The cost of shipping oil from the Middle East to China surged by over a third in the wake of new US sanctions targeting 183 tankers carrying Russian and Iranian oil on Friday, according to a Reuters report.
Freight rates for very large crude carrier (VLCC) tankers capable of carrying 2 million barrels of oil on the route hit $37,800, marking a 39% rise compared to last Friday.
The increase reflects a determination by China, the world's top oil importer, to avoid sanctioned tankers and buy up oil from Arab exporters unburdened by sanctions.
The US Treasury Department on Jan. 10 sanctioned 183 tankers transporting Russian oil to China and India.
At least eight were also involved in carrying sanctioned Iranian oil.
Last year, the US sanctioned 139 tankers carrying Iranian oil and more than 100 tankers were also blacklisted in the previous years. However, nearly 500 tankers in total are involved in smuggling Iranian oil, according to advocacy group United Against Nuclear Iran.
Around half of the "dark fleet" carrying Iranian oil has been added to the US blacklist in recent months, senior analyst at commodity intelligence firm Kpler Homayoun Falakshahi told Iran International, presenting Iran with logistical challenges in transporting oil to its top customer by far, China.
The new sanctions targeting tankers are likely more problematic for Iran than for Russia. Russia is permitted under US and EU sanctions to export oil below the $60 price cap and can even insure these exports through Western companies and use European tankers to deliver oil to China and India.
US sanctions allow no such exception for Iran, which is prohibited from selling oil at any price.
Still, the Shandong Port Group - operator of the largest oil terminals receiving Iranian, Russian and Venezuelan oil - banned the entry of US-sanctioned tankers last week.
Iran's daily oil exports to China have fallen by about half a million barrels over the past three months compared to previous months, reaching 1.3 million barrels, Kpler’s data shows.
Just over a third of around 669 tankers transporting Russian, Venezuelan and Iranian oil are subject to some form of Western sanctions, Lloyd’s List Intelligence reported.
Most of these aging tankers, managed by non-Western companies, operate clandestinely by turning off their automatic identification systems (AIS) to smuggle oil to markets in India and China. Many of these vessels are linked to Iranian oil smuggling operations.
During last year, Shandong ports received 1.74 million barrels per day of oil from Iran, Russia, and Venezuela, accounting for nearly a fifth of China’s total oil imports, according to Kpler.
The total volume of Iranian oil unloaded at all Chinese ports last year was around 1.46 million barrels per day, it added.
Chinese refineries have resorted to more buying from Europe, Africa and Arab states in response to the sanctions, Reuters reported citing oil trade sources.
The price of the OPEC oil basket, which largely reflects oil from Persian Gulf’s Arabic states, has surged by $4 in recent days to about $82, signaling rising demand for their oil in Asian markets.