Tighter Shadow Fleet Sanctions Set to Boost Legitimate Tanker Owners
Reports that Mercuria is ordering up to four new 307,000-dwt VLCC tankers from Dalian Shipbuilding Industry Co in China, in a contract apparently worth up to $500 million, are a significant indication of a developing trend.
Historically, Mercuria has not been much of a ship owner, focusing instead on its trading activities, and either chartering tankers or in effect buying the shipping it needs as part of its trading in cargoes. But being focused on trading activities, Mercuria has a sharper nose for future trends in the market than most.
In early 2024, Mercuria signed a deal with Singapore’s Hafnia covering the long-term charter of ten Panamax LR1s owned by Hafnia, having detected a deficit of modern tonnage in that segment. The decision to buy and build up to four new VLCCs is an even bolder step, given the longer and larger financial commitment. But it presumably reflects an internal market analysis that there is shortage of capacity building up in this sector too, with purchasing of in-house vessels being a hedge against rising charter rates should demand outstrip supply.
The Maritime Executive is not privy to internal thinking, but a factor in the calculation must be the changing future facing the shadow fleet. Many shadow fleet tankers are old, unreliable, uninsurable – and now increasingly prone to attack, be it in the Black Sea or elsewhere, by an anonymous but well-informed adversary equipped with the best in sea and aerial drones. Moreover, littoral nations particularly in the Baltic are becoming increasingly worried about allowing unimpeded access through their coastal waters of unseaworthy tankers, coming out laden from Primorsk and Ust-Luga, with all the attendant risk of ecologically disastrous oil spills.
Destruction of shadow fleet tankers by an undeclared adversary and the seizure under UNCLOS of unsafe tankers by worried littoral nations look only set to increase. The Mercuria calculation is likely therefore to be that a lot of decrepit tonnage is about to fall out of the market and onto the shipbreaking beaches of Karachi, Gujarat and Chittagong, creating a wider imbalance between VLCC supply and demand.
Another factor in this calculation must be the increasing realization on the part of those governments imposing sanctions that their impact on shadow fleet activities is minimal. India has continued to import large volumes of sanctioned Russian oil. Iran exports 80 percent of its output to China, a figure unchanged since January 2025. Malaysia tolerates a huge ship-to-ship transfer area within its Exclusive Economic Zone off the eastern Johor coast. The United Arab Emirates permits sanctioned tanker managers and owners to operate from within its jurisdiction, and to use this jurisdiction for accessing the international financial system.
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In effect sanctions are curbing those with scruples, but there are a sufficient number of players without scruples for the shadow fleet to carry on trading without effective hindrance. The signs are becoming clearer that this is no longer going to be tolerated, evidenced not the least by the United States’ Executive Order 13846 issued on February 6, which not only adds to the list of vessels, owners and manager sanctioned, but also tightens sanctions and tariffs on jurisdictions which permit the shadow fleet to break sanctions without hindrance.
This new mood, while unlikely to translate into dramatic or overnight changes of behavior, will steadily increase the pressure on shadow fleet tanker operators – particularly once valuable cargoes start being seized. Many unscrupulous operators will be persuaded it is time to move on to another entrepreneurial opportunity, allowing demand to transfer into the laps of legitimate tanker owners.
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