US Taps Sanctioned 'Dark Fleet' to Combat Soaring Energy Prices

In a surprising turn, the United States is looking to the very "dark fleet" it has previously sanctioned as a potential solution to its escalating energy costs. U.S. Energy Secretary Chris Wright announced on Monday that Washington aims to transition these vessels from what he termed the 'bad-guy fleet' to the 'good-guy fleet'. The "dark fleet," also known as the shadow fleet, comprises ships operating outside standard maritime regulations, employing deceptive practices to transport sanctioned or high-risk cargo while evading detection.

Estimates of the fleet's size vary, with Secretary Wright believing it to be around 1,600 vessels. Data from TankerTrackers suggests 1,480 active ships, while maritime analytics firm Windward has identified 1,100 such vessels. The expansion of the dark fleet has been notable in recent years, particularly following sanctions imposed on Russian oil after the invasion of Ukraine. A significant number of these ships exceed the 15-year mark, beyond which technical failures become more common, thus increasing environmental safety risks.

Secretary Wright detailed the administration's strategy, which involves investors acquiring and refurbishing these idle, sanctioned vessels for the transport of legitimate oil. "They will not carry sanctioned oil any more," he stated. The U.S. has previously delisted sanctioned vessels; for instance, in March, the Treasury Department's Office of Foreign Assets Control lifted sanctions on the Panama-flagged crude oil supertanker Kiara M, which had been targeted during the Trump administration's efforts against Venezuela.

However, Richard Nephew, a senior research scholar at Columbia University's Centre on Global Energy Policy, expressed skepticism, suggesting this move does little to address the immediate security concerns for seafarers in the Strait of Hormuz, where at least 15 container ships have been attacked in the past 10 days. "You can repurpose all the ships you want. If you can’t solve the security problem, then you’re not solving the security premium shippers are charging and thereby the consequence to energy markets," Nephew commented.

War risk insurance premiums have seen a dramatic increase since the conflict began, soaring to as high as 10 percent of hull value from a previous 0.25 percent, adding millions to shipping costs. Secretary Wright's remarks also follow a recent decision by President Donald Trump to waive sanctions on Russian diesel, an agreement with President Vladimir Putin that would see Moscow supply millions of barrels of diesel to global markets.

With the U.S. midterm elections approaching, diesel prices have surged, averaging over $6 a gallon, a stark contrast to the previous year. Wholesale diesel prices reached record highs in September and October in major markets like Singapore, Europe, and the U.S., according to the International Energy Agency. Data from the International Monetary Fund's PortWatch monitor indicates a significant decrease in tanker traffic in the Strait of Hormuz compared to pre-war levels.

Analysts at Kpler estimate that only a fraction of the sanctioned vessels, approximately 24 out of 160, could potentially re-enter mainstream trade, considering their age and ownership restrictions. "If this is about getting ships out of sanctions, fine, no problem, proceed as you wish. If this is about solving the problem with whether we can get enough diesel and other products to market, this is not it," Mr. Nephew concluded.