How the United Arab Emirates used ‘dark’ tanker tactics to bypass the Strait of Hormuz during the Iran war
Weilun soon, Alex Longley And Anthony DiPaola
Just a few weeks after the war began, one of the Persian Gulf’s largest oil producers quietly began secretly extracting its crude through the Strait of Hormuz. Soon, the secret project became so successful that the United Arab Emirates was already approaching the pre-war flow rate in the waterway when the United States and Iran signed the interim peace agreement.
The UAE’s aggressive effort to safely remove the barrels from the strait relied on tactics normally associated with sanctioned countries such as Iran, Russia and Venezuela: ships traveling “in the dark” without their transponders (and often under the cover of actual darkness) before dumping their cargo onto other tankers waiting outside the waterway, then returning to collect more.
But more importantly, authorities in Abu Dhabi needed enough ships to make the risky crossing; Not just once, but many times. For this, they asked Ga-Hyun Chung for help.
The highly private Korean shipping mogul shook up the tanker industry earlier this year when Sinokor Group embarked on an unprecedented acquisition spree. Bloomberg reported in March that it was one of the biggest winners from oil trade turmoil due to the Iran war, as tanker rates rose.
Now Sinokor has become a major owner of supertankers that extract crude oil from the Persian Gulf.
The company began chartering ships for “shuttle services” to Abu Dhabi National Oil Co. (Adnoc) starting at least in mid-April. As of June, almost half of Emirati crude oil shipments were on ships controlled by Sinokor, according to ship tracking data collected by analytics firm Vortexa.
This story is based on ship tracking data compiled by Bloomberg, figures from Vortexa and Kpler, another leading analytics firm, and interviews with more than a dozen ship brokers, traders and others in the industry. The scale of Sinokor’s role in chartering ships for “dark” crossings has not been previously reported.
Sinokor did not respond to requests for comment. Adnoc L&S, Adnoc’s shipping and logistics arm, said it did not comment on matters related to the location, movements or routing of its ships, but said it had “a large fleet of owned and leased ships”.
Adnoc also relies on tankers it directly owns, as well as other owners, while deals with Sinokor have been key in helping the UAE increase exports via Hormuz much faster than its Gulf neighbours.
This also created a huge profit opportunity for Sinokor, Chung and its new co-owner, Italian container giant MSC Group. Oil tanker markets are having one of their most profitable years ever, and shipbrokers suggest the premium for sailing into the Gulf during the war could yield returns of three to four times the pre-war rate.
Terms of the deals were not disclosed, but brokers estimate that just three tankers operating shuttles since mid-April could earn Sinokor around US$60 million ($86 million) to US$120 million.
Since the temporary ceasefire between the US and Iran came into effect, Sinokor has sent another stream of supertankers ready to collect crude oil into the Persian Gulf; At least two of them returned after leaving to unload their cargo. And it’s not just UAE cargo; The company is active in promoting its services to shipbrokers as it plans to collect barrels from elsewhere in the gulf.
“Sinokor’s moves during the Iran war are groundbreaking,” said Matt Wright, chief shipping analyst at Kpler. “They are raising rates for all shipowners, creating an environment that is supportive of their negotiating positions. They are also willing to go to corners of the market where shipowners may still be cautious, and that is why we are seeing the first signs of a recovery in the market.”
bold bets
Even in an industry dominated by extraordinary characters, Chung’s bold claims set him apart.
Headquartered in Seoul, Sinokor started out as a container shipper before becoming a smaller player in oil tankers. That changed dramatically late last year when the company suddenly went on a deal spree to buy and lease supertankers with the backing of MSC, one of shipping’s biggest players.
In the first weeks of the war, the sparse traffic in Hormuz appeared largely dominated by Iran-linked tankers, while the UAE and Saudi Arabia quickly redirected the flow of crude oil to export terminals in the Gulf of Oman and the Red Sea via pipelines bypassing the strait.
But while most ship owners and crews found the journey too dangerous, at least one firm (Greece’s Dynacom Tankers Management) appeared to quickly find a way out. Just 10 days after the start of the war, a ship operated by Dynacom was tripped by tracking systems showing its location near India after last receiving signals from the Persian Gulf.
Dynacom’s “dark pass” move will be one that many other shipowners and crude oil exporters will emulate in the coming weeks and months. Adnoc was one of them.
At least four of Sinokor’s ships appear in the Equasis maritime database as being managed by Adnoc; two of them have been since mid-April, but shipbrokers have said privately that it is even possible for some to start in March. The total number could be much higher as the maritime industry’s already opaque practices are exacerbated by the risks of war.
Of course, Adnoc also relied on ships from owners other than Sinokor, including tankers belonging to Navig8, an Adnoc-controlled firm, to join the Hormuz shuttles; this was a practice that by then was jokingly referred to by traders in the industry as “Adnoc milk runs”.
After collecting their cargo at UAE ports such as Zirku and Das Island, it will take about two days for the tankers to set out with their transponders via the Persian Gulf, through the Strait of Hormuz, towards the Gulf of Oman. There, they would dock next to empty tankers waiting to pick up the oil and distribute it to global markets.
The ships were traveling under cover of darkness, often in convoys that sailed close together and hugged the coast of Oman, according to two sources familiar with the matter.
Without transponders to track, analysts and journalists had to work from satellite images of the area.
According to loadings detected by both the Kpler and Vortexa platforms, Sinokor ships have carried an average of at least 680,000 barrels of material per day through the UAE’s Persian Gulf ports since April; but the actual figures may be much higher. Data shows these figures increased to 1.4 million barrels per day in June. At least 10 Sinokor ships operate shuttles from the UAE’s oil terminals in the Persian Gulf before being discharged into the Gulf of Oman, and three of the shuttle ships have been doing so since mid-April.
Transporting such large volumes at a time when tanker earnings were so high was extremely lucrative for the company and would have already gone some way towards paying back the billions of dollars of bets placed on supertankers.
This also puts Chung and Sinokor among the biggest winners of the shock to energy markets caused by the Iran war, alongside other major tanker owners and energy traders such as Vitol Group and Trafigura Group, which tend to thrive in times of disruption and volatility.
dark rush
Although the UAE was one of the first and most active shippers to pass through the strait, in early June its tankers were joined by an expanding stream of ships carrying oil from neighbors such as Kuwait and Iraq.
As the shipping industry gathered for a major conference in Athens, the increasing flow of dark passages was one of the top talking points. Another, of course, was Chung himself. The tireless businessman, known for his passion for arm wrestling to nearly everyone he encountered in the industry, was still in deal mode; He was trying to persuade other owners to sell him more supertankers, people familiar with the matter said.
Until then, most ships passing through Hormuz were supported by a U.S. military program that provided guidance and air cover as they sailed along the coast of Oman, avoiding potential mines in the middle of the strait and Iran controlling northward traffic through its own waters.
The influx of dark traffic is one factor that helps explain why oil markets weakened significantly in early June, along with a surge in exports from the United States and a decline in Chinese purchases.
Last week alone, the company sent at least 18 supertankers to the Gulf.
“After loading, we can cross the Strait of Hormuz,” Sinokor said in a message distributed to shipbrokers in late June, urging brokers to arrange for the company’s ships to load from an oil terminal in Iraq, adding: “If you have cargo available, please let us know.”
Bloomberg
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