Global oil and shipping markets are once again being reshaped by geopolitical upheaval and conflict as Iran limits access in and out of the Strait of Hormuz. With activity reduced to around 90%, the immediate market response has been felt sharply in freight rates. VLCC, Suezmax, and LR2/Aframax tankers have been unable to transit the Strait since 28 February, pushing spot earning to record levels. These elevated rates, driven by higher insurance costs, risk premiums and transit delays, are expected to continue throughout the first half of March.
VLCC rates spiked dramatically to more than $400,000 per day, reveals the Baltic Exchange, with reports indicating that VLCCs have been put on subjects for nearly $700,000 per day Theoretical freight costs on key Middle East Gulf routes have risen from around $3 per barrel earlier in the year to roughly $11 per barrel, pushing transport to approximately 14% of the delivered cost of crude, compared with just four per cent in January, Clarkson’s Research and S&P Global data shows.
As of Monday (9 March) there are around 111 crude oil carriers (including 74 VLCCs) in the Gulf, representing six per cent of global tonnage and 195 product tankers, representing four per cent of tonnage. Overall, there are nearly 80 million barrels of oil awaiting transit while tankers heading to the Strait are operating at reduced speeds. Meanwhile, 13 crude tankers and 38 product tankers are waiting outside, figures which have reduced significantly over the past few days as vessels reroute to take on cargoes from other locations, including Yanbu on the Red Sea. With a large share of tanker capacity still in transit from earlier Middle East Gulf loadings, available tonnage remains limited and these vessels are increasingly seeking alternative cargoes amid escalating tensions and elevated freight rates.
Continued limited access to the Strait of Hormuz would have major disruptive implications for shipping markets and restrict a significant share of cargo flows with only limited potential for substitution utilising alternative vessels or routes.
Pipeline systems such as the Abu Dhabi Crude Oil Pipeline and Saudi Arabia’s East–West Petroline, which has a flow of around five million barrels per day, with thoughts of stretching the output close to seven million barrels per day, can divert some flows away from Hormuz. Available spare capacity, however, is estimated at around four million barrels per day, falling far short of the approximately 10 million barrels per day of crude and five million barrels per day of products that cannot be brought to market if limited access in and out of the Strait persists.
Oil prices have also been in flux, with Brent crude passing the $100-per-barrel mark on Monday, before dropping to nearly $90 on Wednesday. A sustained elevated rate of above $100 would be disruptive for markets resulting in rapid inventory drawdowns. The International Energy Agency on Tuesday announced that it may call for a significant a coordinated draw-down of 400m barrels. Sustained high prices would eventually result in a shift from stock-release mitigation to demand destruction, pushing rates to the $125–$150 range.
Bunker prices have risen sharply alongside oil, increasing by around 15 per cent at some key hubs.
Beyond the Strait itself, attention is turning to wider regional risks. Iranian-backed Houthi forces could resume attacks on commercial vessels in the Red Sea, while energy infrastructure, including refineries, storage facilities and export terminals, is increasingly seen as a potential next pressure point. Even if tanker transit resumes in the Strait, damage to refining capacity could prolong market strain.
