- U.S. and EU sanctions on Russia’s dark fleet and Iran are removing tankers from circulation, driving up VLCC demand.
- Jefferies: sanctions sideline about 15% of the global fleet.
- ADNOC L&S is aggressively expanding, recently acquiring 32 tankers and planning further VLCC acquisitions.
While the world watches the unhinged actions of the new Trump administration—playing Geopolitics 101 for Dummies—leaving Europe’s security in shambles and pushing risks and fear back into the market, oil and gas analysts are more concerned about oil prices. Current sentiment suggests lower oil prices as part of an expected peace dividend from a potential U.S.-Russia Ukraine deal. However, this expectation is not based on fundamentals or geopolitical-military assessments from experts.
Meanwhile, those inside the global crude oil markets anticipate a completely different scenario. Norway’s Domestic Wealth Fund, one of the country’s sovereign wealth funds, and Abu Dhabi-based ADNOC L&S have already seen positive developments in the VLCC market, with significant investments underway or planned for the near future.
U.S.-based investment bank Jefferies foresees a robust bull market developing in the VLCC sector. In a new report, Jefferies noted that the impact of U.S. sanctions on Russia is increasing weekly, removing a substantial number of VLCCs from the market. At the same time, Jefferies pointed out that overall demand for VLCCs remains strong, as oil markets continue an upward demand cycle. Sanctioned volumes—particularly from Russia’s dark fleet and Iran—are being removed from circulation, leaving other producers scrambling for additional transportation capacity. The investment bank also expects non-sanctioned producers, especially non-OPEC, to increase production volumes. In the coming months, if OPEC statements hold true, additional volumes from Saudi Arabia, the UAE, and other Gulf producers are also expected to enter the market. Spare production capacity is expected to be utilized soon.
Currently, the global VLCC market consists of approximately 906 ships, 18 of which are already being used for floating storage. This leaves an available fleet of 888 VLCCs, of which 95 are under sanctions. Another 45 have been identified as having transported Iranian barrels, making them subject to sanctions as well. The former Biden administration had already placed 39 VLCCs on the OFAC list between October 2024 and January 2025. The current Trump administration is expected to impose additional or even maximum pressure sanctions on Iran and Russia in the coming months.
The global seaborne crude oil trade is approximately 40 million bpd, with VLCCs handling 22 million bpd. The dark fleet is believed to transport around 2 million bpd of these volumes. Jefferies predicts that overall VLCC fleet utilization will reach around 90% in 2025, with roughly 10% of ships sanctioned. If all OFAC measures are implemented, this figure could rise to 15%, removing an additional 45 VLCCs from the market.
Given this outlook, recent statements from ADNOC Logistics & Services (L&S) CFO Nick Gleeson come as no surprise. Gleeson stated that VLCCs currently represent an extremely attractive investment opportunity. ADNOC L&S has been building a strong position in the maritime logistics sector within the GCC, with ambitions to become a true global player. Over the past few months, the Abu Dhabi giant has expanded its fleet with 32 tankers following the acquisition of Navig8, a deal finalized last month. Since its listing in 2023, ADNOC L&S has launched an aggressive $6 billion expansion drive. Gleeson also stated that post-IPO spending is just the beginning. With backing from ADNOC and other key stakeholders, the company is poised to expand globally, with further acquisitions in the VLCC market expected.
In its FY2024 financial report last week, ADNOC L&S reaffirmed its capital expenditure guidance, reflecting its commitment to long-term growth and strategic expansion. The company anticipates an additional $3 billion+ in value-accretive organic investment by 2029, beyond already announced projects, applying the same investment return criteria.
At the same time, Norway’s Domestic Wealth Fund has also been highly active. Reports indicate that the smaller Norwegian SWF, which holds $36 billion, increased its shares in Frontline and Hafnia, two major tanker companies, in the second half of 2024. Folketrygdfondet, the fund manager, raised its stake in Frontline to 5.9%, up from 4.9% in June 2024. The stake is now valued at NOK 2 billion, or approximately 13 million Frontline shares.
A Bullish VLCC Market – But With Risks Ahead
The VLCC market is fundamentally bullish, driven by U.S. and EU sanctions on Russia’s dark fleet and Iran. Meanwhile, total crude oil demand remains strong, so removing sanctioned VLCCs from circulation will push freight rates even higher.
However, a black swan looms on the horizon. With around 80 new VLCCs currently on order, price pressures could emerge. The impact of these additions will depend on broader geopolitics—particularly U.S.-Russia-China dynamics—and the fact that nearly 100 VLCCs will reach 20+ years of age soon. While scrapping these aging vessels is likely, economic factors could influence the decision to keep them operational.
Given the prudent strategies of major players—especially Abu Dhabi and Saudi Arabia—significant shifts are expected in the market. A surge of Arab investments in VLCCs is clearly on the horizon. For other market players, the time to act is now if they want to maintain their share. Geopolitical factors must also be considered, as vessel ownership will increasingly influence which routes crude oil flows through worldwide.
By Cyril Widdershoven for Oilprice.com
Energy News Beat