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Tanker Shipping & Trade

Tanker Shipping & Trade

UAE and Iran - troubled times

Mon 09 Jul 2018 by Craig Jallal, tankers and markets editor

UAE and Iran - troubled times
UAE tanker fleet is largely comprised of small tankers

UAE and Iran - troubled times

The re-imposition of US sanctions on Iran is a significant setback for the ambitions of the National Iranian Tanker Company; it’s response, and that of Iran, remains a global talking point

The United Arab Emirates’ tanker fleet is structurally different from that of its near neighbours, Saudi Arabia and Iran. The largest tanker fleet by number is that of Akron Trade and Transport FZE, with 27 vessels mainly composed of small bunkering tankers located in Fujairah. The second largest is United Arab Chemical Carriers, with 24 tankers, mainly MR2 product/chemical tankers.

The emphasis on small tankers is a result of the density of the refineries and tank farms in the region, coupled with the high degree of bunker activity taking place on both sides of the peninsular. The regional trade produces a much lower level of ton mile demand compared to the long-haul crude oil fleet of Saudi Arabia.

But across the seaway is the substantial crude oil exporter Iran, which has long threatened to disrupt tanker traffic around the peninsular as it passes through the Strait of Hormuz.

In 2016 the National Iranian Tanker Company (NITC) celebrated its 60th anniversary. At the same time, the United Nations lifted sanctions and most European restrictions were removed on doing business with Iran, including an embargo on oil imports.

Then on 8 May 2018, President Trump signed an order for the USA’s withdrawal from the Joint Comprehensive Plan of Action (JCPOA) or Iran nuclear deal, which had been signed by the UN Security Council members China, France, Russia, the United Kingdom, the United States of America, plus Germany and the European Union. The US will re-impose US nuclear-related sanctions which had been waived under JCPOA and the previous administration. The move by President Trump came as no surprise, as during his campaign he described JCPOA as the “worst deal ever”.

The decision to withdraw from JCPOA is expected to have significant implications for maritime trade with Iran and the insurance of such trade, according to UK P&I Club deputy chairman Nigel Carden in a note to members and the press.

The UK P&I Club notes that the US Treasury’s Office of Foreign Assets Control has declared that the relief from US sanctions granted under the JCPOA will be removed following a 180 day ‘wind-down’ period, running up to 4 November 2018.

After that date, Iranian entities, including NITC will be back under US sanctions. According to Clyde & Co legal counsel Douglas Maag, the process of re-imposing sanctions on Iran will be a bumpy one. These sanctions were originally imposed in layers over a period of years through a series of congressional acts and presidential executive orders.

As the date for the re-imposition of US sanctions approaches, the sabre-rattling has been getting louder.

“Any hostile attempt by the US will be followed by an exorbitant cost for them,” said Sarollah Revolutionary Guards deputy commander Esmail Kowsari, speaking to the Young Journalists Club in Tehran, which was broadcast nationally in Iran and re-broadcast by Bloomberg TV.

“If Iran’s oil exports are to be prevented, we will not give permission for oil to be exported to the world through the Strait of Hormuz,” reported Bloomberg TV.

The broadcast was in response to the US State Department’s director of policy planning Brian Hook telling the media that the “goal is to increase pressure on the Iranian regime by reducing to zero its revenue from crude oil sales.”

Bitter blow

The decision to reintroduce sanctions by the US is a bitter blow for Iran. Nearly all banking transactions take place on the SWIFT (the Society for Worldwide Interbank Financial Telecommunications) system. Although SWIFT is a global system, New York is a key hub, and the Americans can shut down transactions to and from Iran. It will mean a return to the bad old days of carrying huge wads of cash to pay for business operations.

However, some countries will ignore the US-imposed sanctions. China continued to trade with Iran during the sanction era, and will continue to do so afterwards. China is the largest receiver of Iranian crude oil, sold on a sovereign basis.

For NITC, the re-imposition of sanctions is a significant setback. There had been a substantial increase in the ton-mile demand and in the post-sanction era it was looking towards an IPO, with talk of a launch in Paris (New York being out of the question).

The IPO would have funded a fleet renewal, which the company revealed in 2017. Now, according to VesselsValue, the average age of the NITC tanker fleet is 12-years. The tanker fleet is comprised of 38 VLCCs (average age 11 years), eight Suezmax (average age 15 years), five Aframax (average age 18 years) and three Handysize tankers (14 years). There are no newbuildings on order, although there has been talk of a sovereign crude oil for tankers deal with the Chinese, or even the Chinese building a shipyard in Iran.

 

The IOTC intends to expand its fleet through second-hand purchases and contracting newbuildings

Ambitious Iraq oil tanker company aims to emulate Bahri

Iraq is rebuilding its state-owned crude oil tanker fleet with the aim of emulating the strategy of Saudi Arabia

Saudi Arabia’s strategy of selling its crude oil on a delivered basis and managing the shipping of crude oil to its customers has caught the eye of its counterparts in Iraq. And by rebuilding its state-owned crude oil tanker fleet, Iraq hopes to emulate the success of its neighbour.

Under general manager Hussein Allawi, the Iraqi Oil Tanker Company (IOTC) intends to expand its fleet through second-hand purchases and contracting newbuildings. The current IOTC fleet consists of four 13,100 dwt small clean tankers: Alforat, Baghdad, Dijlah, and Shatt Al Arab. These have an average age of 11-years. There are currently no tankers on order.

According to VesselsValue, IOTC has a 22.5% share in Iraqi shipping company, Al-Iraqia Shipping Services & Oil Trading (AISSOT), which is already active in the VLCC trades, having taken the Capital Maritime and Trading-owned VLCC Basra on charter in 2017.

In November 2017, Basra left Iraq laden with what is believed to be 2M barrels of Iraqi crude oil, and arrived in the US Gulf in January 2018. The vessel appears to have spent a month in the US Gulf before heading to China.

The remaining shares in AISSOT are held by Arab Maritime Petroleum Transport Company (AMPTC). The latter is providing training for the crew and staff of IOTC.

For IOTC to achieve the same level of growth realised by Bahri would require a considerable investment. In some respects, the timing could not be better for IOTC, with VLCCs at current lows of US$82M-US$86M, depending on scrubber specification. For a relatively reasonable investment, IOTC could equip itself with a modern fleet of 2020 sulphur cap-ready VLCCs.

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