US Weighs Easing Sanctions on 'Shadow Fleet' to Curb Freight Costs

The Trump administration is considering easing sanctions on vessels involved in transporting oil and petroleum products from countries like Russia, Iran, and Venezuela. The objective is to lower record-high global freight rates, according to a U.S. official.

These discussions follow President Trump's recent temporary lifting of sanctions on Russian diesel fuel, a decision that drew significant criticism from Ukrainian President Volodymyr Zelensky, European nations, and some Republican senators. Critics argued the move would provide revenue to Russia to fund its war in Ukraine.

The current talks focus on the possibility of allowing "legal oil" to be transported on vessels previously subject to sanctions. This would pertain to crude or petroleum products not targeted by Washington's punitive measures, rather than sanctioned Russian or Iranian oil. The aim is to increase the flow of refined products and crude oil from the Gulf region.

U.S. Energy Secretary Chris Wright indicated this week that the administration was exploring such measures to address high freight rates that have impacted demand for U.S. crude. The Energy Department has stated that any relaxation of sanctions on the shadow fleet would not facilitate Russia's movement of oil or oil products, and the Treasury Department referred questions to the Energy Department.

Companies seeking to utilize these vessels would need to apply to the U.S. Treasury Department. However, the administration's interest in moving Russian diesel to global markets could influence departments to permit shipments via these tankers.

Record-high tanker freight rates have been exacerbated by conflicts in Iran and Ukraine, contributing to inflation and making U.S. crude oil less accessible for Asian refiners, who have turned to alternatives in the Middle East and Latin America.

Analysts suggest that easing sanctions on the shadow fleet might not significantly alter freight rates but could enable greater oil movement within the Middle East. The report noted that many sanctioned tankers are older and may not represent a substantial increase in mainstream fleet capacity, especially as they have remained active in trading. A relaxation of restrictions could potentially make a limited number of additional tankers available for specific routes, such as shuttle runs through the Strait of Hormuz. However, industry sources indicate that ship insurers would still be bound by EU and UK regulations, making a broad easing of freight rates unlikely.