The U.S. Treasury Department on Friday removed sanctions on two tanker operators within China’s Cosco Group that were blacklisted last year, reports The Wall Street Journal.
Blacklisted for violating U.S. prohibitions
The U.S. Treasury Department on Friday removed sanctions on two tanker operators within China’s Cosco Group that were blacklisted last year for allegedly transporting Iranian oil in violation of U.S. prohibitions.
Spike in oil transport costs
The sanctions placed on the units of Cosco Shipping Energy Transportation Ltd. in September triggered a spike in oil transport costs as crude producers, fearing U.S. penalties, immediately stopped using any tankers associated with the Cosco Group.
Treasuries clarification
Treasury subsequently clarified that only business with the named subsidiaries—and not sister Cosco companies—was banned by its action.
Damage costing tens of millions of dollars
Cosco Shipping Energy Transportation, or CSET, runs a fleet of 120 tankers, including 44 very large crude carriers. At least 65% of the fleet had been blacklisted, a person with knowledge of the matter said. The company’s shares surged 11% in trading on Hong Kong’s stock exchange on Friday.
Shipping executives say the damage to Cosco from the blacklisting runs into tens of millions of dollars.
It is a relief!
A senior Cosco executive, “We are relieved that the sanctions have been removed. Our tankers will resume normal sailings as soon as it can be done.”
The Treasury and State Departments didn’t provide any details on the delisting, including the criteria for removal.
Slight easing of tensions
The move follows a slight easing in tensions between Washington and Beijing after the two governments reached a trade deal last month. Removal from sanctions lists often requires a determination that the blacklisting was based on insufficient evidence of violations or a commitment from the targeted company not to transgress in the future.
World’s biggest shipping operator
CSET’s parent company, Cosco Group, is the world’s biggest shipping operator in terms of fleet and capacity, operating more than 1,100 vessels of all types, including container ships, tankers and bulk carriers.
The state-owned company is a key part of Beijing’s multitrillion-dollar “Belt and Road” initiative to establish infrastructure and distribution channels and extend China’s influence around the world.
Jump in freight rates
The CSET units that the Trump administration blacklisted were Cosco Shipping Tanker (Dalian) Co. and Cosco Shipping Tanker (Dalian) Seaman & Ship Management Co.
In the days after the blacklisting, freight rates for large tankers jumped to more than $200,000 a day. They eased in the following months, and are now between $30,000 and $40,000.
Coronavirus impact
A senior executive of a European tanker owner said, “The rates have been falling mostly from the psychological effect from the coronavirus.”
“There has been panic that oil shipments will slow down big time, which is not true. As for the Cosco tankers it will take time before they will be up and running.”
Crude carriers idled or underutilized
Ben Nolan, an analyst at research firm Stifel, said about 20 to 25 large crude carriers within Cosco have been idled or underutilized since the imposition of the sanctions.
He said, “We expect the utilization of crude tankers to flip, which should be a negative headwind for tanker rates.”
Commercial operations resumed
Lloyd’s List Maritime Intelligence reported this week that Cosco tankers had already resumed commercial operations, with three very large crude carriers shown to be loading crude from West Africa terminals in recent days. The loads were the first the company has handled in the region since the U.S. imposed the sanctions in September.
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Source: The Wall Street Journal
