Iran Sanctions Relief: Updated Analysis
Sept. 2, 2022
Following the Trump administration’s decisions to reinstate sanctions on Iran to thwart its nuclear ambitions, Iranian crude oil production averaged about 3.0 million b/d in 2021 and 2022ytd. In a sanctions-relief scenario, we anticipate that Iranian production will regain the 4.0 million b/d within 15 months.
At the same time, we project Iranian crude oil exports to have settled at 0.9-1.0 million b/d, a derived figure after subtracting domestic refinery demand and condensate splitter utilization. Regarding the latter, we estimate that approximately 27 Iranian-owned (NITC) VLCCs are engaged in floating storage operations. This suggests that approximately 11 NITC VLCCs are being utilized for trading (Figure 1).
Going forward, we are unable to predict whether or not Iranian sanctions will be lifted, although the introduction of Russian crude oil sanctions, which are scheduled to come into full force in Q1 2023 (EU will prohibit insurance coverage for all Russian oil trading; currently allowed for non-EU countries), has increased the probability that a deal could be reached in order to solve the impending supply deficit. Therefore, we have analyzed the impact on tanker fundamentals in a sanctions-relief scenario.
Non-sanctioned Iranian crude oil is projected to be distributed more evenly across China, Other Asia, Europe and India basis historical observations, while Suezmaxes are likely to encompass a significant amount of the volumes. As such, we project that in a relief scenario, VLCC demand equivalents are likely to remain stable in 2023 before increase to 37 from a current 32 (21 Ghost Ships + 11 NITC VLCCs). However, we note that in this scenario, NITC VLCCs re-allocated to trading would increase by 17, leaving only 4 VLCC demand equivalents for traditional owners. This figure increases to 9 in 2024+, assuming Iranian production settles at 4.0 million b/d. While we acknowledge the positive impact on demand, we conclude that the net impact is marginal.
In this year’s Mid-Year Update, we further enhanced our ton-day data capturing process to separate sanctioned and ghost fleet (15y+ tonnages sold to unconventional owners) from the traditional “old tonnage”. Considering 40% of ghost ships have been observed loading Iraq, STS SE Asia or turned transponders off (increases likelihood of trading illicit cargoes), we applied a 70% efficiency factors on their utilization – a downside adjustment on the tanker supply. However, lack of demolition activity could still put downward pressure on VLCC freight rates through 2023.
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