US considers easing sanctions on shadow fleet vessels to cut freight rates, official says

The US administration is contemplating easing sanctions on certain vessels known as the shadow fleet, which have been transporting oil and petroleum products from nations such as Russia, Iran, and Venezuela, in an attempt to lower the soaring global freight rates, according to a US official. This proposal comes several days after President Donald Trump temporarily lifted sanctions on Russian diesel fuel, a decision that drew harsh criticism from Ukrainian President Volodymyr Zelenskiy, European nations, and some of Trump's Republican colleagues in the US Senate.

The criticism was due to the belief that this move was essentially a favor to Russian President Vladimir Putin, providing Russia with additional revenue to fund its ongoing war in Ukraine. The talks are centered around the possibility of permitting legal oil to flow on previously sanctioned vessels, rather than Russian and Iranian oil, which are subject to punitive measures.

The aim is to facilitate the export of refined products and crude oil from the Gulf region. US Energy Secretary Chris Wright mentioned during a speech at the World Petroleum Congress in Riyadh that the administration is considering easing sanctions on the shadow fleet vessels to help reduce the record-high freight rates that have negatively impacted demand for US crude, as reported by Energy Aspects, a research firm.

However, the exact details of these discussions have not been made public, as Reuters was unable to obtain the full video or transcript of the conversation. The Department of Energy has not confirmed the specifics of the proposed policy. Companies interested in using the sanctioned vessels would need to apply for permission through the US Treasury Department.

The Energy Department stated that easing sanctions on the shadow fleet would not assist Russia in moving oil or oil products. The Treasury Department referred questions to the Energy Department, but the White House did not provide an immediate response to a request for comment. High oil and fuel prices pose a threat to Trump's re-election prospects in the upcoming November 3 midterm elections, where Republicans are striving to retain control of both chambers of Congress.

To address this issue, Trump temporarily lifted sanctions on Russian diesel fuel until April 7. Tanker freight rates have reached record highs due to the conflicts in Iran and Ukraine, which have driven up inflation and made US crude oil inaccessible for Asian refiners, prompting them to seek alternatives from the Middle East and Latin America.

Energy Aspects noted in a recent report that easing the sanctions on the shadow fleet would not significantly impact freight rates but could potentially enable more oil movement in the Middle East. However, the removal of sanctions on the mostly aging and poorly maintained tankers is unlikely to significantly increase mainstream fleet capacity, especially since most of the vessels sanctioned over Russian or Venezuelan links have been actively trading for the past three months.

Easing the restrictions may make a small number of additional tankers available for certain shuttle runs in the Strait of Hormuz, the waterway between Iran and Oman. It is also unlikely to result in a broad reduction in freight rates, as ship insurers will still be subject to EU and UK regulations, according to maritime industry sources.