A crude oil tanker carrying Iranian crude that was on course for India, which had not bought Iranian oil for nearly seven years, has changed its declared destination to a Chinese port after coming quite close to Gujarat, as per ship tracking data. Eswatini-flagged tanker Ping Shun, which was approaching the Vadinar port in Gujarat is now signaling Dongying in China’s Shandong province as its destination, according to data from commodity market analytics firm Kpler. According to trade sources, payment-related issues could be behind this diversion.
The tanker—carrying about 600,000 barrels of Iranian crude, had taken a path that was headed to Vadinar, and as of Thursday afternoon, it was indicating arrival at the Gujarat port between late Thursday and early Friday. Later, however, it took a sharp turn to the south from its earlier course, and changed its declared destination to Dongying.
Amid the raging West Asia war, the US on March 21 suspended for a month the sanctions on Iranian crude already loaded on tankers in a bid to allow as many barrels of oil as possible to flow into the international market to improve the global oil supply situation and curb spiraling crude oil prices. The waiver from Washington was similar to the one issued for Russian oil earlier in March. India hadn’t imported Iranian crude since May 2019 due to reimposition of US sanctions on Tehran by the first Donal Trump administration.
Changes in declared destinations are not uncommon for dark fleet tankers involved in sanctioned oil trade; it can be used as a tactic to avoid detection and keep the actual intended destination under wraps. In this case, however, the vessel’s initial course suggests that it was indeed headed to Vadinar. It would have taken a very different course had its actual destination been China all along, according to trade sources. Moreover, with the sanctions waiver announced by the US, such tactics are not really required by vessels carrying Iranian oil. It was not clear which Indian refiner was the intended buyer of the Iranian crude being hauled by Ping Shun.
According to the general license issued by the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury on March 21 (as per India time), transactions related to the sale, delivery, or offloading of crude oil and petroleum products of Iranian origin—loaded on any vessel, including tankers sanctioned by the US, as of 12:01 eastern daylight time (9:31 am India time) on March 20—are authorised till April 19. Data indicates that Iranian crude was loaded on Ping Shun around March 4 at Iran’s main oil facility of Kharg Island, which means that the crude on this tanker is not under US sanctions.
“Per market sources, the shift appears to be payment-related, with sellers tightening terms, moving away from the earlier 30–60-day credit window toward upfront or near-term settlement. While such mid-voyage destination changes are not unprecedented with Iranian crudes, they highlight the increasing sensitivity of trade flows to financial terms and counterparty risk,” Said Sumit Ritolia, manager, modelling & Refining at Kpler.
“If the payment issues are resolved, the cargo could still make its way to an Indian refinery. However, the episode underscores how commercial terms are becoming as critical as logistics in determining Iranian crude flows to other countries apart from China,” he added.
Although the US has provided a sanctions waiver for Iranian crude on water, commercial terms and payment-related challenges are still being seen as hurdles in Iranian oil trade with countries other than China, which has been the destination for most of Iran’s oil exports for years now. Iran and its banks remain out of the Society for Worldwide Interbank Financial Telecommunication (SWIFT)—the main messaging network through which international payments are initiated. Most banks and financial intermediaries are still reluctant to get involved in transactions with the Iranian financial system.
For years now, over 90% of Iranian oil exports have been going to one country— China. When the sanctions waiver was announced, Iran claimed that it had no floating crude or surplus available for international buyers. Industry experts, however, had said that around 140-170 million barrels of Iranian oil was on water, including volumes that are already sold and those that are yet to be sold, according to ship tracking data.
Nonetheless, industry analysts say that the US move could see Indian refiners capitalise on the opportunity, if commercial terms and payments can be managed, just like they did by ramping up imports of Russian crude in recent weeks. Amid the tight global supply situation, every barrel counts. Vessel movements through the Strait of Hormuz have effectively been halted due to the conflict that began on February 28; Iranian oil shipments have continued unabated though. The Strait accounted for one-fifth of global oil and liquefied natural gas (LNG) flows. Around 2.5–2.7 million bpd of India’s crude imports — around half of the overall oil imports — have transited the Strait in recent months, while the longer-term average is around 40%. India depends on imports to meet over 88% of its requirement of crude oil.
India had been a regular buyer of Iranian oil, even during previous sanctions periods of the pre-Trump era, when import volumes of Iranian crude declined, but were still not insignificant. Back in 2009-10, India imported 22.1 million tonnes of Iranian crude and it accounted for 14.4% of India’s overall oil imports, according to data from the Ministry of Commerce and Industry. But as international sanctions on Iran intensified, hitting payment channels and creating other logistical hurdles, the volumes declined gradually to 11.2 million tonnes in 2014-15.
The sanctions were formally lifted in early 2016 as part of the Iran nuclear deal. Thereafter, Indian refiners started ramping up oil imports from Iran. India imported 13.6 million tonnes of Iranian oil in 2015-16, and 27.1 million tonnes in 2016-17, making Tehran the third-largest source of India’s oil imports behind Saudi Arabia and Iraq. Iran also did its bit to boost India’s purchases of its oil by offering discounted shipping and extended credit periods to Indian refiners.
In 2017-18, India’s Iranian oil imports declined to 22.6 million tonnes due to a few reasons—tensions between New Delhi and Tehran over the development rights of a gas field in Iran, India’s diversification of its supply, and the first Trump presidency. The last factor was the defining one over the next two years as Trump walked away from the Iran nuclear deal and re-imposed sanctions. A waiver was given by the US to major buyers of Iranian oil, which expired in 2019. In 2017-18, India’s Iranian oil imports were at 23.9 million tonnes, and crashed to just 2 million tonnes in 2019-20. No Iranian oil came to India after May 2019.
