Oil Shipping Costs Soar to 6-Year Peak as Middle East Tensions Rise

Shipping costs for oil tankers have reached their highest levels in six years due to increased Middle East crude exports and fears of potential U.S.-Iran military conflict. The daily cost to charter large oil carriers has more than tripled since the beginning of the year, reaching over $170,000 per day.

Oil tanker shipping rates have climbed to their highest point in six years as Middle Eastern crude exports surge and concerns grow over potential military action between the United States and Iran, according to industry experts.

Charter rates for very large crude carriers (VLCCs) capable of transporting up to 2 million barrels from Middle Eastern ports to China have jumped more than three times their January levels, reaching above $170,000 daily by Tuesday. This marks the steepest pricing since April 2020, according to LSEG data.

February crude exports from the Middle East topped 19 million barrels daily, representing the highest volume since April 2020. Shipping analytics company Kpler reports that Saudi Arabia, the United Arab Emirates, and Iran led these exports, with increased demand from India as that nation reduced its Russian oil purchases.

June Goh, a senior analyst with Sparta Commodities, explained the market dynamics: “VLCC freight rates have seen many positive fundamental drivers, starting with Venezuela barrels moving on legitimate freight vs a dark fleet before, increased OPEC+ production and healthy crude demand from refineries, particularly from India, which has moved from Russian to Middle Eastern barrels.”

Goh also predicted broader market impacts, stating: “Suezmax and Aframax markets will soon receive the spillover effects in the dirty freight market,” referring to smaller tanker vessels used for crude and fuel oil transport.

Insurance costs could climb significantly if Washington launches strikes against Iran, potentially prompting Tehran to disrupt operations through the strategically important Strait of Hormuz, a crucial passage for Gulf oil shipments.

Shipping broker Clarksons noted in their analysis: “For crude tankers, the key point is that VLCC spot … (rates do) not need barrels to disappear to move. It can reprice quickly on perceived risk through higher war-risk premiums, owners demanding compensation to call the region, and charterers accelerating bookings further out in time to reduce schedule uncertainty.”

Maritime security firm Dryad Global reported Monday that commercial shipping in the Gulf of Oman and Strait of Hormuz faces increased risks of GPS interference and ship tracking disruption, directly connected to current Iranian military operations.

The available tanker fleet has shrunk as hundreds of older vessels have been transferred to what’s known as the shadow fleet – ships with questionable insurance coverage used for transporting sanctioned oil from Iran and Russia. Major oil companies refuse to use these vessels, creating tighter ship availability until new vessels enter service over the next three years.

South Korean shipping company Sinokor has emerged as a dominant force in the VLCC market, acquiring vessels and reducing available supply for other operators, which allows owners to increase charter rates for standard 30-day contracts.

Industry estimates indicate Sinokor currently operates approximately 78 VLCCs in the active spot market, with expectations to reach at least 88 vessels this quarter and potentially 100 to 130 ships eventually.

Signal Group, a shipping analytics firm, noted last week: “At the 88-vessel threshold, Sinokor becomes the largest commercial operator in the VLCC segment, accounting for roughly 24% of the spot-trading fleet and approximately 12% of the total global VLCC fleet – an unprecedented level of concentration for a single commercial entity in this market.”

Market analysts expect the VLCC sector to maintain strength, supporting higher rates for operators. However, Sparta’s Goh cautioned: “At some point, expensive freight will hit refining profitability and could be the trigger to reduce demand for the fleet.”