the “s” factor – how geopolitics is shaping energy

Information Classification: General

The “S” Factor – How Geopolitics is Shaping Energy

Commodities Shipping

Michelle Wiese BockmannMarkets Editor/Analyst

Lloyd’s List [email protected]@michellewb_ (Twitter)+ 44 7757 564413

mailto:[email protected]


Geopolitics in shipping

brought to you by the

letter “S”

Iranian and Venezuelan subterfuge shipping strategies to circumvent sanctions are shaping energy commodities shipping markets.

• Sanctions

• Storage

• Ship-to-ship transfers

• Spoofing

• (Synthetic Aperture Radar technology offering visibility to subterfuge strategies)

These are dominant factors, alongside other “S” factors affecting tanker demand and earnings

* Scrubbers

* Scrapping

* Supply


Sanctions – Iran, Venezuela (plus

Syria, Libya, China, Russia…)

• Iran/US conflict -- “maximum pressure” campaign expanding - Jan. 10 now takes in construction, manufacturing, mining, textiles industries

• EU-UK-Iran-US political nexus - the end of JCPOA?

• scrutiny from multiple government agencies globally intensifying

• risk mitigation measures from shipping companies and marine service providers not keeping pace with enhanced scrutiny and technological advances that allow contraventions to be exposed.

• Iran artifice: AIS manipulation/STS transfers/going dark/spoofing/multiple name changes, flag-shopping/complex and opaque ownership chains.

• Older tonnage focused/purchased since late 2018 specifically for evasive logistics networks


OFAC director Andrea Gacki has done more to disrupt global shipping than any other Washington DC bureaucrat in decades as she overseas the mercurial policy whip-lashings of the Trump administration

US foreign policy leaves tanker and energy commodities market one OFAC designation away from boom or bust in 2020


• OFAC sanctions perceived by shipping industry to be a disruptive, high-cost measure that is inconsistently and unfairly applied

• ‘Second wave’ enforcement under way; shipping industry under greater scrutiny


“Regulators are looking to commercial organisations to be the police force”Daniel Martin – London-based maritime lawyer, HFW, December 2019

“They were incredibly assertive. It was made very clear that they have a willingness to use every tool at their disposal to enforce their policy. These restrictions on trade are being used as a weapon to promote diplomatic foreign policy objectives. These may be objectives which we might not necessarily agree with… but they leave us with legal options that we can’t do anything other than comply.The US is wanting to put pressure on third parties to act as policemen which we really think is the job of government and US trading partners.”Simon Bennett International Chamber of Shipping (after Nov. 2019 meeting with US State Department official David Peyman, deputy assistant secretary who leads sanctions policy and implementation)


NITC tankers deployed for floating storage

Concentration around STS areas off Malaysia

Spoofing/MMSI number confusion obscures some locations

AIS signals for Suez/Singapore transits/Chinese ports only


The Subterfuge fleet – Iranian-

owned/controlled with Chinese

support

Identified via geospatial analysis/vessel tracking/monitoring ship-to-ship transfers/cross-referencing ownership and management chains

• 97 vessels

• 76 crude tankers

• 7 LPG gas carriers

• 48 very large crude carriers in total (43 flagged by Iran – or being deflagged to Iran, including 38 owned by NITC)

• 16 Suezmax tankers, 12 aframaxes

• Series of VLCCs (average age 19 years) purchased since late 2018 through to mid-2019 for express purpose of STS logistics.

• Shanghai-based Kunlun Holdings/Cosco tanker subsidiaries owners of some of these VLCCs/gas carriers

• Not all are sanctioned


Flag composition changing as monitoring and compliance steps upSeptember 2019 versus January 14, 2020


After Panama de-flagging finishes this week“Panama, the world’s largest flag registry, moves to de-flag seven tankers and investigates a further two liquefied petroleum gas carriers for US sanction violations” LL 14/1

Flag-shopping - reflagged to smaller registries, including Gabon, Belize and Honduras.

Liberia/Panama/St Kitts St Nevis deflagged Iran-flagged/controlled tankers/gas carriers over 2019


Issued: Subject: DEPARTMENT OF THE TREASURY WASHINGTON, D.C. 20220

OFAC Advisory to the Maritime Petroleum Shipping Community September 4, 2019Sanctions Risks Related to Shipping Petroleum and Petroleum Products from Iran


Lack of OFAC guidance/certainty

• September, 2019: 21 of 97 ships entered by the International Group of P&I Clubs. January, 2020 – only six remained entered.

