Oil companies to avoid Iranian blacklisted vessels

At least three Indian oil refiners and a global energy major plan to avoid using vessels on Iran's new blacklist, due to heightened security concerns, according to sources with direct knowledge of the matter. Tehran announced on Sunday a blacklist of 45 ships that are said to have violated its rules for crossing the Strait of Hormuz, threatening action against any vessels conducting ship-to-ship (STS) transfers with them. This move is designed to impede the so-called shuttle runs by Gulf oil producers such as the United Arab Emirates and Saudi Arabia, which use dedicated tankers to move oil through Hormuz for unloading in the Gulf of Oman via STS transfers to end-users.

Impact on Middle East oil flows

The shuttle system has become an essential workaround for Gulf exporters during the crisis, with the UAE accounting for around 1.3 million barrels per day and Kuwait 940,000 barrels per day, according to Vortexa. Braemar, a broker, warned that 12 Very Large Crude Carriers (VLCCs) named by Tehran had carried around 900,000 barrels per day, equivalent to 16% of all crude lifted from inside the Middle East Gulf since the collapse of the US-Iran memorandum of understanding in early July. More significantly, these ships accounted for around 750,000 barrels per day, or 24%, of crude subsequently transferred ship-to-ship outside Hormuz. Iran has threatened blacklisted vessels with fines, detention, and cargo confiscation, and warned that ships conducting STS operations with them could also be added to the list. This is already having an impact, with at least three Indian refiners and a global energy major planning to stop using blacklisted vessels, as reported by Reuters.

Market reactions and alternatives

Several charterers and shipping firms are evaluating Iran's warning and discussing internally whether to continue their STS operations or not. Ana Subasic, a trade risk analyst at Kpler, stated that the most compliance-sensitive buyers are expected to avoid these vessels moving forward, but the trade is more likely to reroute through alternative tonnage, counterparties, or transfer locations. "We will avoid our chartered vessels dealing or STS or anything to do with non-compliant ships for Middle Eastern cargoes," said one of the sources, working at an Indian refinery. Some of the named ships are owned or chartered by Saudi Aramco and Abu Dhabi National Oil Co (ADNOC).

What this means for operators

The decision by oil companies to avoid using blacklisted vessels will affect the Middle East oil transfer system, potentially leading to increased shipping costs and logistical challenges. Operators may need to find alternative routes or vessels to continue their operations. The shuttle system, which has kept alive Middle East oil flows, may face disruptions if more charterers and shipping firms decide to avoid the blacklisted vessels. This could result in higher premiums for vessels still willing to transit Hormuz and engage in STS operations.