Sanctioned trades double freight earnings: Correction

Corrects attribution of initial quote and discussion of forestalled scrapping to Hugo de Stoop.

Elevated chartering rates for carrying crude from US-sanctioned countries such as Venezuela or Iran are supporting demand and prices for aging tankers, according to a shipping panel at Marine Money yesterday.

"We heard [ship operators] could earn $40,000 to $50,000 and sometimes $60,000/d, which means they can afford to buy the ships at a higher price than the scrap price, and that is what they have been doing for the last 18 months," Hugo de Stoop, chief executive of Euronav.

The one-year time charter rate for a very large crude carrier (VLCC), the largest standard-sized tanker, is $27,000-30,000/d.

Tankers more than 15 years old are selling at $3mn-4mn above their value in scrap, said Lars Bartsard, interim chief executive of Frontline, another shipping company. Those tankers are at high risk transporting Venezuelan and Iranian crude, calling it a bitumen blend or Malaysian blend and selling to China, he said.

If and when sanctions are lifted, the older tankers are likely to be scrapped because of vetting concerns and their age, shipbroker Gibson said earlier this month.

The market for such tankers will disappear once sanctions are lifted because the only reason a charterer would pay a premium rate is that the cargo being carried is heavily discounted, de Stoop said.

"The minute those barrels come back to the market they will no longer carry that discount and it will no longer make sense to pay a premium for the transportation and then [the ships] will become commercially obsolete," he said.

The discounts at which sanctioned crude is sold can be up to 40pc, de Stoop said.

Prospects for lifting sanctions may have dimmed with the election in Iran of chief justice Ebrahim Raisi, who said that he is not prepared to negotiate with the US. Venezuela sanctions relief is also a distant prospect as the US does not recognize president Nicolas Maduro and said it has no plans to ease sanctions.

"It seems with recent elections, the return of Iran to the open market may be delayed somewhat and there is further work to be done to resolve sanctions," said Lois Zabrocky, chief executive of International Seaways.

"There should still be room for Iranian barrels with the amount of demand that is being projected. Once sanctions fall away, and vessels have to trade on their merit in a transparent marketplace, then these older sanction-busting ships will go away."

By Liz Ramanand