- Horrmuz Transits Stable, But Freight Rates Soar Post-June 13.
- VLCC Rates Double as Tensions Keep Tanker Risks High.
- Middle East Conflict Fuels Surge in Freight and War Risk Premiums.
Since the Israel-Iran conflict kicked off on June 13, the spotlight in the tanker market has been firmly on the Strait of Hormuz—a crucial bottleneck for global oil trade. About 24% of all seaborne oil and 33% of crude oil exports flow through this strait. While worries about regional tensions have ramped up, a total closure of this passage seems unlikely, as it would escalate the situation significantly and cut off Iran’s oil exports to major buyers like China, reports Break Wave Advisors.
Transit Levels Stay Steady Despite Geopolitical Tensions
Transit activity through the Strait of Hormuz has held steady within expected levels since the conflict began. For the week ending June 22, overall vessel transits were 4% above the 2024 average and slightly higher than the weekly average leading up to the attack. Strong crude and condensate exports in the first half of June—thanks to term contracts and front-loading—boosted transits by nearly 20% month-over-month during that time.
The dip in crude tanker transits seen in the latter half of the month is pretty typical and aligns with the usual mid-month loading patterns in the Middle East Gulf. On a daily average, the figures for June (up to the 22nd) remain robust for the season. Even though daily volatility has spiked since the attacks, such fluctuations are common and don’t necessarily signal a shift in trends.
Operators Are Cautious, But Not Steering Clear of the Strait
There’s no widespread avoidance of the Strait, although some vessels have been spotted waiting just outside the area, timing their passage carefully to fit specific laycan windows. The risk of closure is still very low, even after recent Iranian comments following U.S. strikes. However, the perceived risk is shaping operational behaviour and influencing rate movements.
Freight Rates Skyrocket Amid Risk Premiums and Supply Worries
Since June 13, spot VLCC freight rates from the Middle East have skyrocketed, more than doubling from their year-to-date lows to reach 16-month highs by June 23. This surge has had a ripple effect worldwide, with rates for VLCCs originating from the US Gulf climbing by 40% during the same timeframe.
War Risk Premiums, which had remained stable during the initial surge in freight rates, started to rise following the U.S. strikes. This shift indicates growing anxiety among insurers and adds extra cost pressures for charterers.
Long Supply Chains Provide Some Relief, But Demand Shifts Could Happen
While oil prices have reacted somewhat moderately so far, the extensive and adaptable global supply chain offers a bit of a cushion. The market could theoretically handle a loss of crude flowing through Hormuz for as long as 13 months. However, as freight rates rise, we might see a change in buying habits—especially in Asia, where buyers could start looking to the Atlantic Basin for alternative cargoes. This shift would increase tonne-mile demand and tighten vessel availability even further, pushing freight rates up.
Product Tankers Also Experience Significant Rate Hikes
The rate surge isn’t just affecting crude carriers. Long-range product tankers (LRs) operating out of the Middle East Gulf are also seeing rapid increases. Since the conflict began, LR1 eastbound rates have jumped by 66%, LR2 eastbound by 85%, and LR2 westbound by 65%. The rising transatlantic diesel exports from the US Gulf to Europe have also driven MR rates higher, fueled by supply concerns in Northwest Europe and uncertainty surrounding east-west middle distillate flows.
At the same time, regions like India’s west coast and Saudi ports on the Red Sea may become key players in supplying Europe with middle distillates. However, replacing naphtha flows from the Middle East to Asia could prove challenging, although increased shipments from the Mediterranean and Russian Baltic might help bridge the gap.
Ceasefire Could Ease Pressure—But Risks Remain
The recent ceasefire announcement by President Trump between Israel and Iran could help ease the pressure on freight rates, as early indicators point to a potential drop in oil prices back to levels we saw before the conflict. Still, the situation is quite delicate. Without solid proof of a lasting ceasefire and a genuine stop to hostilities, we can expect risk premiums and high freight rates to stick around for a while.
While we might see oil prices dip quickly, the unwinding of freight and insurance rates usually takes a bit longer. For the time being, tanker operators are in a strong position, able to demand high premiums due to the ongoing uncertainty.
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Source: Break Wave Advisors
