Europe’s oil embargo on Iran is having unforeseen consequences in the shipping market, making it almost impossible to determine if vessels are using fuel that violates the sanctions.

 

Supplies from Iran are a “vital blending component” to make ship fuel, known as bunkers, according to Barclays Capital. The nation accounted for about 8 percent of bunkers exported last year to Asia, the largest market, and about a third of the supply at Fujairah in the United Arab Emirates, the Middle East’s biggest refueling port, Barclays estimates.

 

The European Union imposed curbs on Iranian oil. The 27-nation bloc is enforcing the ban by extending sanctions to insurers, voiding the cover of ships carrying Iranian crude cargoes or using its fuel. The global fleet will spend more than $145 billion on bunkers this year, according to data compiled by Bloomberg using estimates from JBC Energy GmbH, a Vienna-based research company.

 

“This is a problem we didn’t foresee,” Peter Sand, an analyst at the Baltic and International Maritime Council, which represents 65 percent of ship owners, said by phone from Bagsvaerd, Denmark. “We don’t know how much Iranian oil is already blended in.”

 

The EU agreed to a phased-in ban on buying, transporting, financing and insuring Iranian oil on Jan. 23, with full implementation July 1. Ships breaking the sanctions will lose their insurance against risks including spills and collisions, according to the International Group of P&I Clubs, whose 13 members cover 90 percent of merchant vessels. About 90 percent of world trade travels by sea, the Round Table of International Shipping Associations estimates.

 

‘Uncertain exposure’

 

“The sanctions were imposed in quite a hurry, and there are bits that are impossible to comply with or ensure you are definitely clean,” said Ben Knowles, a partner at Clyde & Co., a law firm with offices in 16 countries that specializes in international trade. “It’s an uncertain exposure because the likelihood of being punished for taking Iranian bunkers is perhaps not that high, but you can’t rule out a case being made in order to make an example.”

 

While crudes from different fields can be identified by their chemical composition and structure, the origins of bunkers, a residue from oil refining, are harder to verify, said Andy Wright, a consultant at FOBAS, a unit of Lloyd’s Register Group that monitors fuel specifications.

 

“With bunkers there isn’t fingerprinting as with crude oil,” he said by phone from London. “The origin would technically be very difficult to establish, if not impossible.”

 

Iran is now shipping more fuel oil to Singapore, the world’s largest refueling port, and less to Fujairah, Miswin Mahesh, an analyst at Barclays in London, wrote in an e-mail.

 

Bunkers rose 4.9 percent this year in Fujairah and reached a 31/2 year high of $758.50 a metric ton on Feb. 27, data compiled by Bloomberg show. Fuel in Singapore advanced 3.8 percent this year after rising to the highest since July 2008 in February. Iran shipped a monthly average of 805,000 tons of fuel oil last year, ahead of Saudi Arabia’s 750,000 tons, according to Barclays. Russia accounted for 53 percent of global supply.

 
(Source: Bloomberg)