When the re-election of President Trump was all but confirmed in the early hours of 7th November 2024, much was written about the potential for his administration to bring about a significant shift in the geopolitical state of play. In our IG Research opinion piece following the election, we highlighted the relationship with China as being a potential key factor in the health of tanker markets over the near/medium term.
Well, only 9 days into 2025 and Trump still 11 days away from the White House, already there has been a series of policy changes. Both the Biden and Chinese administrations have enacted some interesting policy changes, which have, at the very least, the potential to set the direction of travel over the coming years.
On the 6th January the Shandong Port Group announced they are denying entry and port services to any vessels that have been defined as sanctioned; either by OFAC, by relevant publications, or by their own management. At the time of writing the OFAC list contains a total of 723 vessels, of which 322 are tankers.
The Port of Shandong plays host to a significant amount of Chinese crude imports, particularly for those Iranian barrels heading into independent refiners in the province. Based on AIS flows, Shandong accounted for approximately 3m b/d of crude imports across 2024, of which around 16% of these volumes were carried on OFAC listed vessels. In total 61 individual OFAC listed vessels discharged at least once in Shandong during 2024, of which 43 were VLCCs. With most sanctioned barrels being lifted on non-OFAC designated vessels, the immediate impact on the freight market is likely to be relatively limited, with imports shifted to these non-OFAC listed vessels.
If the US administration continues to target ‘dark fleet’ vessels with OFAC designations, there does exist the potential for a combination of tightness in vessel supply as independent refiners compete for a shrinking pool of vessels willing to lift sanctioned barrels, whilst simultaneously not yet being listed by OFAC. In the longer term, and very subject to the US administration’s willingness to tighten the noose, more vessels being added to OFAC could trim Iran’s export abilities, leading to reduced production and a window of opportunity for market barrels to move into the space, helping to increase utilisation of the market-based fleets.
The day after the Shandong announcement, the US administration moved to designate a swathe of businesses as ‘Chinese Military Companies’ – including COSCO and shipbuilder CSSC. Nominally this move effectively bars the Pentagon from contracting with companies on the list from June 2026 and stops short of any imposition of wider restrictions or sanctions. This has brought barely any change to underlying freight levels, with earnings remaining pretty flat in recent days. However, across the tanker market this latest move will undoubtedly bring back memories of the 2019 COSCO sanctions, and the dramatic spike in freight caused in the immediate aftermath. VLCC earnings hit a peak of around US$ 275,000 / day, although many vessels fixed at the peak subsequently failed. Earnings remained comparatively elevated until the sanctions were lifted at the end of January 2020.
With COSCO controlling around 6% of the VLCC fleet, prolonged or significant tightening of sanctions could lead to substantial disruption to the larger crude tanker segments, with some significant upside to freight. In a relatively challenging freight environment for crude tankers at present, such a move could help provide the catalyst for a freight recovery across 2025. However, at present, this remains a hypothetical.
Realistically, in isolation these two policy developments from Shandong and the US do not look set to have much significant impact on freight in the near term. More pertinent, however, is the direction of travel that these moves could indicate. With Trump’s second term now just around the corner, it is well within the realms of possibility that these policies simply mark the opening salvo in an increasingly fraught relationship between the US and China. More stringent sanctions create the potential for upside to the tanker markets as market-based tonnage and barrels fill any gaps left, although a wide-ranging trade war could harm the fragile nature of the current global economic picture. Plenty to consider in the early weeks of 2025!
For more information on this topic and others, please do reach out to us at [email protected].