Shipping Companies Avoid Iran As Sanctions Tighten

LONDON (Dow Jones)--Shipping oil from Iran to Europe is becoming increasingly difficult, despite the fact that a full oil embargo does not come into effect until July 1, as tightening sanctions from the U.S. and the European Union are causing major shipping companies to avoid business with the country.

Shipping giants AP Moller Maersk A/S (AMKBY), Frontline Ltd. (FRO) and Teekay Tankers Ltd. (TNK) have all told Dow Jones Newswires their ships will no longer call at Iranian ports, while some smaller shipowners have also said they are unwilling to send their vessels to the Islamic Republic to lift crude.

"We have stopped having our ships call at Iran," said Jens Martin Jensen, Chief Executive of Frontline Management AS, a subsidiary of Frontline responsible for overseeing the companies commercial affairs.

"We are just following the sanctions, we have no interest in doing business with Iran," he added.

According to Frontline's website, the Bermuda-based company has one of world's largest fleets of very large crude carriers, or supertankers which can carry around 2 million barrels of oil and Suezmax tankers, which is around 1 million barrels.

The move by shipowners is pushing up costs and making it more difficult for European consumers to lift, or load, Iranian crude.

Indeed, Italian buyers were struggling to find ships willing to load Iranian crude last week, a shipbroker said.

However, major refiners in Italy and Spain contacted by Dow Jones Newswires said that while it was becoming more difficult, they were still able to load oil from Iran.

"Some people are willing to do those liftings but at a premium," the shipbroker added.

The EU imposed new sanctions on Iran on Jan. 23, ratcheting up pressure on the Islamic Republic, although a full ban on oil exports from the country will not come into affect until July 1.

Still, for many shipowners the new sanctions are already becoming too onerous, pushing up insurance premiums and requiring a large amount of due diligence to ensure compliance.

"The main driver is that it's simply questionable whether insurance is covering voyages to Iran," said a source close to a shipping company that is no longer sending its vessels to the country.

"If we are in compliance with the sanctions and we have insurance coverage we would not object to making the trips," he added.

However, shippers appear unfazed by the lost shipping routes, as replacement oil from other Middle Eastern producers should mean that the impact on demand is minimal, said Teekay Tankers Chief Executive Bruce Chan.

Teekay Tankers is the world's largest owner of medium-sized crude oil tankers.

David Fyfe, head of the Paris-based International Energy Agency's oil markets division said that the refusal of a growing number of shipping companies to do business with Iran "raises interesting questions."

"Even if Asian buyers remain willing [to purchase Iranian crude], they may struggle to find ships," he said.

However, the extent of potential disruption is difficult to gauge.

Many tankers docking at Iranian ports are Iranian owned or are from the United Arab Emirates, the former Soviet Union or China, according to recent Iranian port records.

The IEA also said in its monthly oil market report published last week that "ample new-build tanker capacity may ease the impact of what might otherwise be a logistical barrier to trade."

-By Sarah Kent and Neena Rai, Dow Jones Newswires; +44 207 842 9376; [email protected]; [email protected]

(Benoit Faucon and Jenny Gross in London contributed to this story.)