By Jonathan Saul

LONDON, May 27 (Reuters) - Dubai-based ship recycling leader GMS has received U.S. government approval to scrap four container ships that were subject to sanctions linked to Iran, potentially paving the way for Washington to reduce the shadow fleet these vessels form, founder and chief executive Anil Sharma told Reuters.

Sharma explained that the hundreds of ships that lack known insurance or compliance with environmental safety standards not only help Iran and Russia circumvent sanctions, but also pose an environmental risk due to the potential for oil and fuel spills as they sail through crowded sea lanes.

He added that having an approved mechanism for scrapping these ships provides an incentive to take them out of service, which contributes to reducing environmental risks and tightening control over the trade of oil and goods subject to sanctions.

Sharma noted that GMS, which buys ships and then recycles them through regulated docks, particularly in Asia, has been in talks for months with US authorities to acquire sanctioned vessels.

He told Reuters this week, "These are ships that have moved from a rules-based environment to a rules-free one, which creates a big problem for everyone involved in their operation."

He added that the company purchased the four ships from an undisclosed seller, which it said was not subject to sanctions, after obtaining permits from the US Treasury Department, in its first deal involving private-sector sellers.

In 2019, GMS, registered in the United States, purchased a North Korean-flagged bulk carrier, but that vessel was later sold at auction by the U.S. government for recycling.

The sanctions mean that companies like GMS cannot normally deal with these ships, which are often transferred through shell companies with their names changed to conceal their identity and true owners.

Sharma said that US authorities do not grant "blanket licenses," but require tracking of money flows and the submission of "accurate reports" to ensure that proceeds do not reach sanctioned entities.

U.S. Treasury officials have not yet responded to a Reuters request for comment.

The value of scrapping these ships usually reaches tens of millions of dollars, depending on the type of ship and its weight.

GMS explained that the four container ships have been provided with crews and insurance that allow them to sail, and are likely headed to India for recycling.

Sharma noted that the company is also targeting oil tankers subject to sanctions, but this activity will only become viable after the end of the US-Israeli war with Iran.

He added that the conflict has led to the detention of hundreds of ships in the Gulf region, amid uncertainty about the number of Iranian-linked commercial vessels damaged by US and Israeli strikes.

He said, "The oil tanker market is very active and strong, which means that most parties do not have sufficient incentive to recycle ships at the moment."