Four major oil trading firms, including Trafigura (Pte. Ltd.) and Vitol Group, are negotiating with the U.S. government to reactivate approximately 50 sanctioned oil tankers, a move aimed at alleviating a critical shortage of vessels that has driven international oil shipping costs to historic highs. The U.S. Treasury Department is separately considering granting individual licenses for these vessels to be used in legal oil transport.
The talks, reported by Bloomberg, involve Trafigura, Vitol, Mercuria, and ADNOC, the national oil company of the United Arab Emirates. They are seeking permission to purchase or lease about 50 of the roughly 1,600 tankers currently under U.S. sanctions. Instead of a broad easing of sanctions, the U.S. government is leaning toward approving these transactions on a case-by-case basis, according to sources familiar with the matter. However, no final decision has been made on whether to grant the approvals.
Rising Transport Costs Drive Push for Sanctioned Tankers
The primary reason for the trading firms’ push is a severe shortage of oil tankers that has caused freight costs to skyrocket. Military conflicts, including a U.S. and Israeli attack on Iran in February, have disrupted international oil supply chains. Risks in the Strait of Hormuz, a key oil transport route, have forced ships to take longer routes and pay higher insurance premiums. The cost of transporting U.S. crude oil to Asia via very large crude carriers (VLCCs) surged to about $40 per barrel last month, an eightfold increase from a year prior. While these costs have since moderated, they remain at historically high levels, contributing to international oil prices hovering around $100 per barrel.
A Plan to Convert ‘Illegal’ Vessels to ‘Legal’ Ones
The U.S. government has publicly discussed a plan to integrate sanctioned tankers into the legal maritime transport market. Energy Secretary Chris Wright stated last month that the administration is working with investors to purchase and repair sanctioned tankers for legal oil transport. This initiative is described as converting illicitly used vessels into legitimate ones. The core of the plan is not to unconditionally return all sanctioned ships to the market, but to allow them to be sold to approved buyers and used only for sanctioned oil transport. This approach aims to alleviate the vessel shortage while preventing new funds from flowing to entities involved in sanctioned oil trades. As of November 4, 1,568 vessels were under U.S. sanctions, including 462 oil tankers, many of which are reportedly operating as “shadow fleets” to evade detection.
Uncertainty Over Impact on Oil Prices
The potential impact of reactivating these sanctioned tankers on oil freight and global oil prices remains uncertain. The effectiveness depends on whether the approved vessels can actually add new transport capacity to the market. Reactivating idle tankers, like the ‘Skiper’ vessel anchored off the coast of Texas, would be more effective at increasing supply than merely changing the legal status of ships already operating as shadow fleets. Other variables include the age and condition of the sanctioned vessels; many are older than the average commercial fleet, raising concerns about their safety and suitability for long-haul routes. U.S. approval does not automatically lift all international sanctions, as the European Union and the UK also impose separate regulations on vessels involved in transporting sanctioned Russian or Iranian oil. The final effectiveness of this move is contingent on the actual approvals from the U.S. Treasury, the condition of the vessels, and the overall supply and demand dynamics in the global shipping market.
