A SUPER-charged sequel to Donald Trump’s so-called ‘maximum pressure’ sanctions campaign promises, on paper, to drive Iran’s export of oil to zero, stemming the flow of discounted crude to China and impounding dark fleet* tankers along the way.

But even as he was signing the executive order on Tuesday night, the US president was touting an alternate scenario that could see legitimised Iranian crude rapidly returning to the market via a nuclear ‘deal’. 

While the long-awaited executive order on Iran may have finally arrived, it has failed to eliminate much of the uncertainty about how this ultimately plays out for shipping.

The immediate implications, however, are net positive for the tanker markets.

In the extreme scenarios that maximum pressure 2.0 somehow manages to eliminate the 1.3m barrels per day that Tehran continues to export in the face of existing long-standing sanctions, it would yield an incremental demand for around 45 compliant VLCC equivalents. That’s around 4%-5% of tonne-mile demand heading back into mainstream trading.

The likelihood of that scenario playing out quickly is widely considered to be unrealistic, but the presidential plan was sufficient to send tanker stocks surging in the wake of Tuesday evening’s announcement.

While the details of the promised maximum pressure campaign are yet to emerge, the specific promise to reduce exports to zero, “including exports of Iranian crude to China”, implies that trade will come in for specific attention. 

The possibility of sanctions or retaliation on Chinese port operators will mean that the ports are very likely to utilise “clean” vessels with no OFAC sanction designations. This increases the freight cost for end buyers in Shandong, which will likely drive operators to push for steeper discounts from Iran.

“We’ve already seen increased instances of deceptive tactics in terms of discharges in Chinese ports without AIS on, and other vessels spoofing AIS signals to disguise an STS discharge in another location,” explained Vortexa tanker analyst Mary Melton. 

“Non-Shandong port discharges have also occurred, which will likely eventually end up at Shandong refineries from a vessel undertaking a seaborne voyage,” Melton continued.

Additionally, Iranian cargo buyers will have to also compete with the small pool of non-sanctioned Russian-trading vessels that are facilitating Russian crude from Kozmino to China. We think it likely that there will also be increased use of STS operations to expedite the logistics of this trade.

There is also the question of how much room the Trump administration has to expand the already extensive array of sanctions targeting Iranian oil exports.

According to UANI’s analysis of Iranian exports, there are 503 vessels totalling 61.3 dwt that carry cargo for Iran. Only 41.2% of the Iran-trading fleet is sanctioned by the US, suggesting that there will be an imminent slew of designations coming out of the Treasury’s Office of Foreign Assets Control. 

Expanding unilateral sanctions will likely only get the US so far though. Trump may need to seek co-operation from allies, particularly the European Union, to further tighten the screw.

There is also the possibility that Trump could go for secondary sanctions on Malaysian transhipment hubs or Chinese ports or oil buyers, to the extent buyers are not already outside the US dollar system. 

Secondary sanctions also come with the possibility of ancillary benefits (from Trump’s perspective) in that they could be used as another stick to compel unaligned countries, including current US allies, to align with US objectives regarding Russia, Iran or other national security priorities, such as China. 

That, of course, assumes that a “verified nuclear peace agreement” does not outpace the promised maximum pressure clamp down. 

In a post on his Truth Social platform on Wednesday, Trump said reports that the US and Israel were preparing to “blow Iran into smithereens” were “greatly exaggerated”. A deal, he explained was much preferred.

In the hypothetical scenario that Iran could reach an agreement to lift sanctions, it would still need to turn to the mainstream tanker fleet to take advantage of unsanctioned trading, presumably without the current levels of discount that have made China and India so willing to buy it.

Iran’s directly controlled tanker fleet has been sanctioned for so long now that it is too old and too risky to consider reintegrating the majority of tankers back into mainstream trades. 

Whether those ships could even be considered scrap candidates remains open to question, given the current legal and political risk associated with them.

Combative response

For now though, that all remains entirely hypothetical given that Iran’s initial response to Trump’s second imposition of maximum pressure tactics has been predictability combative. 

Iran’s oil minister Mohsen Paknejad insisted on Wednesday that the US sanctions had already failed and they would not prevent the country from selling its crude abroad.

He also stated that Iran is preparing to finalise a significant agreement regarding the export of hydrocarbons. While the statement, reported by Iranian state media, failed to offer up any details of the deal, it promises to be “one of the largest oil agreements in the country’s history”, according to Paknejad.

Despite the rhetoric, the likely simultaneous approach of using maximum pressure while pushing for a peace deal with Iran will continue to inject complexity and volatility into the market.

“We can expect to see sanctions play an increasing role in geopolitical negotiations, alongside the use or threat of tariffs,” Reed Smith partner Leigh Hansson said.

Given China’s declining demand for Iranian oil, recent developments that have badly weakened the regime, and Trump’s desire to burnish his credentials as a diplomatic dealmaker, a deal between Iran and the US is potentially possible.

“A ‘nuclear peace agreement’ would undeniably be a significant coup for the Trump administration and could ultimately encourage an even more transactional approach to sanctions over the remainder of his term,” Hansson said.

* Lloyd’s List defines a tanker as part of the dark fleet if it is aged 15 years or over, anonymously owned and/or has a corporate structure designed to obfuscate beneficial ownership discovery, solely deployed in sanctioned oil trades, and engaged in one or more of the deceptive shipping practices outlined in US State Department guidance issued in May 2020. The figures exclude tankers tracked to government-controlled shipping entities such as Russia’s Sovcomflot, or Iran’s National Iranian Tanker Co, and those already sanctioned.