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Premiums for ships loading from Iran to rise as US sanctions loom

Singapore — As the deadline for US sanctions on Iranian crude oil draws near, loadings are still going on from Iran and some shipping companies view it as an opportunity to get hefty premiums, market participants said late last week.

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"Iranian crude loadings for export will continue even after the US sanctions are fully implemented. It will not stop completely. Somehow companies will manage to [ship out]," a chartering executive in Houston said.

New companies that do not have any connection with US banking, insurance or currency system, might be created to continue Iran-related businesses without contravening US laws, he said.

The US sanctions on Iran will come back into effect on November 4. Many companies have already ceased trading with Iran, shipping sources said.

The time difference in purchase, delivery and payments for a cargo could result in transactions initiated before the sanctions being completed after they come into effect. Due to this, some companies might attempt to charge higher freight for calling at Iranian ports, a VLCC broker said.

Apart from state-owned National Iranian Tanker Company, Greek shipowners already dominate crude exports from Iran, with 81 tankers moving Iranian crude since January, VesselsValue, a UK-based shipping consultancy estimated.

From September, S&P Global Platts started assessing freight premiums for Suezmaxes loading from Iran. The Worldscale premium for the Persian Gulf-UKC route was assessed at w32.50 on Monday, which translates to $8.30/mt.

Once the sanctions are fully implemented, the freight for loadings from Iran will go up across the board.

"The exact Iran premium will depend on the daily market. It will have to be enough to cover additional insurance costs and the business risk of restrictions on trading at US ports after loading a cargo in Iran," Court Smith, an analyst with VesselsValue, said. This will vary depending on the owners, he added.

S&P Global Platts Analytics estimates that some 1.4 million b/d of Iranian oil might be taken off the market by November. This means that Iran is likely to continue to export sizeable volumes even after the sanctions come into effect. Last year the country exported close to 3.8 million b/d, according to industry estimates.

So far around 155 VLCCs and Suezmaxes have undertaken close to 350 voyages from Iran, according to VesselsValue so far this year.

The US sanctions against Iran could mean more business for shipowners and operators who never call at US ports. They will face less competition as Iranian crude oil flows East instead of to the Mediterranean, Peter Sand, chief shipping analyst with BIMCO, said. Different trades have different rates depending on many factors, including political repercussions for the shipowner and operator, he added.

SHIFT TO WEST AFRICAN, MIDDLE EAST CRUDES

The most traded Iranian crudes are its Heavy and Forozan grades, which can be substituted with Basrah Light, Arab Medium, Oman and Kuwaiti Export Crude, a VLCC broker said.

European buyers are likely to replace Iranian crude with West African grades, which can be seen already.

Iranian crude has more sulfur content, but European refiners should be able to take advantage of the low sulfur WAF or Angolan crudes with similar APIs, VesselsValue's Smith said. The voyage from West Africa to Europe is shorter at 14 days compared with 16 from Iran, if there are no issues in the Suez canal, he said.

AFRAMAX PREMIUMS TO RISE

Fuel oil trade from Iran will also be affected by the sanctions. Iranian loading premium is already around w20-w30 points. Fuel oil is the main driver for Aframax demand in the Persian Gulf, including Iran. These loadings are mostly from Bandar Mahshahr, Bandar Abbas and Bandar Imam Khoemeni and the cargoes are usually for delivery to East Asia.

Trading companies bring these cargoes to Asia where blending and change in documentation such as the bill of lading, ensure that they can be delivered to the final destination without any hindrance, an Aframax broker in Singapore said.

Many owners, including some of the Greeks, have stopped loading cargoes from Iran due to a lack of Protection and Indemnity cover, which automatically becomes non-operational if the voyage involves Iran.

Nevertheless there are others who take the risk of picking up cargoes from Iran, staying under the radar and hoping that claims under the P&I cover will not arise, the broker said.

--Sameer C. Mohindru, sameer.mohindru@spglobal.com

--Edited by Liz Thang, elizabeth.thang@spglobal.com