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Oil tankers pass through the Strait of Hormuz on Dec. 21, 2018.

Hamad I Mohammed/Reuters

Key oil freight rates from the Middle East to Asia rocketed as much as 28 per cent on Friday in a global oil shipping market spooked by United States sanctions on units of Chinese giant COSCO for alleged involvement in ferrying crude out of Iran.

In what the State Department called “one of the largest sanctions actions the U.S. has taken” since curbs were reimposed on Iran in November last year, two units of COSCO were named alongside other companies in claims of involvement in sanctions-busting shipments of Iranian oil. [

The surprise move, affecting one of the world’s largest energy shippers, operating more than 50 supertankers, comes as U.S. President Donald Trump seeks to exert maximum pressure on Iran to drop nuclear programmes.

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As some Asian oil buyers rushed to secure vessels, rates for chartering supertankers, or very large crude carriers (VLCCs), to load crude oil from the Middle East to north Asia in October surged nearly 19 per cent overnight to about 75-76 points on Worldscale, an industry tool used to calculate freight charges, shipping and industry sources said.

That means an increase of about $600,000 per ship, a Singapore-based crude oil trader said.

The rates for loading Middle East crude to west coast India in the second week of October jumped 28 per cent to 80-92.5 points after Reliance Industries Ltd booked two supertankers overnight, industry sources said.

But there was also uncertainty over how widely the sanctions on the COSCO units – COSCO Shipping Tanker (Dalian) Co, Ltd and its subsidiary COSCO Shipping Tanker (Dalian) Seaman & Ship Management Co, Ltd – will be implemented.

COSCO Shipping Tanker (Dalian) owns and manages at least 36 tankers for crude and refined products, including 18 VLCCs, according to shipping sources and Refinitiv data.

At least three ships linked to COSCO Shipping Tanker (Dalian) scheduled to load oil from the United States and Brazil were cancelled, oil and shipping sources said.

“There’s confusion in the market for those who has fixed the COSCO’s vessels. Everyone wants to avoid exposure to U.S. sanctions,” a Singapore-based trader said.

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Provisional bookings for VLCCs Cosmerry Lake and Yuan Qiu Hu to load U.S. oil in the second half of October were scrapped.

Cosmerry Lake, owned by Cosmerry Lake Maritime Inc and managed by COSCO Shipping Tanker (Dalian), is floating off the U.S. Gulf. Yuan Qiu Hu, owned and managed by COSCO Shipping Tanker (Dalian), is on its way to the U.S. Gulf.

A third COSCO-linked supertanker was chartered to load in Brazil, but it has been replaced by another vessel, a source with knowledge of the matter said.

When contacted by Reuters, an official at COSCO said the impact of the sanctions was being examined internally and declined to comment further.

REFINERS

Industry sources said some buyers were holding off while they check with legal teams to better understand the impact of the sanctions.

“The market is fearful of sanctions so refiners are taking some preventive measures. We’ll have to see how widely implemented the sanctions will be,” said KY Lin, spokesman for Taiwanese refiner Formosa Petrochemical, a major crude oil buyer in Asia.

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Friday’s jolt left shipping rates springing back to levels not seen since mid-September drone and missile strikes on key Saudi Arabian oil production facilities roiled global markets. The COSCO vessels are equal to about 7.5 per cent of the world’s fleet of supertankers, according to Refinitiv data.

“Charterers are in trouble,” a North Asian shipbroker said, declining to be named citing company policy. “It was terrible news for every one of us with the Saudi drone attack, and now the market has to deal with U.S. sanctions on COSCO.”

“Good news for owners, good time for them to earn money,” the broker said.

While diplomatic tensions between the United States and Iran remain high, a British-flagged tanker that had been detained by Iran in the Strait of Hormuz on Friday left Bandar Abbas port heading for international waters.

On Thursday, Unipec, the trading arm of Asia’s largest refiner Sinopec and India’s largest refiner Indian Oil Corp, cancelled bookings of some COSCO ships and scrambled to find alternative ships to move their crude on. [

“Rates have definitely been pushed higher by these sanctions,” said an executive at a top shipbroker in Singapore, adding that ships carrying Middle East and U.S. crude to Asia were subject to the biggest impact. The broker declined to be identified, citing company policy.

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Crude shipments from the United States to Asia have also been affected. Industry sources said provisional bookings for VLCCs Cosmerry Lake and Yuan Qiu Hu to load U.S. oil in the second half of October had been scrapped. Cosmerry Lake is owned by Cosmerry Lake Maritime Inc and managed by Cosco Shipping Tanker (Dalian), while Yuan Qiu Hu is owned and managed by Cosco Shipping Tanker (Dalian).

COSCO officials were tight-lipped on Friday.

“(The) company is assessing the situation and impact internally as soon as possible, but so far we don’t have anything to update you,” said Zhang Zheng, an investor relations official with COSCO Shipping Energy Transportation, parent of COSCO Shipping Tanker (Dalian) Co, Ltd.

Trading in shares of COSCO Shipping Energy Transportation was halted on Thursday after the news on the sanctions, and will remain halted on Friday.

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