breakwave Advisors
