What’s next for the crude tanker dark fleet?
Since the US hit Rosneft and Lukoil with sanctions virtually all shadow oil has been heading for the independent teapot refineries in China’s Shandong region. Not only is the market for shadow crude shrinking, but so is the fleet available to move it. If shadow exporters are to sustain exports at October’s levels, Russia, Iran and Venezuela will need to be more aggressive in their hunt for compliant vessels to boost their dark fleets. They will now all be turning to VLCCs as the work horse for long-haul trade and floating storage, but also as the most efficient vessels to discharge in Shandong’s ports.
Russia already needs to replace the Greek-controlled Aframaxes and Suezmaxes, which carried over a quarter of all Urals exports in the months running up to the Rosneft/Lukoil sanctions. But we now expect Russia’s crude exporters will be competing with Iran (and Venezuela) to buy VLCCs and load them via STS from Russia-origin Aframaxes and Suezmaxes. Recent signs of a viable US-led peace plan emerging for Russia/Ukraine are encouraging, but the road to un-discounted shadow crude flows is a long one.
The road to removing Ian’s sanctions would appear to be longer still. After this week’s US sanctions on Iran-trading shipping, 63% of dark VLCCs (by dark we mean ‘have lifted crude oil from Iran, Russia and Venezuela over the past 2 years’) are currently sanctioned by the US. Every month the US sanctions more tankers that it claims were involved in illicit oil trades. While Iran refuses to cooperate with international nuclear inspectors, we expect this process will continue. Add to that today’s high levels of floating storage and in transit barrels of shadow crude oil, the need to supplement the dark fleet is becoming acute.
Shrinking demand for shadow oil
Before the US imposed sanctions on Lukoil and Rosneft, Russia’s seaborne crude exports ytd were roughly 3.4m b/d, Iran’s were roughly 1.6m b/d and Venezuela’s stood at about 820k b/d. Of this total, roughly 1.66m b/d was heading to India and 3.35m b/d was going to China, with another 300k b/d to Turkey. Today, only 350k b/d heads to India (Nayara refinery) and the balance is relying on China’s independent refining sector.
China’s independent refineries are restricted by import quotas imposed by the Chinese government. As they stand, quotas for next year look likely to undershoot the volume of oil that shadow exporters are looking to offload. 2026 import quotas are steady with this year’s levels. To maintain recent export levels, around 4.5m b/d of shadow crude is targeting teapot demand of around 3.83m b/d (in 2025, according to Platts). Some 68m bbls of shadow crude oil (mostly Iranian) is already sitting on stationary tankers, up from 55m bbls before the Rosneft/Lukoil sanctions were announced at the end of October. This is thanks in large part to strict quota limits on imports for the rest of 2025.
Floating storage at historic high
Without a change in Western sanctions, or without new ways being found to circumvent them, floating storage employment is likely to grow. This is unlikely to happen until shore storage is running low. Vortexa data suggests that Iran and Russia’s onshore storage tanks are slightly over 50% full, while Venezuela is at 46%. The alternative – that exporters will cut production – is very much a last resort.
Source: Vortexa
Next stop, VLCCs
VLCCs are the most efficient way to get oil to teapot refiners. This is due to the high cost of involving multiple vessels in STS operations. Only tankers free of sanctions can call at Shandong ports since January. Some volume has discharged in Dalian, then shuttled to Shandong refineries of smaller tankers. But this is an expensive option.
Sanctioned tankers must instead discharge via STS onto a non-sanctioned vessel, typically somewhere offshore East Asia.
Dongying port in the Shandong region chose to exit the Shandong Port Group so it could receive US-sanctioned tankers earlier this year. But this port cannot handle VLCCs.
Since the start of this year, the participation of sanctioned VLCCs in shadow trades has jumped from 46% to 63% of all dark VLCCs. In response, the dark fleet has had to be supplemented by 28 VLCCs from the non-dark fleet, most of which were previously trading out of the Middle East. The need for compliant VLCCs to join the dark fleet will grow in order to minimise the cost of moving shadow crude into Shandong ports, and to maintain shadow exports in the absence of buyers.
Competition between shadow barrels – Iran may face temporary challenges
The Iranian export market is already reeling from high exports in recent months and a lack of buyers. Vortexa’s data currently shows over 38 million barrels of Iranian crude oil in floating storage, which is about 7 million barrels off the highest weekly averages recorded in their dataset. Because Iranian crude tankers often have their AIS signals off, floating storage volumes are likely underestimated. It is probable that floating storage levels will ease with the reset in the independent refiners’ import quotas at the beginning of next year.
Lack of tonnage is likely a short-term problem. Iran has managed to find new vessels every time there are new rounds of sanctions or restrictions and cargoes build up at sea. For example, after Shandong’s ban on sanctioned tankers in January this year, Iranian cargoes were stranded at sea due to a lack of non-sanctioned tankers to call in the ports, and Iranian and Venezuelan imports into China fell by around 400 k/bd, or over 25%. China’s import rates recovered the following month, but this had a ripple effect in reducing Iran’s exports the month after the ban by about 436 k/bd due to a lack of tanker load availability.
After the disruption in January engendered by the Shandong ban and the pile up of cargoes at sea, we saw more activity in the following months in the VLCC resale market for 15- and 20-year-old assets. Of the 28 VLCCs that have joined the shadow fleet from the compliant fleet this year, almost all received cargo via STS from a tanker which loaded at the port of a shadow exporter. The newly-added dark fleet vessels then carried the cargo into China for discharge because they were not sanctioned by the US.
What about Venezuela?
The Trump administration is also ratcheting up pressure on Venezuela. The US has recently targeted suspected drug boats in the Caribbean and Trump has threatened land strikes. Some form of increased pressure on Venezuela’s oil exports is on our radar.
It would be difficult for the US to clamp down further on the sanctioned Venezuelan volumes going to the teapot refineries, because the export network is highly adept at making its way to teapot refiners. If Chevron’s import licence was revoked, about 150 k/bd of Venezuelan crude would move towards Shandong.
The Venezuelan fleet is busy with high Venezuelan crude exports in recent months. Extra export demand for dark fleet tankers to send the former Chevron volumes East will increase competition for buyers and could stretch the dark fleet further if vessels sit in floating storage in East Asia.
From whence?
Sales of crude tankers over 15 years have fallen from their heights in the aftermath of the Russian invasion of Ukraine. Sales activity has picked up since the beginning of this year, focusing on Suezmaxes and Aframaxes in response to sanctions on Russia-trading vessels. The VLCC resale market for tankers over 15 years old saw a marked increase in March and April – coinciding with the fallout around the Shandong port ban on sanctioned tankers which disrupted shadow crude cargoes.
95% of the 680 non-dark fleet VLCCs are owned by internationally-recognised tanker owners with reputations to protect that are unlikely to sell into the dark fleet. This leaves about 35 VLCCs that could be candidates for the dark fleet.
Braemar Research