US Sanctions on Cosco Subsidiaries Cause Confusion in Tanker Market

U.S. sanctions on two large shipping companies last month disrupted the tanker market, forcing oil traders to cancel bookings and causing rates to spike as they searched for other ships, according to a September post from Clyde & Co.

The sanctions (see 1909250050), imposed by the Treasury's Office of Foreign Assets Control on two Cosco subsidiaries -- COSCO Shipping Tanker (Dalian) Co. and COSCO Shipping Tanker (Dalian) Seaman & Ship Management Co. -- caused “significant uncertainty” about which ships were and were not subject to sanctions, the post said. Although OFAC issued guidance explaining that the sanctions applied to any entity in which the subsidiaries have a 50 percent or more ownership stake, traders said ownership was sometimes difficult to determine, especially on short notice.

“This may lead to traders completely avoiding vessels connected to COSCO to avoid inadvertently breaching U.S. sanctions,” the law firm said.

The two subsidiaries operate more than 50 vessels, according to a post from Kharon, a sanctions guidance and analytics company run by former Treasury officials. Many of those ships operate globally, “demonstrating the potentially wide-ranging effects of the designations,” the company said.

For example: COSCO Shipping Tanker (Dalian) Co. owns China LNG Shipping (Holdings) Limited, Kharon said, which operates the Dapeng Star and the Min Rong, the post said. The Dapeng Star travels between China and Australia and the Min Rong travels between China and Indonesia, according to Kharon. Both would be subject to sanctions under OFAC’s announcement.

Other companies that could face sanctions because they are owned by the two subsidiaries include Hong Kong-based Pan Cosmos Shipping & Enterprises Co., Shenzhen COSCO Long Peng LPG Transportation Co. and the ships Cosgrand Lake, Ping An Yuan and Da Yuan Hu, Kharon said.

It was “unclear” whether cargo already loaded onto vessels owned by the subsidiaries would be allowed delivery or whether the cargo has to be transferred onto an unsanctioned ship first, Clyde & Co. said.