Size matters: growth of the dark fleet

After former US President Trump unilaterally withdrew the US from the Iran Nuclear Deal in 2018 and reimposed all previous sanctions on Iran, Iran began to use a fleet of tankers to continue its oil exports (mainly delivering cargoes to China). Over time, the fleet grew and when ex-President Trump ordered sanctions against Venezuela in 2019, the dark fleet expanded to include tankers exporting Venezuelan crude oil.

The US-based organisation ’United Against Nuclear Iran’, which follows the Iranian oil trades closely, estimates the dark fleet had grown from 70 vessels in November 2020 to 257 just two years later.

Reputable shipowners do not want to get involved in these trades, which limits the supply of vessels available to those trading in sanctioned oil and products. This shortage in vessel supply has also made moving sanctioned barrels extremely lucrative. While this market is by nature very secretive, estimates from knowledgeable observers suggest that shipping rates for Venezuelan or Iranian barrels can be two or three times the market rate for legitimate voyages.

These premium earnings have created a strong incentive for opportunistic, less scrupulous owners to get involved in these trades. Given that the nature and longevity of these sanctions is very unpredictable, almost all tankers involved in these trades are older units. Owners of vessels buy them for the specific purpose of utilising them in these illicit trades, and they want to be able to earn their money back in a short period of time. In other words, the downside of an older (cheaper) ship is more limited. These owners buy old vessels (frequently vessels that would otherwise would have been recycled) and spend the bare minimum on repairs and maintenance.

The illegal nature of the business makes it impossible to use reputable crew managers and arranging proper insurance is difficult as well. To obfuscate the illicit nature of their employment, owners of these tankers frequently change the vessel’s name and ownership and flag them in jurisdictions that are known to be less strict. As a result of these factors, the risk that these vessels are involved in accidents is elevated and so is the potential harm that could be inflicted on the crews and the environment in case of an oil spill.

This dark fleet may grow substantially when the free flow of Russian oil is further restricted due to the implementation of the EU import ban and the G7 oil price cap, especially since President Putin has indicated he will not sell oil under the price cap mechanism. In apparent anticipation of the need for a larger dark fleet, sales of second-hand tankers have been brisk this year, despite the fact that prices for older vessels have increased markedly over time. At least 60 VLCCs, 42 Suezmax tankers and 93 Aframax tankers have changed hands year-to-date, with an average age of more than 15 years.

*Part of this article first appeared on Poten & Partners’ website and is reproduced here with permission.

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