The near-halt to exports through the Strait of Hormuz has fuelled speculation that western governments could ease sanctions on Russian energy exports in a bid to ensure supply and stabilise prices.
Iranian attacks on commercial vessels transiting the strait have led to a steep drop in exports of oil and gas from the Persian Gulf, resulting in price spikes and fluctuations across crude oil, LNG and other commodities.
While some Iranian tankers and China-linked vessels are continuing to transit the Strait of Hormuz, only 66 commercial vessels have done so since attacks began in late February, according to maritime intelligence firm Windward, representing “a fraction of normal traffic levels” and signalling a de facto “blockade”.
The shipping crisis, alongside attacks on energy infrastructure in Middle Eastern countries, has “severed a vital artery in global supply chains”, said Torbjorn Soltvedt, principal Middle East analyst at risk intelligence company Verisk Maplecroft.
“The absence of any immediate off-ramps is a concern for commodity markets, supply chains, and the global economy,” Soltvedt said.
US President Donald Trump suggested earlier this week that his administration could consider easing sanctions on “some countries… until this straightens out”, amid growing concerns over soaring fuel prices and the knock-on effects of strained supply on other key goods such as fertilisers and grains.
The US government has already issued a general licence on March 5 allowing Indian refineries to import Russian oil and petroleum products, flows that had been restricted as part of a February trade deal between the two nations.
Kpler analyst Sumit Ritolia said on March 9 he was “very bullish” on Russian crude returning to India, particularly as the country enters peak demand season driven by the agricultural sector.
However, the move “has landed like a lead balloon” among western companies, said David Tannenbaum, director of Blackstone Compliance Services and a former specialist at US sanctions authority OFAC.
The main stumbling block is that EU sanctions on Russian oil exports remain in place, he said.
European Commissioner for Economy and Productivity Valdis Dombrovskis said on March 10 the oil and gas price spike “may provide windfall revenues for Russia” and that easing sanctions “would be self-defeating”.
Tannenbaum added that the general licence does not shield US entities from civil liability lawsuits under the Anti-Terrorism Act. This could be an issue if shipments involve one of 126 vessels designated under counter-terrorism sanctions, or the “myriad of now-exempt vessels which maintain provable ties to the Islamic Revolutionary Guard Corps”.
“So while this waives one specific area of the law in the US, it doesn’t waive all of the areas,” Tannenbaum told GTR. “If it involves another crime, like money laundering, that’s not covered. And then you have the reputational risk associated with it. From what I’m hearing from the sanctions community, this licence was dead on arrival.”
But for marine trade lawyer Menelaus Kouzoupis, a partner at Stephenson Harwood in Dubai, a wider relaxation on Russian sanctions could gain support as a tool for stabilising prices and supply.
“If this does drag on, I can imagine a situation where, based on energy security of poorer states, there might be some momentum behind a temporary relaxation of some specific restrictions,” he told GTR.
There are several potential obstacles to this route, including friction within the EU. French President Emmanuel Macron said following discussions with G7 leaders on March 11 that the bloc’s approach “remains unchanged” and the situation “does not justify lifting the sanctions on Russia”.
Kouzoupis said: “My view is that within the EU, there are going to be quite different views depending on where you are.
“There will be countries that take a far more hardline approach towards Russia because of their nexus to the current conflict in Ukraine, and others that are going to be very concerned about their own energy security.”
But even if sanctions were relaxed, Kouzoupis suggested “risk-averse” banks would remain wary of either inadvertently breaching other restrictions or suffering reputational damage.
“We have seen real-life examples of shipowners or traders that have OFAC licences to trade with Iran, usually for food exports or imports, but European financial institutions are not comfortable working with that client, even though it is a completely legal trade,” he said.
Banks would likely require encouragement from authorities, Kouzoupis noted, while borrowers would need to be reassured that engaging in Russian trade would not trigger a default under a loan agreement or trade finance facility.
“It’s going to have to be led from the government level,” he said.
