Sanctions, unrest hurt Syria's oil tanker trade

Thu May 26, 2011 11:40am EDT

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* Syrian ports operating normally despite unrest

* Less banks willing to offer trade finance

By Jonathan Saul and Dmitri Zhdannikov

LONDON, May 26 (Reuters) - Syrian oil shipments are virtually paralysed as tighter bank credit lines, sanctions and violence deter trade with ship owners wary of growing risks to their vessels, trade and shipping sources say.

Syria, a relatively minor crude exporter but one for which oil revenues are important, has seen demonstrations against President Bashar al-Assad's authoritarian rule. Protests have focused mainly on demands for political freedoms but economic hardship and a rising cost of living have fuelled discontent.

Developments around Syria's oil trade echo those in Libya, a much bigger producer, where unrest and international sanctions first deterred major players and banks at the beginning of the year before fully shutting exports down.

"The situation obviously has already affected shipping operations driving freight rates up, because shipowners are reluctant to accept cargoes bound for Syrian ports," said Jakob Larsen, maritime security officer with BIMCO, the world's largest private shipowners' association.

"As always when risks are high, those willing to take the risk are rewarded but only if things go well."

Syria produced 380,000 barrels per day (bpd) of oil in 2010, down from 600,000 bpd in 1996 and has typically exported six to eight cargoes a month on tankers of mostly sour Souedie crude.

Those volumes are enough to feed only a mid-sized European refinery and are only a fraction of Libya's pre-war exports of 1.3 million bpd.

The International Institute of Finance has estimated that Syria's economy will shrink by 3 percent this year, a steep fall from 4 percent growth in 2010, following the unrest. Oil revenues can reach over a quarter of the country's total income.

Rates on the benchmark Mediterranean route for aframax tankers, which can carry up to 600,000 barrels of oil, from the Syrian port of Banias have jumped in the past week to their highest in two months.

Cross-Mediterranean aframax tanker rates reached W126.25 in the Worldscale measure of freight rates on Thursday or $18,858 a day when translated into average earnings -- close to their peak of $21,383 a day last Friday which was the highest since late March, Baltic Exchange date showed.

Tanker brokers said shipowners were demanding a 20 to 30 point premium in Worldscale rates to travel to Syrian ports.

"Few owners are taking the risk of calling at Syrian ports because of the sanctions," a shipping source said. "If there are more cargoes the market will rocket."

Maritime group Inchape Shipping Services said the Syrian ports of Tartous, Latakia and Banias were working normally.

"Further unrest in the main cities is expected on Friday, however, after Friday prayers," it said. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

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The European Union imposed sanctions on Assad and other senior officials this week, following a move last month by the United States that included asset freezes and bans on U.S. business dealings.

That does not yet make oil trade with Syria illegal, but most banks and firms have been deterred by the developments.

"There used to be two to three banks still doing business with Syria, now this number has fallen maybe to one," said an oil trader in the Mediterranean.

Syria's two key production streams are the sour and heavy Souedie crude, which yields lower quality products, and the sweet and lighter Syrian Light grade. [ID:nLDE73R0VI]

Lifters of Souedie sour crude -- the only exported grade -- include energy groups ENI (ENI.MI), Arcadia, Petraco. "Syria is becoming a hot topic as credits have become a big problem and that could create some tensions in the sour market," said a source at one of the lifters.

"Volumes are not that great, but it used to be six to eight cargoes in the past."

A separate source at another trader said some trade was still continuing with Syria's state oil export monopoly Sytrol.

"We are directly dealing with Sytrol. We do not have any problems with dealing with them directly," the source said.

Rights groups say security forces have killed around 1,000 civilians in the unrest that broke out in mid-March. Syrian authorities, who blame the violence on armed groups, say at least 120 soldiers and police have been killed. [ID:nLDE74N1NH] (Writing by Jonathan Saul, editing by Anthony Barker)