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Crude tanker rates surged last week in response to the announcement of another round of sanctions on the Russian energy sector, starting with a 50% increase in VLCC rates on Monday. We spoke with Marsoft’s Kevin Hazel and Lucas Avelar to get their assessment of the impact of the latest sanctions.
Multiple rounds of sanctions on Russian oil have had limited impact on Russian exports, oil prices, or tanker rates. Is this round going to be any different? They could have a big impact. If 3% of the fleet is truly removed from trading, rates should hit $100k/day, even if they start from $20k/day before the sanctions were announced.
Do the sanctioned tankers really amount to such a large fraction of the tanker fleet? A total of 183 vessels, 143 of which are oil tankers and roughly half of which are Aframaxes or LR2s have been sanctioned. The sanctioned tankers accounted for:
Roughly 7% of the Aframax fleet and about 3% of the total tanker fleet as of the end of 2024.
About 40% of Russia’s total seaborne crude exports in 2024 (Russian exports accounted for about 11% of the volume of oil traded in 2024).
Are the Chinese and Indian importers likely to abide by the sanctions? Both India and China initially signaled compliance with the sanctions, temporarily stranding several cargoes of oil aboard tankers just outside their ports. They have since indicated a willingness to receive the oil until the end of the transition window, which expires in March. Notably, Chinese private refiners have routinely purchased sanctioned oil through methods like ship-to-ship transfers to obscure its origin, largely without government reproach. However, this inefficient trade is unlikely to scale with the increased number of sanctioned vessels.
What has to happen to see rates rise to $100,000/day? Assuming that the sanctions hold steady throughout 25Q1, and that China and India do indeed comply with them throughout the period, we would see substantial changes in our forecast. We would expect tanker fleet utilization to increase by as much as 3%, with crude tanker rates likely rising above $100,000/day in response.
Do you think that is realistic? The shipping market has proven adept at bypassing sanctions in the past and it is likely that it will continue to be successful in that regard. There are a several forces which may moderate the market’s response:
Trump could deem the sanctions unnecessary, harmful to domestic energy prices, or prefer to use other methods, such as tariffs.
Should tariffs imposed by the US government ignite a trade war, China would be unlikely to comply with sanctions imposed by the US Department of Treasury. Its internal prohibition of sanctioned oil in the Shandong port would likely end, and its refineries would welcome Russian crude once more.
Overall, we believe it is unlikely that the sanctions will be enforced in full. Nevertheless, there is great uncertainty in the market, and the threat of enforcement should keep rates healthier than at the start of the year. We will monitor developments closely over the coming month and will update our analysis of their impact on the tanker market in our 25Q1 Tanker Market Report, scheduled to be completed at the end of February.