At the helm of change: IMO decarbonization regulations and what they mean for GCC petrochemical exporters

By Noora Mukhtar, Senior Research Specialist, GPCA

The International Maritime Organization (IMO) has been intensifying its efforts to reduce greenhouse gas (GHG) emissions from international shipping, a sector responsible for approximately 3% of global emissions. In 2023, the IMO adopted an enhanced strategy aiming for net-zero GHG emissions by or around 2050, with interim targets set for 2030 and 2040. These regulations have several implications for the Gulf Cooperation Council (GCC) region, particularly for petrochemical producers who rely heavily on maritime transport for their exports.

Oil,And,Gas,Industrial,Refinery,At,Twilight,,Oil,Refinery,And

Overview of IMO’s decarbonization strategy and latest developments

Historical development

The IMO’s approach to decarbonizing shipping has evolved from broad aspirations to increasingly binding regulations. The journey began with the adoption of the first energy efficiency measures in 2011 and accelerated significantly over the past decade. The 2018 Initial Strategy established emissions reduction targets, while the 2023 Revised Strategy set even more ambitious goals (Figure 1).

The 2023 IMO GHG Strategy represents a step-change in ambition, outlining several transformative objectives:

1. Carbon intensity reduction: A minimum 40% reduction in CO₂ emissions per transport work by 2030, compared to 2008 levels.

2. Uptake of Zero or Near-Zero emission technologies: At least 5%, striving for 10% of the energy used by international shipping to come from zero or near-zero GHG emission technologies by 2030.

3. Total GHG emissions reduction: A reduction of total annual GHG emissions from international shipping by at least 20%, striving for 30%, by 2030, and by at least 70%, striving for 80%, by 2040, all relative to a 2008 baseline.

4. Net-Zero target: Achievement of net-zero GHG emissions from international shipping by or around 2050.

These ambitious targets are set to be achieved through a combination of technical and operational measures, which include the Energy Efficiency Existing Ship Index (EEXI), the Carbon Intensity Indicator (CII), Enhanced Ship Energy Efficiency Management Plans (SEEMP), and the Data Collection System (DCS), with mandatory compliance beginning in 2023. In addition, the IMO 2020 Sulfur Cap has been a major milestone, reducing the sulfur content of ship fuel to 0.5%, thereby cutting sulfur emissions and improving air quality. Together, these initiatives were introduced as part of the IMO’s ongoing decarbonization efforts and are designed to push the global fleet toward continuous improvement in energy efficiency and emissions reduction.

Aerial,View,Industry,Oil,Refinery,Oil,And,Gas,Refinery,Background,

Implementation timeline and future developments

The implementation of the IMO’s decarbonization strategy follows a phased approach, with increasingly stringent requirements coming into force over time (Figure 2).

The most recent updates agreed in principle at MEPC 83 (April 2025) include:

Mid-term GHG-Fuel-Intensity (GFI) Targets: 8-21 % Fuel lifecycle emissions (Well-to-Wake) cut by 2030 and 30-63 % by 2035.
Two-tier penalty system (USD 100/tCO₂ above Direct Compliance and USD 380/tCO₂ above the Base Target)
Credit system (Surplus Units) reward fuels below 19 g CO₂e/MJ until 2034, 14 g from 2035 onward
Next steps: final vote Oct 2025 (MEPC 84); formal entry into force Mar 2027, with data collection commencing 2028.

This would incentivize emissions reductions and generate funds to support the transition to zero-emission technologies, while assisting developing nations in adapting to these regulations.

These developments will significantly affect maritime stakeholders, particularly energy-intensive industries like petrochemical production in the GCC.

Shipping modes critical for GCC petrochemical trade under IMO regulations

GCC petrochemical exports rely predominantly on three main shipping modes, where each mode must adapt not only to fuel changes prompted by IMO measures but also to evolving operational standards, which can cost USD 10-35 million per vessel:

Parcel and chemical tankers: Specialized vessels (IMO Types 2/3) carry bulk chemicals, such as ethylene glycol and MEG. These vessels will require significant investment in retrofits to meet IMO emissions standards and CII regime.
Container ships : Used for high-value chemicals in ISO tank containers. Compliance with emissions regulations and fluctuating fuel costs will affect GCC shipping efficiency and competitiveness.
LNG carriers: These vessels transport liquefied feedstocks like ethane and LPG and are increasingly used for ammonia bunkering. The global LNG carrier fleet reached 701 vessels by early 2024, reflecting a 5% growth from the previous year, with projections suggesting it will exceed 1,000 vessels by 2028. The region’s investments in LNG infrastructure are increasingly important given the drive toward low‑carbon fuels.

