US weighs lifting sanctions on Iran's 'shadow fleet' to address surging costs

The US is contemplating lifting sanctions on "shadow fleet" tankers linked to Russia and Iran, aiming to tackle skyrocketing diesel prices as midterm elections approach, according to various reports and a high-ranking US official. Energy Secretary Chris Wright highlighted the administration's deliberations to ease sanctions on these vessels to counteract the extreme freight rates that have escalated the expense of exporting American energy abroad, as reported by research firm Energy Aspects.

The Financial Times stated that the US might permit the sale of blacklisted vessels to non-sanctioned operators and lift restrictions, enabling such ships to operate without limitations. Moreover, Reuters suggested that the US could allow "legal oil" to flow through vessels previously under sanctions, effectively permitting sanctioned ships to transport crude or petroleum products, not sanctioned by the US.

The emergence of Iran's shadow fleet unfolded in 2018, following the US's unilateral exit from the nuclear agreement with Iran and global powers, known officially as the Joint Comprehensive Plan of Action. The US has imposed severe sanctions on Iran and concentrated on its oil sector. Energy Aspects estimates that approximately 15 percent of the global tanker fleet falls under US sanctions.

The Trump administration's decision to consider this move arises due to the surge in tanker rates that have driven up fuel costs, making it financially unfeasible for the US to sell its energy to China and Europe. Diesel prices in the US have surged by nearly 16 percent in the past month alone. By asserting control over the Strait of Hormuz, Iran has flipped the script on the US.

Iran's blockade of the Strait of Hormuz has created a significant imbalance in supply and demand. Gulf states are shipping more oil and refined products out than they did previously, but they depend on shuttle services to move products from the Strait of Hormuz onto other vessels to evade Iranian attacks. Furthermore, tankers have had to adopt longer routes through the Cape of Good Hope to avoid attacks by the Houthi rebels in the Red Sea.

The Trump administration has escalated sanctions on Iran amidst the ongoing war, as the ceasefire unravels and clashes intensify for control of the Strait of Hormuz. Recently, Washington imposed economic penalties on 16 individuals and 10 entities in Iran. However, the sanctions on Iranian oil sales coincide with the growing prices, and Washington is striving to mitigate the surge.

The US's response has been to lift sanctions on Russian diesel fuel. This move has sparked a diplomatic dispute with Ukraine.