The recent tightening of sanctions enforcement on Iranian and Russian oil by the US and EU may lead to notable shifts in global tanker trade patterns, reports Drewry.
Revised price cap on Russian crude
On Wednesday, July 30, the U.S. Department of the Treasury announced sanctions targeting over 100 Iran-linked individuals, companies, and vessels involved in the export of Iranian oil and petrochemicals.
Separately, the U.S. has expressed concerns over India’s continued purchases of Russian oil and defence equipment, raising the possibility of trade-related penalties, including a proposed 25% tariff on Indian goods.
Earlier, on July 18, the European Union adopted its 18th sanctions package against Russia, which revised the price cap on Russian crude from a fixed $60 per barrel to $47.6 per barrel, effective from September 3. Notably, the U.S.—a participant in the original G7 price cap—has not formally endorsed the EU’s updated cap.
In addition, the EU has introduced a ban on the import of refined products made from Russian crude processed in third countries, with exemptions granted to Canada, Norway, the U.S., the UK, and Switzerland.
Sanctions Heat Up, Tanker Routes Shift
While these actions reflect a stepped-up effort to curb Iranian and Russian oil revenues, there appears to be limited alignment in their strategies. The EU remains focused on constraining Russia’s energy income, whereas the U.S. is pursuing broader geopolitical objectives, including trade leverage and renewed diplomatic engagement with Iran.
Previous rounds of sanctions on Russian, Iranian, and Venezuelan crude have led to the emergence of a parallel market for transporting sanctioned oil. Despite an expanding list of sanctioned vessels and the G7 price cap mechanism, Russian crude continues to reach select buyers. Likewise, Iranian oil has steadily flowed to Asian markets, even with U.S. sanctions in place since 2019. Going forward, it will be important to observe how the latest wave of sanctions on Russian and Iranian oil influences the dynamics of the tanker market.
Impact of US penalty on Indian goods for buying Russian oil
Although the US has not specified the penalty for buying Russian oil, any significant penalty might discourage India to buy Russian oil and look for alternate supply. India is one of the major buyers of Russian oil and most of this trade is done on Suezmax and Aframax tankers. However, any possible decline in India’s imports of Russian crude will lead to a significant increase in the country’s imports from other sources, especially the Middle East. In such a situation, the VLCC demand will increase at the expense of mid-size tankers as the former dominate the loadings in Arabian Gulf.
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Source: Drewry
