August 30, 2013: One way Iran is coping with the severe sanctions imposed last year is to go to the barter system. A major barter partner is China, who needs a lot of oil and produces a lot of goods Iran needs. One category of trade items is large oil tankers. China is a major producer of these huge ships (that can carry over a million barrels of oil). Iran has obtained seven of these huge ships so far this year, giving a fleet of 37 VLCCs (Very Large Crude Carriers).

On average, each of these VLCCs can carry 1.73 million barrels of oil, weigh 200,000-300,000 tons, and cost over $120 million each. These ships tend to last 25-30 years. When at sea a VLCC costs over $10,000 a day to operate, but many Iranian VLCCs have been pressed into service storing oil Iran is pumping but has no customers for because of the sanctions. Stationary, a VLCC still costs several thousand dollars a day to operate.

Before the sanctions Iran was producing about 100 million barrels a month. Now it is less than half that. Shutting off wells is costly and time consuming, so nearly half of Iran’s tankers are used for storing this oil until it can be sold. Most of the Iranian tankers are used to carry oil to the few customers (China, Japan, South Korea, Turkey, and the UAE/United Arab Emirates).

India used to be a customer, but paying for their Iranian oil became an insurmountable problem. Turkey does not get a lot and the major customer is China, which can barter. The sanctions made the usual ship/cargo insurance unavailable to Iran, which is why the Iranian tanker fleet has expanded (to about fifty VLCC and smaller ships). Iran self-insures and gives bargain prices for those willing to make deals.