US sanctions push freight costs to record highs

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    A file photo of a China Ocean Shipping Company (COSCO) vessel seen near oil tanks at the China National Petroleum Corporation (CNPC)’s Dalian Petrochemical Corp in Dalian, Liaoning province, China. The United States’ sanctions on Sept. 25 pushed global freight costs to record highs and added millions of dollars in costs to many voyages. (Reuters Photo)
    Oil tanks in China. (Photo by REUTERS)

    By Timothy Gardner

    WASHINGTON – The Trump administration assured US banks on Wednesday that they can temporarily process US dollar transactions on a Dalian unit of China’s biggest shipping company COSCO that Washington had imposed sanctions on over suspicions it transported oil from Iran.

    The United States’ sanctions on Sept. 25 pushed global freight costs to record highs and added millions of dollars in costs to many voyages.

    David Peyman, a US State Department official on sanctions, said this month that the ships were the “key artery” for evading US sanctions on Iran’s oil exports and that if the behavior did not change the administration would look to aggressively and fully enforce US sanctions.

    China is the world’s largest importer of Iranian oil despite sanctions that US President Donald Trump unilaterally reimposed on Tehran last year over its nuclear program. Trump hopes the sanctions will also limit Tehran’s ballistic missile program and influence across the Middle East. Tehran says its nuclear program is for peaceful purposes.

    The US Treasury Department’s Office of Foreign Assets Control, or OFAC, said on Wednesday in guidance to sanctions watchers known as “frequently asked questions” it would not expect US financial institutions “to conduct additional due diligence beyond the information collected in the ordinary course of processing such transactions.”

    The guidance assured banks such transactions with COSCO Shipping Tanker (Dalian) Co are permitted through Dec. 20, a wind-down period that Treasury allowed in a temporary waiver issued in October.

    Daniel Pilarski, a partner and sanctions expert at the Watson Farley & Williams law firm, said that the point of the guidance was to allow US banks to assume that unless they have knowledge or reason to know that transactions are outside what was allowed in the department’s waiver, they can continue to process dollar payments through Dec. 20.

    “It’s not perfect, but it gives a fairly broad latitude to permit almost any US dollar transactions involving COSCO Dalian,” Pilarksi said.

    It is not known yet whether the Treasury Department will renew the waiver to go beyond Dec. 20.

    The department made clear in its guidance on Wednesday that non-U.S. companies and market players are not exposed to so-called secondary sanctions over deals with the Dalian unit of COSCO. It had been an open question after the department released guidance in September on whether non-US companies and individuals could be exposed to the sanctions.

    China’s imports of oil from Iran in October were stable from the previous month, Chinese customs data showed this week. Imports from Iran were 532,790 tons in October, just below 538,878 tons in September. – Reuters