national iranian tanker company

Reactivating the National Iranian Tanker Company Fleet, and Its Negative Impact

Jay Goodgal
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December 15, 2013

Iran Dena (IMO 9218480), image via Ships and Harbors

For the tanker market, the breakthrough in Iranian talks in November will have a significant impact on the VLCC tanker market. For curtailing its nuclear activities, Iran will benefit from approximately $7 billion in sanctions relief over the next six months. The most important impact is allowing Iran access to the oil markets and the ability of its economy to access financial markets.

It is expected that Iran should be be able increase exports back up to around 1 million barrels per day (“b/d”)  from 700,000 b/d in October. The most critical aspect of sanction relief is that Iran regains access to the marine insurance market and can again begin to insure crude shipments. Since sanctions were imposed, Iran has cut back production and stored excess volume in tankers. According to the International Energy Agency (“IEA”) , Iran currently has around 37 million barrels of oil stored in tankers.

VLCC earnings have strengthened  from August through November. In November rates reached their highest level since mid-2010, with Middle East to Japan rates peaked at nearly $55,000 per day. During the third week of November Middle East to the U.S. Gulf rates moved into positive territory for the first time in seventeen months on the back of stronger U.S. imports. Surprisingly and counter-intuitively, the increase in tanker rates occurred as OPEC output declined. The impact of Iran having access to the tanker markets will alter the structure of the current market. Substantial shipping assets will be reentering the active tanker market.

The increase in Iranian exports is likely to have a negative impact on VLCC employment as oil already stored in tankers begins to move. It will take time to fully reactivate the National Iranian Tanker Company (“NITC”) fleet, which represents 6% of global VLCC capacity and 2% of Suezmax capacity. Although the recent upswing offers much needed relief for beleaguered VLCC owners, shipowners should not expect these gains to be sustainable over the next six months as the NITC fleet enters the active tanker market. While the tanker market is expected to remain volatile through the first quarter of 2014, the gradual reactivation of the NITC fleet as well as swings in demand should have a negative impact on average spot earnings and push tanker rates, particularly VLCC and Suezmax rates, back into negative territory by the second quarter of 2014.

Jay Goodgal can be reached at [email protected]

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