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Can Iran Offer Tankers a Lifeline?

A potential lifting of Iran’s sanctions could have a major impact in the tanker market, with many ships currently involved in illiciit trading with Iran headed for scrap, thus offering a significant boost in terms of alleviating oversupply issues, currently plaguing the tanker market. In its latest weekly report, shipbroker Gibson said that “President Biden made it clear throughout his election campaign that he planned to re-engage with Iran, aiming to bring the USA back into the Joint Comprehensive Plan of Action (JCPOA). This week Iran and the US took the first public steps to re-engage with each other. A direct meeting it was not, with the remaining JCPOA signatories acting as intermediaries. Nevertheless, the “talks” were said to be constructive with further “discussions” scheduled to take place on the 9th of April (today)”.

Source: Gibson Shipbrokers

According to the shipbroker, “neither side has said they expect a quick resolution, and it could take months for a deal to be reached, if at all. Iran wants the US to lift all sanctions before taking steps to comply with JCPOA. The US will inevitably want Iran to take steps to scale back its nuclear programme before, or in tandem with sanctions relief. Complicating matters further is the Iranian presidential election taking place in June, which will see a new and possibly more hard-line leader elected. Whilst it looks as if the path to sanctions relief might be arduous, both parties seem to want a deal. So, what would a deal mean for tankers? On the face of it, more oil means more cargoes, but Iran has a large fleet, so with more oil, comes more ships. There is also the question of vessels which whilst not owned directly by Iran, are engaged in Iranian trade. Gibson’s counts 8% of the VLCC fleet and 5% of the Suezmax fleet as involved in illicit trade (including vessels owned by NITC). However, with sanctions lifted, these vessels would no longer be able to command premium rates, and given their age profiles, might be forced to scrap to the benefit of the wider tanker fleet”, Gibson said.

“Gibson estimates that Iran would require approximately 25 VLCCs and 20 Suezmaxes to service exports of 2 million b/d assuming similar trading patterns to 2018. Whilst NITC would theoretically have ample VLCCs to service the trade, practical reasons would mean that the NITC fleet alone would be insufficient to transport Iran’s exports in a post sanctions world. During the last round of sanctions relief, it took time for Iranian floating storage (notably condensate) to ease, keeping a portion of the NITC fleet employed, whilst many cargoes were often sold FOB, rather than delivered on Iranian tonnage. One also must consider that with an average age of 15 years, much of the NITC fleet would fail to meet some receivers’ age restrictions. Therefore, in a practical sense, the wider tanker fleet would see increased employment opportunities from Iran’s return, whilst the older ‘illicit fleet’ would see diminished employment opportunities and increased scrapping pressure”, the shipbroker noted.

“However, any increase in Iranian crude exports would limit the ability of the wider OPEC+ group to expand crude output.Whilst Iran’s potential return is unlikely to influence OPEC+’s strategy for May to July, the group will need to be mindful of the potential need to accommodate Iran in the second half of 2021, if sanctions relief is offered. Iran is thought to have the capability to increase exports to around 2 million b/d which would effectively eat into OPEC+ volumes. In short, having Iranian oil back in the market is marginally positive for crude tankers, but the market would be better off if those extra barrels came from elsewhere in the world”, Gibson concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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