Tanker Stocks Rally After U.S. Sanctions on Iranian Vessels

Investing.com — Tanker stocks saw a sharp increase on Tuesday following the U.S. Treasury's sanctions on an additional 21 vessels transporting Iranian crude, which includes 10 very large crude carriers (VLCCs).

The sanctions indicate a renewed effort to enforce restrictions against Iran, which could significantly tighten the global VLCC supply and enhance the tanker market, as per a report from Jefferies.

Jefferies maintains a positive outlook on tanker stocks due to attractive valuations, improving sentiment, and stronger demand anticipated in the winter season. The firm identifies key players like DHT Holdings (NYSE:DHT), Frontline (NYSE:FRO), and International Seaways (NYSE:INSW) as primary beneficiaries of possible tailwinds in the VLCC market.

With the new sanctions, the total number of VLCCs under restrictions rises to 35, plus an additional 85 vessels on a watchlist for possibly carrying Iranian oil. Together, these 120 ships constitute nearly 14% of the global fleet of 850 trading VLCCs, indicating a significant capacity risk if enforcement intensifies.

Iran’s crude exports have jumped to 1.7 million barrels per day (mb/d) in 2024, up from just 0.3 mb/d between 2019 and 2022. This surge is largely attributed to lax sanction enforcement and the use of shadow fleets, with most of these exports directed to China, impacting other producers like Saudi Arabia, whose exports have decreased to 6.0 mb/d in 2024 from 6.5 mb/d in 2023.

Jefferies interprets the sanctions as a likely catalyst for the tanker market. Limiting Iran’s shadow fleet could diminish VLCC availability while boosting demand for vessels that are not under sanctions to fulfill global crude transportation needs. A repeat of the 2019 market dynamics, when U.S. sanctions on Chinese firm COSCO sidelined 50 VLCCs and caused rates to exceed $200,000/day, could be imminent.

If sanctions continue to restrict Iran’s crude exports to levels observed from 2019-2022, global tanker utilization could escalate from 85% to 95%, markedly tightening market conditions.

The combination of tighter sanctions, reduced VLCC supply, and heightened demand for non-sanctioned crude transport produces a promising risk-reward scenario for tanker equities, according to Jefferies.