The US Treasury Department has lifted sanctions on the affiliates of Cosco, China’s biggest shipping company. In an announcement Friday, Treasury said those Cosco affiliates have been removed from the Office of Foreign Assets Control’s list of Specially Designated Nationals. On September 25, Treasury sanctioned Cosco Shipping Tanker (Dalian) and Cosco Shipping Tanker (Dalian) Seaman and Ship Management for trading oil with Iran.
“We’re telling China and all nations: Know that we will sanction every violation of sanctionable activity,” US Secretary of State Mike Pompeo said at the time.
Cosco Shipping controls more than 5% of the global VLCC fleet and the sanctions imposed in September caused VLCC freight rates to spike initially.
The dirty tanker market has been highly reactive to the Cosco sanctions news, sending VLCC freight to sky-high levels as charterers rushed into the spot market to replace Cosco ships on previous deals. The cost of a USGC-China run reached all-time highs on October 14 at lump sum $21 million. From mid-September 2019 to end January 2020, freight for the route had not dropped below $9.5 million.
VLCC freight rates have fallen since the initial post-sanctions spike, as charterers worked to drive prices lower and adjusted to uncertainty surrounding which Cosco vessels were off limits.
Freight for VLCCs on the USGC-China route has dropped 18% in the past week alone, falling to lows not hit since end-September when the initial COSCO sanctions news was announced. Freight has come under bearish pressure from growing global VLCC supply as the market adjusts to new market dynamics a month into the International Maritime Association’s new low sulfur regulations and a slowdown in cargo inquiry from key demand regions.
The VLCC 270,000 mt USGC-China route was last assessed Thursday at lump sum $8 million. Freight had not been assessed below $8 million since September 25, when the market settled at $7.9 million.
It was unclear Friday why Treasury lifted the sanctions. Treasury officials referred requests for comment to the US State Department, which declined immediate comment.
On October 24, Treasury issued a general license allowing oil traders to maintain or wind down transactions with Cosco Shipping Tanker (Dalian) by December 20. The general license did not apply to Cosco Shipping Tanker (Dalian) Seaman and Ship Management. On November 27, Treasury said transactions, such as fuel sales or undertaking new charters, would be allowed between traders and Cosco Shipping Tanker (Dalian) as long as those transactions were part of a contract in effect before September 25 or if the transactions were “consistent with the transaction history” with the Cosco affiliate before September 25.