The Iranian nuclear accord will not provide a major lift to crude tanker rates in the near or intermediate term, according to several industry analysts.
The landmark agreement finalised on 14 July will be submitted to the UN Security Council for approval. Ninety days after approval, sanctions would be lifted if the International Atomic Energy Agency confirms that Iran has met its obligations. Thus, assuming no complications, the free flow of Iranian crude exports would not resume until late 2015.
The concern for the tanker market is that numerous VLCCs owned by the National Iranian Tanker Company (NITC) are currently being used for floating storage and could return to shipping service after sanctions are lifted. Furthermore, NITC vessels could supplant some higher tonne-mile Atlantic Basin-to-Asia volumes.
JP Morgan analyst Noah Parquette estimated that 18 NITC VLCCs are being used for floating storage and that many of these will be placed back into service. “The bottom line is neutral to marginally negative,” Parquette opined. “Assuming one million barrels per day of marginal exports [from Iran] and a 50% displacement of Atlantic crude, we estimate a net demand of six VLCCs”.
According to Wells Fargo analyst Michael Webber, “A sizeable portion of the NITC fleet could return to more normalised service, potentially mitigating the positive impact of increased Arabian Gulf-Asia Pacific trade flows by artificially adding 1.4% to 2015 tanker fleet growth.”
Webber added that “if there’s no incremental demand to absorb those likely discounted Iranian volumes, they would likely displace longer-haul volumes”.
According to Evercore ISI analyst Jon Chappell, “The Iranian nuclear agreement could have a very short-term unfavourable impact if Iranian tankers return to the market before exports fully ramp”.
However, regarding concerns over NITC VLCCs re-entering the market, Chappell noted that “with five of these VLCCs nearing 20 years of age and 10 more ships approaching 15 years, the impact on the market will likely be limited”.
In the longer term, an end to Iranian sanctions is expected to bring more crude supply to the sea, a positive for shipping. “Increased global supply for oil should lower prices and stimulate demand, both generally good things for crude tankers,” affirmed Parquette.