10-05-2018

Analysis: Global shipping industry braces for new sanctions on Iran

The US decision to reinstate sanctions on Iran over its nuclear program, may result in more trade, to and from the Persian Gulf country, on ships controlled by European companies, but credit finance related hassles cannot be ruled out, market participants Wednesday said.

The development is significant as it can have serious implications on trade flows with billions of dollars worth of commodities being moved regularly in and out of Iran by trading and shipping companies such as Vitol, Glencore, Torm and Maersk Tankers.

“The main issue of concern is credit financing because almost all major international banks have transaction linkages with New York,” a Singapore-based ship chartering executive with a global commodities trading company said.

Companies rely heavily on rolling credit from their banks and in the event of sanctions being reimposed, it would have to be ensured that such transactions were above board, the executive said.

His company regularly trades in cargoes of Iranian origin and the executive said most of this business was already being transacted in euros.

However, he said the banks that handle these transactions also had a huge exposure to US businesses. Depending on the clauses of the proposed new sanctions, banks might decline to undertake transactions related to the Iranian business.

On January 16, 2016, also called Implementation Day, international sanctions on Iran were mostly suspended, allowing businesses across the globe to resume trading.

However, the vast majority of “primary sanctions” applicable to US citizens and companies domiciled in the US remained in effect at the time and they were prohibited from doing business with Iran.

Subsequently, with US government approval several companies in the US and those with American linkages also commenced business with Iran. Shipping industry officials said that now, at some stage, these business dealings with Iran might have to be wound up.

As a result a lot of businesses, including ships that were chartered would be sourced from owners that were based in Europe, market sources said. To a large extent this was already happening with ships controlled by owners in Greece having a significant share in Iran-related shipping traffic.

“Our company is based in Copenhagen but we also have shareholders in the US and so far we have been able to do Iranian business,” an official of one such company said.

“As of now there is no injunction for us to stop but the sanctions are yet to be implemented,” the official said.

Shipping companies had pinned their hopes on the fact that unlike the past when comprehensive international sanctions were imposed on Iran, this time it was only the US that had declared its intention to do so.

This left enough leeway with the rest of the world to continue to do business with Iran to the extent possible.

The industry was also optimistic of obtaining a grace period in the run up to the new US sanctions, if any.

“Our legal team is yet to update us on the implications of the move but there may be a delay in enforcement,” a Singapore-based chartering executive with a major tanker shipping company said. A few other shipping companies also echoed this sentiment and said that as of now the lifting of Iranian cargoes was expected to continue.

NAPHTHA, CONDENSATE

While the Iranian crude flows may be most affected by the US’ move, it will also hit their exports of naphtha and condensate, market sources said.

In the past, when stringent international sanctions were imposed on Iran, some of their oil product cargoes would find their way to Fujairah and Sohar where they were blended and re-exported as cargoes of UAE or Oman origin, a chartering executive familiar with the developments.

Such activities cannot be ruled out under any new proposed sanctions regime to prevent shipping and trading companies from falling under the wrong side of law, the executive said.

As increasingly more shipping companies have gotten comfortable handling cargoes to and from Iran, the freight premium that they enjoyed has dwindled in the last two years. The situation can now potentially reverse, market sources said.

INSURANCE COVER

Since 2016, a system was gradually put in place to resume insurance cover for the Iranian fleet, and also voyages to Iranian ports of ships carrying the flag of other countries. This will now come under review.

“If new sanctions are put in place, there will certainly be an impact on the ways to handle claims that will be generated in Iran,” a P&I Club executive said.

However, no details have been divulged on the implementation of such sanctions and their timeline, he said. Since it is so far an “announcement of intent”, a short term impact is unlikely, though the P&I clubs are expected to issue some guidance for their members soon, he added.

Source: Platts

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