In contrast, Biden had been a part of the Obama administration which had a hand in crafting the JCPOA and he has pledged to re-join it, albeit as a starting point for follow-on negotiations. Once again, it is expected that the Iranian market will slowly and cautiously open up for the shipping and insurance industry.
An easing of US sanctions on Iran is also likely to result in an influx of additional oil supply. Prior to the re-imposition of secondary sanctions by the US, most of the oil exported by Iran was purchased by eight countries, including China, India, Japan, South Korea, and Taiwan. Given the US-China route is 2.5 times longer than the Iran-China route, this could result in lower tanker rates to the extent that Iran’s exports to Asia replace US exports.
A combination of US sanctions and the COVID-19 pandemic has also forced a number of Iranian tankers into floating storage for Iran’s excess oil production. Whilst the exact number of Iranian vessels on floating storage is difficult to confirm as AIS signals have been turned off, it was estimated in July 2020 that around 30 vessels (mostly supertankers, each with capacity of up to 2 million barrels) were being used as floating storage. If these vessels were to return to commercial service, the increase of vessel supply may also serve to drive down tanker rates.
However, Biden will have to balance re-building a US-Iran relationship with the interests of Iran’s regional enemies in the Middle East. In particular, Biden has historically shown strong bipartisan support for Israel and has a good relationship with Israel’s current prime minister, Benjamin Netanyahu. Israel has opposed the JCPOA from the start and has expressed its disappointment should the US re-join it.
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Saudi Arabia
Under President Trump, Saudi Arabia (the location of his first official foreign visit as President), enjoyed near-unconditional support. Trump backed Saudi Arabia’s stance against Iran, encouraged its purchase of US-made weapons, and outraged Congress by vetoing a bipartisan resolution to end US military involvement in Saudi Arabia’s war in Yemen.
Whilst it is expected that Biden will adopt a balanced approach given Saudi Arabia’s position as a “critical” partner in preserving stability in the energy markets and in a volatile region, Biden has already expressed his desire to end the sale of weapons to Saudi Arabia and to end US support for the Saudi war in Yemen. Saudi Arabia has already expressed its displeasure towards Biden’s apparent position in respect of Iran.
A cooling of US-Saudi Arabia relations may prompt Saudi Arabia to look to gain back oil market share that has been lost to US production since the US’s drive towards energy independence. Similar to Iran, should oil from Saudi Arabia supplant US exports, the shorter voyage between Saudi Arabia and Asia may be negative for tanker demand. On the other hand, oil production in Saudi Arabia is carefully controlled and overproduction may force tankers into floating storage and drive up spot rates.
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Venezuela
Venezuela is another oil producing country that has felt the wrath of US sanctions. Unlike Iran, however, the US’s issue with Venezuela rests largely with its leadership and Maduro’s dictatorship, and concerns regarding the country’s humanitarian crisis.
The Biden campaign’s stated intention is not to dismantle the sanction policy currently in place, but instead to modify it to apply sanctions in a "more intelligent manner". While an easing or change in US sanctions on Venezuela would theoretically increase global oil supply and impact tanker rates in a similar way to the scenario in Iran, Venezuela is far more restricted by its failing economy, rampant hyperinflation and humanitarian crisis than Iran. However, if the US were to ease sanctions on vessels with prior calls to Venezuelan ports, this would increase the supply of vessels available to charterers and result in lower rates.
Biden’s apparent overriding goal in Venezuela - to achieve free, fair and credible elections - is a different kind of beast to Iran’s nuclear programme and represents a clash of ideology rather than policy between the US and Maduro. While Biden can be expected to pursue an international approach to confront the humanitarian crisis in Venezuela, it may be too soon to know the probable effect of Biden’s election on US sanctions on Venezuela. However, Biden’s approach to the issue may in time see an easing of sanctions, or at least a different approach to them, in the hope of a diplomatic solution. In a world where the shipping and insurance industry must tread so carefully, this will certainly be something that the industry will want to keep a close eye on.
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China
The US-China trade war has affected both countries, and the majority of the costs have unfortunately been borne by US domestic companies and consumers - since 2018, tariff-related uncertainty and costs shaved 0.3% off US economic growth and reduced household income by an estimated average of US$580. In 2019, prior to the additional disruptions experienced in 2020, Chinese imports fell by nearly 6.5%, whilst US exports decreased by 10%.
