The global tanker market is bracing for a significant surge in freight and insurance costs following the Israeli attack on Iran on June 13, as confirmed by shipping executives in major hubs like Tokyo, London, Copenhagen, and Singapore, speaking to Platts, part of S&P Global Commodity Insights, on June 16.
Risk Premiums
The Persian Gulf spot freight market is currently characterized by heightened caution and rising rates following recent escalations in the Israeli-Iranian conflict, despite no major new offers being widely reported.
Freight Rates and Risk Premiums: While major offers in the Persian Gulf spot freight market were scarce, a notable development saw a Long Range I (LR1) tanker offered at WS260 for June 26 naphtha loading on the Red Sea-Japan route. This rate is more than double the previous week’s levels, reflecting the increased risk premium associated with transitioning volatile regions. The Red Sea-Japan route typically commands a premium over Persian Gulf loadings.
Sources from shipowning companies anticipate that freight rates on key routes will rise by WS50-WS100 in the coming days. As one source from a large tanker-owning company stated, “The rewards have to be commensurate with the risk,” indicating that higher rates are necessary to compensate for the elevated geopolitical risks.
Continued Persian Gulf Operations (with caveats): Despite the tensions, most shipping companies, except those with Israeli ownership links or a history of vessel damage in the region, are currently prepared to call on Persian Gulf ports. Sources from three major tanker shipping companies confirmed that they would not hesitate to load or discharge cargoes in the Persian Gulf unless there is a significant attack on commercial shipping or if shipping lanes are blocked.
Tanker Trades
The ongoing conflict in the Middle East has brought the Strait of Hormuz into sharp focus, a critical maritime chokepoint connecting the Persian Gulf to the Arabian Sea. This strait is immensely significant for global energy trade, with approximately 20 million b/d of seaborne crude, condensate, and refined fuels, along with nearly 11 Bcf/d of LNG, transiting through it daily. This represents about 20% of the world’s oil supply and a significant portion of global LNG exports, primarily from Qatar.
Market Reaction and Owner Caution:
Despite the ongoing flow of cargoes, the conflict’s proximity to this vital waterway is causing palpable anxiety in the shipping market. Charterers in Japan and South Korea report that their crude and refined cargoes are currently being loaded on schedule. However, shipowners are noticeably refraining from making firm offers for additional charters.
A chartering source in Tokyo explained this reluctance: “Owners are willing to send their ships [to the Persian Gulf] but are holding back in anticipation of higher freight.” This suggests a strategic waiting game, as owners expect the heightened risk to translate into significantly increased freight rates.
Market Dynamics:
While available supply of vessels might be increasing, the market remains firm due to this underlying sentiment and the geopolitical risk premium. As a broker in Copenhagen put it, “It’s a question of who will blink first and quote a freight number.” This highlights the current standoff between charterers seeking stable rates and owners demanding compensation for the elevated risk.
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Source: S&P Global
