Former dark-fleet tankers are moving Iraqi crude through Hormuz as freight rates hit records

The Gulf’s tanker shortage is pulling former dark-fleet carriers into mainstream oil trade: Vessels that once hauled sanctioned Venezuelan crude are now moving Iraqi barrels, drawn by lucrative Middle Eastern routes and a shortage of tankers willing to cross Hormuz, Bloomberg reports. The shift comes as the US Navy issued a fresh advisory urging ships without essential business in the Gulf of Oman and the strait to steer clear.

Why it matters: The extra ships won't change the economics of moving oil out of the Gulf, but they can help ease a very stressed market, Bloomberg says.

Venezuela’s ex-tankers

The Centuries is the latest to arrive: The more than 25-year-old supertanker, boarded by the US Coast Guard in the Caribbean last December while carrying crude from Venezuela’s state oil company, loaded Iraqi oil earlier this month after being chartered by Iraq’s state oil marketer Somo, according to Kpler and Vortexa data cited by Bloomberg. It then transferred the cargo to another tanker in the Gulf of Oman. The vessel was never formally sanctioned, although its age and involvement in sanctioned oil trades landed it on unofficial dark-fleet watch lists.

Others are already there or on the way: The Axe, a supertanker sanctioned over its Venezuelan trades and later removed from the US blacklist, entered the Gulf of Oman on Sunday. Two VLCCs that once carried Venezuelan crude, Kelly and Marbella, are sailing from South America toward Oman’s Sohar, and the Kiara M, another delisted tanker, has been moving Iraqi crude since April. Centcom told Bloomberg it was aware of the Centuries, Axe, Kelly, and Marbella, and that none was currently of concern.

Rates drawing ships in

The money makes the risk worth taking: Daily earnings for supertankers on Middle East-East Asia routes have risen more than 4.4k% this year, according to Baltic Exchange assessments. Some voyages loading Gulf crude for ports outside the Gulf have been booked at up to USD 40 mn, or as much as USD 4 mn a day, shipbrokers told Bloomberg.

Shuttle tankers are what keep Gulf crude moving: Tankers willing to cross Hormuz load Gulf crude, transfer it to vessels waiting in the Gulf of Oman, then return for another cargo. Some 60 VLCCs were shuttling in and out of the strait as of late September, up from around 30 in June-July and seven in April, according to Vortexa. The trade has helped lift Gulf oil flows to near prewar levels, while the US blockade of Iranian shipping, in place since mid-July, has pushed Iran’s crude exports close to zero.

More ships won’t bring freight rates down while attacks continue: Iran’s attacks on ships have reached almost 30 this month, a wartime high. Venezuela-linked carriers are seen as the easiest dark-fleet ships to rehabilitate, but shipowners cite several hurdles before mainstream traders and producers will use them more widely. Additional shuttle tankers are unlikely to bring rates down materially “as long as Iran maintains the threat of attacks on vessels in the region,” Kpler senior crude analyst Muyu Xu told Bloomberg.

Clearing and warning

The administration wants more tankers in the mainstream trade: Washington has signaled it wants more carriers in the trade to ease costs, even if that means rehabilitating dark and sanctioned ships. “Vessels that were blocked are being delisted or are being licensed for certain forms of financial transactions,” Benjamin Robinson, a maritime attorney at Chalos & Co. and former US Coast Guard counsel, told Bloomberg.

The Navy is telling ships without business there to keep away: Wednesday’s advisory told vessels making necessary transits to allow extra time for traffic and blockade enforcement, and said neutral ships may still face questioning, visit, and search. The US last issued a similar notice in mid-July, when the blockade began.

The rate benchmark in court

Mercuria wants TD3C’s wartime rates thrown out: The commodity trader is suing the Baltic Exchange in the English High Court, in a case heard from Monday, over its decision to keep publishing TD3C, its Middle East Gulf-China tanker benchmark, after the war began, the Financial Times reports. Mercuria argues the collapse in Hormuz traffic warranted suspending the index and wants a court declaration that its publications since early March are invalid. The trader isn’t seeking damages. The Baltic says some ships kept transiting the route and experienced brokers kept providing assessments, and its lawyers warn that a Mercuria victory would have “chaotic marketwide consequences.”

Some traders already treat the benchmark as unreliable: Platts suspended its own assessments for oil shipped through Hormuz two days after the war began. The Baltic launched TD34 this month, a Fujairah-China benchmark covering voyages that start outside the strait.

REMEMBER- We explained in March how TD3C feeds into freight pricing and derivatives used to hedge against shipping costs — and how thin trading makes those assessments more uncertain. By August, the benchmark still reflected a theoretical Gulf-China round trip, while cargoes carried two separate freight bills: one for crossing Hormuz and another for the onward voyage.