Although Biden has also campaigned for policies to support domestic US jobs and his presidency will not mean the end of trade tariffs, he is expected to favour more diplomatic means to constrain China through cooperation with allies, rather than adopting the more confrontational approach favoured by Trump.
The US-China trade war has also prompted some diversification of import sources with US importers switching their production from China to other countries in Asia and the Middle East. This diversification results in smaller orders from more locations, translating into an increased number of shipments for the same quantity of goods within a more complex shipping network. The trade war has demonstrated the difficulties associated with over reliance on a single source for imports, and it will be interesting to see whether an easing of trade tensions under Biden will reverse this trend, or whether US importers will continue to spread the risk.
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Climate change
With publicity garnered by movements such as Extinction Rebellion and school strikes led by Greta Thunberg, and the devastating wildfires experienced recently, climate change has been a divisive issue during the current administration. Under President Trump, who has largely favoured the promotion of US business interests over that of the environment, the US pulled out of the Paris Climate Agreement and rolled back many regulations requiring businesses to reduce their environmental footprint.
The incoming Biden administration has a climate change agenda that has been described as the most ambitious of any US mainstream candidate with plans to make the US electricity production carbon-free by 2035 and with net zero emissions by 2050, in addition to its pledge to re-join the Paris Climate Agreement. Biden can be expected to impose stricter regulations on businesses across all sectors, including shipping, in efforts to reduce emissions. This commitment for change has been demonstrated in the naming of John Kerry as special envoy for climate, which will be a cabinet-level position and part of the National Security Council.
Emissions
The shipping industry is one of the planet’s biggest emitters of harmful greenhouse gases. If global shipping was a country, it would be the sixth largest emitter in the world, ahead of France and Germany. Despite this, compared to other major transport sectors (e.g. road and air), the shipping industry has lagged behind both in terms of research, innovation and transformation toward a low carbon growth path.
Biden’s campaign has already voiced its desire to limit vessel emissions and move towards greener shipping practices. Despite the, likely unintended, negative impact of his various trade and foreign policies on the industry, President Trump has not been shy about his support for the oil industry; oil production from public lands and waters topped a record number of barrels in 2019.
One of the ways in which Biden may seek to achieve greener shipping is through support for operators and ports who have made significant long-term investments in climate-friendly fuels, including vessels fuelled by, and port infrastructure to support, liquefied natural gas (LNG). While Trump boosted the LNG industry by reducing regulatory bottlenecks, his trade war with China saw the LNG industry become collateral damage when China imposed tariffs on US LNG.
The IMO’s goal of reducing greenhouse gas emissions by 50% from 2008 levels by 2050 is consistent with the Paris Climate Agreement. With Biden’s pledge to re-join the Paris Climate Agreement, and Biden’s call for the US to lead the world in locking in enforceable international agreements towards sustainable energy targets, the US looks increasingly likely to back more aggressive regulatory action being taken by the IMO to further its decarbonisation drive.
As a leader in the development of electric vehicles, drone technology, and with large investments in renewables and energy storage battery technologies, the US is at the forefront of technologies that can innovate the industry. It has been surprising that previous US administrations have not attempted to create a more sustainable US maritime industry - although achieving a more sustainable maritime industry is a long term goal, and the reluctance of previous administrations to take this path may be a result of pressure to achieve immediate and tangible results that satisfy voters between elections.
However, with the technologies available to it and the increasing body of evidence supporting the need for action, if the Biden administration can harness the support generated by the recent environmental movements, it may find itself in a much better position than previous administrations to effect long-overdue changes required to begin an era of “green shipping”.
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Comment
Joe Biden’s approach to foreign policy and climate change will mean that the shipping and insurance industry is likely to be faced with a different global stage than under the Trump administration. Shipping and insurance companies will be able to consider where business might again face less barriers. The IMO’s efforts to reduce to the shipping sector’s contribution to global warming were proceeding regardless of the previous administration’s policies. However, they are likely to now have an important and powerful backer for their efforts, which could assist in more rapid adoption of further green shipping initiatives.
Read other items in Marine Brief - November 2020
Read other items in London Market Brief - February 2021
