Publications: Notes at the Margin

What the IMO Giveth, the IMO Taketh (December 5, 2022)


Oil producers and refiners, even more so, have benefited since 2020 from regulations imposed by the International Maritime Organization (IMO) and, in 2022, from government-declared “emission control areas” in which shipowners must limit sulfur emissions from their vessels. As we have often noted, these regulations and requirements have depleted the global distillate pool, leading to extraordinary spreads between ultralow sulfur distillate fuel oil (ULSD) and gasoline. These rules have also helped widen spreads between light, low-sulfur crude oils and heavy Middle Eastern grades.


The IMO could create this chaos in the world oil market because it can enforce its rules globally. Shipowners must install scrubbers or use low-sulfur fuel because they know that authorities in ports everywhere will inspect their ships and that noncompliant vessels will be “arrested” and kept in port until fines are paid and violations corrected.


The IMO’s enforcement ability has been reinforced by the dominant shipping firms. Three or four companies account for eighty percent of the world’s container fleet, according to one estimate[i], giving them cartel-like market power. Ocean carriers have repeatedly been investigated in countries such as India and South Korea for holding prices well above costs. The US Congress even passed the Ocean Shipping Reform Act in an attempt to reduce their market power.[ii]


In contrast, new IMO and European Union regulations that take effect on January 1, 2023, will likely increase the maritime industry’s concentration, giving the major firms greater market power and the ability to lift prices. The regulations, intended to reduce emissions, will also cut petroleum use by ocean shipping. While no one has estimated the decline yet, it appears marine oil consumption could be halved by 2030.

[i] Julius Melnitzer, “Maritime shipping tries to reduce emissions, but key obstacles remain in its lane,” The Financial Post, July 20, 2022 [].

[ii] Tobias Burns, “Lawmakers fear growing power of cartel-like blocs amid high inflation,” The Hill, July 1, 2022 [].


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