• Secondary US sanctions can be imposed on anybody “knowingly providing significant financial, material, technological, or other support” to activities or transactions that benefit the energy, shipping or shipbuilding sectors of Iran, according to section 1244 of the Iran Freedom and Proliferation Act of 2012.That includes NITC and its fleet.

• “what might be a material or significant service to them? That’s an open question that’s completely unanswered”

• Polish Register flagged 14 NITC tankers since February 2019


Secondary sanctions haphazardly applied

• Further, non-U.S. persons that knowingly own, operate, control, or insure a vessel that transports crude oil from Iran to Syria or other countries that have not received a significant reduction exception pursuant to section 1245 of the National Defense Authorization Act for Fiscal Year 2012 could be subject to secondary sanctions under the Iran Sanctions Act.


Ship-to-ship transfers


Venezuela’s ‘copy-cat’ tactics via Rosneft


Synthetic Aperture Radar – nowhere to hide


Saudi vessels 'go dark' despite safety and security advice from its own insurers and the US government, and in contravention of the Safety of Life at Sea Convention


AIS regulatory intention


Middle East Geopolitical Madness


• Strait of Hormuz tinderbox. • Limpet mines used to attack

commercial vessels, dark activity commonplace

• UK flagged vessels accompanied by naval military escort since August 2019. US naval mission established in January.

• Some 20 million bpd crude and refined products transits daily.

• War Risk surcharges applied since first attack off Fujairah in May


Sanctions removing tonnage from market supporting tanker earnings recovery


Tanker market recovery from 4Q19


Sanctions implications for tonne-mile demand – surprisingly negative


Floating Storage Supporting Earnings


Spoofing

• GPS spoofing involves ships’ receivers being tricked with counterfeit satellite automatic identification signals generated to gain control of a navigation system.

• This can take the vessel off course or show it in a different location.

• The US Maritime Administration warned August 8 that vessels could be subject to GPS interference, bridge-to-bridge communications spoofing and communications jamming in the Strait of Hormuz as well as the waters off Oman and in the Middle East Gulf.

• Two incidents cited but vessels not mentioned.


Stena Impero seizure by Iran guard corps


• “Looking at the raw AIS data for the Stena Impero around the time of the incident, there are some strange AIS messages which indicate the GPS used in the AIS message may have been spoofed”: Lloyd’s List Intelligence analyst Rosie Boyle.

• Messages were not processed and thrown out as they were at odds with the speed and trajectory of the vessel

• Message timestamp messages and latitude and longitude co-ordinates did not match -- indicators that suggest Stena Impero was “spoofed”.

• Iran is using GPS jammers to interfere with navigation systems from the island of Abu Musa, an unnamed US defence official told CNN August 2019.


Scrubbers, Scrapping, Supply(Watch out for slow-steaming if marine fuel oil prices keeping rising too)


Extended Sanctions/UN Sanctions Reimposed?

• On 10 January 2020, President Trump signed into effect a new executive order targeting Iran’s construction, mining, manufacturing and textiles sectors, on the basis that revenues derived by the Iranian Government from these sectors “…may be used to fund and support its nuclear programme, missile development, terrorism and terrorist proxy networks, and malign regional influence”.

• The effect of the EO will likely be to further reduce trade involving Iran, limiting trade to mainly that involving humanitarian and food cargoes, and supply of medicine / medical items.

• Also on 10 January 2020, OFAC announced the designation of a number of companies, individuals and one vessel under Executive Order 13871 which came into effect on 8 May 2019 and targets Iran’s trade in steel and aluminium: https://www.steamshipmutual.com/liabilities-and-claims/sanctions/iran/new-us-executive-order-iron-steel-aluminium-copper052019.htm

https://www.treasury.gov/resource-center/sanctions/Programs/Documents/20200110_iran_eo.pdf

https://www.steamshipmutual.com/liabilities-and-claims/sanctions/iran/new-us-executive-order-iron-steel-aluminium-copper052019.htm


Volatility

• Volatility from geopolitical will persist into the first months of the tanker and energy commodities market this year – the only question is for how long.

• Agile traders and shipowners who correctly assess the impact on energy commodities shipping will profit in 2020