Trump's shadow fleet loophole: Easing US sanctions on oil tankers may not lower fuel costs

A new solution for addressing the problem of reducing the strain on global oil markets by the Trump administration includes allowing some deliveries of crude oil and refined products to be made via ships that have been subjected to sanctions before. This will help facilitate oil movement through major routes, although it will not reduce high shipping costs. The discussions centre on the so-called shadow fleet, a loose network of tankers associated with transporting oil from sanctioned countries, including Russia, Iran and Venezuela.

According to Reuters, a US official said Washington was considering allowing these vessels to carry oil that is not itself prohibited under American sanctions.

Also Read | The US has $100 billion to break China’s rare-earth grip. Can it stop Beijing from holding America’s supply chain hostage?


The distinction matters. The proposal is not intended to open the door to Russian or Iranian oil shipments that remain subject to US restrictions.

It would, however, permit some of the previously approved vessels to carry legally traded crude oil and refined petroleum products.

However, there is an issue that can impede the plan since having more ships does not mean cheaper shipping costs due to tanker problems, insurance constraints, and limited availability of ships.

Why Washington is looking at sanctioned tankers

The government aims to tackle a shipping costs issue, which has been exacerbated due to disputes between Iran and Ukraine and their impact on the oil market. The prices for tankers have risen to all-time highs, thereby making transport costs higher for crude and fuel.

According to Reuters, the US Energy Secretary Chris Wright made a video message to the World Petroleum Congress held in Riyadh regarding the possibility of lifting limitations for shadow fleets. Energy research company Energy Aspects mentioned this initiative in its client’s note.

Also Read | Can a private company switch off a country’s battlefield communications? The Starlink-Ukraine crisis exposes a new vulnerability in modern warfare

The pressure extends beyond shipping companies.

High costs of transport have made US crude oil less appealing for many Asian refiners who are looking for alternatives from the Middle East and Latin America. An increased number of vessels that can carry these cargoes will enable shipment of more crude oil and its products from the Gulf region, a US official said to Reuters.

The timing also carries political significance.

President Donald Trump faces the November 3 midterm elections, with high oil and fuel prices posing a risk for Republicans seeking to retain control of both chambers of Congress.

Trump has already temporarily lifted sanctions on Russian diesel fuel through April 7. That decision drew sharp criticism from Ukrainian President Volodymyr Zelenskyy, European countries and Republican senators, who argued that additional Russian oil revenue could help Moscow finance its war in Ukraine, Reuters reported.

The loophole may not deliver cheaper fuel

The central question is whether easing restrictions on the shadow fleet would add enough shipping capacity to make a meaningful difference to freight rates.

Energy Aspects does not expect a substantial reduction in shipping costs from the proposed change.

In its assessment, lifting restrictions could allow more oil to move in the Middle East, but the effect on overall freight rates would probably remain limited.

Many of the vessels involved are old and poorly maintained, according to the research firm's note cited by Reuters. Their condition raises questions about how much additional capacity they could provide to the wider shipping market.

Energy Aspects also noted that many tankers sanctioned over their links to Russia or Venezuela had continued trading during the previous three months. If those ships are already active, removing some restrictions would not necessarily add a large number of new vessels to the market.

The proposal could still have a narrower benefit.

As the research agency indicated, a few more tankers might come into the picture for performing shuttle service through the Strait of Hormuz, which is strategically important for the movement of tankers between Iran and Oman.

This would help facilitate some specific shipping operations without affecting the overall supply and demand dynamics of tankers.

Insurance rules and the Russia question

Even if Washington approves the change, US sanctions relief would not necessarily make every previously restricted tanker commercially viable.

Sources within the maritime sector have told Reuters that insurers will continue to operate within the scope of European Union and UK law, possibly restricting the types of vessels able to get the necessary coverage to travel internationally.

There is, therefore, a divergence between what US authorities allow and what shipping firms can actually do. A tanker may be eligible to transport specific cargoes based on US regulations but could face difficulties getting insured or travelling on certain routes.

The administration has also sought to separate the proposed measure from any effort to help Russia export sanctioned oil.

The US Department of Energy informed Reuters that relaxing rules regarding shadow fleet ships would not help Russia in transporting its oil or oil products. The Treasury Department deferred queries to the Department of Energy, whereas the White House did not immediately respond to requests for a statement.

However, the wider political debate is difficult to avoid. The earlier decision to ease sanctions on Russian diesel has already triggered concerns that measures intended to stabilise energy markets could generate revenue for Moscow. Any further relaxation involving tankers is likely to face scrutiny over whether its economic benefits justify the risks.

For now, the proposal remains under discussion. Companies seeking to use the affected vessels would need to apply to the US Treasury Department, according to the US official cited by Reuters.