Investing.com -- Tanker stocks rallied sharply on Tuesday after the U.S. Treasury imposed sanctions on 21 additional vessels transporting Iranian crude, including 10 very large crude carriers (VLCCs).
The move signals a renewed push to enforce sanctions against Iran, which could significantly tighten global VLCC supply and bolster the tanker market, according to a note from Jefferies.
Jefferies maintains a bullish outlook on tanker stocks, citing attractive valuations, improving sentiment, and a stronger winter demand season. The firm highlights DHT Holdings (NYSE:DHT), Frontline (NYSE:FRO), and International Seaways (NYSE:INSW) as top plays to benefit from potential tailwinds in the VLCC market.
The latest sanctions bring the total number of VLCCs under restriction to 35, with an additional 85 vessels on a "watchlist" for potentially carrying Iranian oil. These 120 ships account for nearly 14% of the global fleet of 850 trading VLCCs, representing a substantial capacity risk if further enforcement escalates.
Iran’s crude exports have risen to 1.7 million barrels per day (mb/d) in 2024, a sharp increase from 0.3 mb/d between 2019 and 2022, fueled by muted sanction enforcement and reliance on shadow fleets. Most of these exports head to China, pressuring other producers like Saudi Arabia, whose exports have declined to 6.0 mb/d in 2024 from 6.5 mb/d in 2023.
Jefferies views the sanctions as a potential catalyst for the tanker market. Restricting Iran’s shadow fleet could reduce VLCC availability while driving demand for sanctioned-free vessels to meet global crude transportation needs. A repeat of 2019's market dynamics, when U.S. sanctions on Chinese firm COSCO removed 50 VLCCs from trading and sent rates soaring above $200,000/day, may be on the horizon.
Should sanctions further constrain Iran’s crude exports to levels seen from 2019-2022, global tanker utilization could rise from 85% to 95%, significantly tightening market conditions.
The combination of stricter sanctions, reduced VLCC supply, and increased demand for non-sanctioned crude transport creates a favorable risk-reward dynamic for tanker equities, according to Jefferies.