Economic sanctions have been used to mandate international policies for centuries. Like most times governments mettle in the economy, economic sanctions can cause unintended and destructive consequences to occur. On Sunday, EU mandated sanctions are scheduled to go into affect against Iran however the economic ripples are already being felt across the oil industry. Rueters reports on the effects the sanctions are already causing:
Iran’s top commercial tanker operator NITC has delayed the expansion of its oil fleet, company and industry sources said, as Western sanctions on the OPEC member’s crude exports and a weak freight market hurt its ability to turn a profit.
The delivery setback deprives the Islamic Republic of much-needed capacity to store oil on vessels at a time when Asian customers have slashed purchases by about a fifth from last year’s 1.45 million barrels per day (bpd) in preparation for new European Union sanctions against Tehran.
Washington will impose sanctions this week on financial institutions dealing with Iran’s central bank, while Brussels will place an oil embargo on the country’s oil trade. The EU’s measures also prohibit European insurers, which provide cover for nearly all of the world’s tanker fleet, from doing business with ships carrying Iranian crude.
Iranian tankers will be the main transporters of Iran’s crude to its two top importers, China and India, once the sanctions come into effect on Sunday.
A senior NITC official told Reuters the firm has yet to take delivery of a 318,000 deadweight tonne tanker named “Safe”, the first of 12 new supertankers the firm will manage under a $1.2 billion contract with Chinese shipyards. Delivery was initially scheduled for May.
“Delivery has been delayed because of the market. The market is not attractive for any ship owner,” the NITC official said.