A,Natural,Gas,Power,Plant,Is,A,Type,Of,Power

GCC fleet age is generally younger than the global average, but high utilization of parcel and LNG tankers limits flexibility for slow-steaming or retrofitting under the IMO’s CII regime.

Bunker‑fuel shifts: IMO 2020 → IMO 2024

The IMO 2020 sulfur cap significantly altered marine fuel consumption patterns, shifting demand from high-sulfur fuel oil (HSFO) toward very low-sulfur fuel oil (VLSFO) and marine gas oil (MGO). This transition introduced immediate volatility in fuel prices, impacting operational dynamics for maritime logistics. The newly 2024 measures (CII/EEXI) are expected to further influence fuel choices as operators will face additional pressure to reduce carbon intensity, thereby accelerating the shift to alternative, lower-carbon fuels (Figure 3). According to BCG’s abatement-cost curve, fossil LNG still has the lowest abatement cost (-200 to 100 USD/t CO₂) but earns no Surplus credits, whereas bio-LNG and biodiesel/HVO generate credits at ≈50-350 USD/t CO₂ and will likely dominate early compliance. GCC petrochemical producers must account for these increased costs in their pricing structures and understand how to manage rising shipping expenses.

In preparation for these regulatory shifts, the GCC region demonstrates readiness through established infrastructure for VLSFO and MGO. LNG has also emerged as a promising mid-term compliance fuel due to its lower sulfur and carbon content, supported by existing infrastructure at key regional ports such as Ras Laffan in Qatar. Long-term readiness also includes projects focusing on green ammonia and methanol, positioning the GCC as a potential leader in sustainable marine fuels.

Cost and competitiveness impacts

Fuel price volatility and transition to low-carbon fuels, along with stricter regulations, have direct implications on operational costs. These rising costs directly impact the delivered cost of products, thereby affecting global competitiveness:

Higher shipping costs:
The transition to low-carbon fuels and the implementation of emissions monitoring technologies are leading to higher shipping costs. For GCC petrochemical producers, these increased costs, especially for high-value chemicals transported by container ships and parcel tankers, may diminish profit margins. The ability to pass these increased costs to customers will depend on the competitiveness of the market, but petrochemical companies must factor this into their cost forecasting and pricing strategies.

*SABIC’s involvement in bio-methanol production is focused on industrial feedstocks, but could offer the potential for future adaptation into green methanol production for maritime use.

Oil,Refinery,Plant,At,Sunset.,Gas,Chemical,Equipment,Prodiction,Import

New compliance penalties:
From 2027, ships that miss the Base or Direct-Compliance GFI lines face Tier-1 (100 USD/t) or Tier-2 (380 USD/t) remedial payments, creating a direct pass-through cost for GCC exporters unless charter parties are renegotiated.

Market access and regulations:
As carbon pricing mechanisms are being implemented, shipping costs to key markets like the EU will rise. The EU Emissions Trading System (EU ETS) now includes emissions from large ships (5,000 gross tonnage and above) entering EU ports, impacting GCC petrochemical exports. Starting in 2027, the EU ETS will extend to offshore vessels, increasing costs for companies involved in oil, gas, and maritime construction. This regulatory change will require GCC producers to engage proactively with shipping and logistics partners to ensure compliance and manage carbon costs.

Speed and delivery time:
Slower shipping speeds, driven by the need for energy-efficient vessels using alternative fuels like LNG or ammonia, can lead to longer transit times. For GCC petrochemical producers, this may affect the timely delivery of products, potentially causing inventory shortages or supply chain disruptions. Producers will need to adjust their logistics strategies to account for longer lead times, potentially increasing reliance on stockpiling or alternative routes to maintain consistency in product availability.

Conclusion and strategic opportunities for GCC petrochemical producers

While the evolving regulatory landscape presents challenges for GCC petrochemical producers, it also opens up significant strategic opportunities. These include leveraging green fuels and positioning GCC ports—such as Jubail, Ras Laffan, Fujairah, and Jebel Ali—as green bunkering hubs, capitalizing on circular economy principles by utilizing plant off-gases for on-site power or marine fuels, and adopting Carbon Capture and Storage (CCS) technologies in both port facilities and onboard ships. With the region’s deep knowledge of petrochemical production and access to vast renewable energy resources and feedstock, the industry is uniquely positioned to serve as suppliers of alternative fuels. Additionally, transitioning to greener fuels offers a pathway to reduce Scope 3 emissions, aligning with global sustainability goals. Investments in digital technologies and operational efficiencies, such as advanced weather routing and real-time emissions monitoring, will help mitigate rising costs. Finally, collaborative industry initiatives across GCC stakeholders, including petrochemical producers, shipping companies, and port authorities, can streamline investments in alternative fuels and shared infrastructure, positioning the region as a leader in the decarbonizing maritime industry.