Cosco Energy Unit Suspends Trading, Oil Transport Orders Canceled After U.S. Blacklisting

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Chinese state shipping behemoth Cosco Shipping Holdings Co. halted trading of shares in its oil transport unit as it tries to contain the fallout from the U.S. blacklisting of its tankers for allegedly moving illicit Iranian oil.

Cosco Shipping Energy Transportation said in a filing with the Hong Kong Stock Exchange on Thursday that its shares won’t trade pending an announcement.

People with direct knowledge of the issue said the unit, which runs a fleet of 120 tankers including 44 very large crude carriers, is looking for ways to contain damage that includes canceled oil-transport bookings.

“This is bringing them out of business in terms of VLCCs shipping crude from the U.S. to the Far Eastern destinations,” said Peter Sand, chief shipping analyst at Bimco, a trade industry body. “It’s not their biggest trade, but the implications can be bigger, as oil traders and importers may shy away from doing business with them, fearing U.S. punitive action.”

The Trump administration on Wednesday blacklisted several Chinese companies including two Cosco units—Cosco Shipping Tanker (Dalian) Co. and Cosco Shipping Tanker (Dalian) Seaman & Ship Management Co.—in actions that affect more than four dozen vessels.

Cosco is the world’s biggest shipping operator in terms of fleet and capacity, operating more than 1,100 vessels of all types.

Two oil executives said China’s Unipec, an arm of refining giant China Petroleum & Chemical Corp. , had replaced at least three oil cargoes from Cosco ships to other operators.

Separately, a veteran Singapore broker said that two Cosco cargoes had been canceled. “It’s for smaller tankers, but it may well spread and hit their VLCCs. They will then find themselves in the eye of an unexpected storm.”

The U.S. action to further curb Iranian oil exports signaled the administration’s commitment to its “maximum pressure” campaign as European allies and other nations push Washington to ease sanctions and cool rising tensions between the U.S. and Iran.

With Cosco caught in the crossfire, tense ties between Washington and Beijing will be further strained as the two superpowers clash over trade, security and a host of other topics.

“We’re telling China and all nations: Know that we will sanction every violation of sanctionable activity,” Secretary of State Mike Pompeo said on Wednesday.

A Cosco executive who asked not to be named as he is not authorized to speak to the media, said the U.S. hit “came out of the blue” as far as the carrier was concerned.

“You never know where President Trump will hit next,” he said. “It’s very unfair to tell ports, booking agents and other parties that they will be punished if they work with Cosco ships. We are not involved in any illicit oil movement.”

Shipping brokers say Iranian tankers often turn off their identification signals at night and transship oil to other tankers at sea.

“It’s a common practice off Borneo or the waters around Malaysia,” the Singapore broker said. “The ships then move towards China, but we haven’t heard of any Cosco ships being part of this.”

Iranian President Hassan Rouhani called the U.S. campaign “merciless economic terrorism” and said his government wouldn’t negotiate with the U.S. unless Washington lifted the sanctions.

The new steps are among an escalating series of sanctions that have battered Iran’s economy but have not yet persuaded Tehran to accede to U.S. demands to negotiate a new nuclear and security pact.

China, as the biggest remaining buyer of Iran’s crude, has so far resisted U.S. attempts to halt its consumption of the Mideastern country’s supply.

China imported 788,000 tons of crude from Iran in August, according to Chinese customs data, compared with a monthly average of 2.4 million tons last year.

Big ship owners from countries like Greece that control about a quarter of the global tanker fleet said they have stopped doing business with Iran.

“We’ve been loading Iranian oil for the past 25 years, but with the Americans breathing down your neck, it’s not worth the risk,” a Greek owner who runs around 15 tankers said. “If you are caught, you pay a heavy fine and can’t do business in the U.S., which is now a big oil exporter.”

China strongly opposes the U.S. blacklisting its companies and has consistently pushed back against the latest U.S. sanctions against Iran.

“The U.S. disregards the legitimate rights and interests of all parties and arbitrarily wields the stick of sanctions,” foreign ministry spokesman Geng Shuang told reporters in Beijing on Thursday. “It is a gross violation of the basic norms of international relations.”

Source: wsj.com