Although it is still too early to speculate on potential developments in the AG tanker market given the fluid situation between Israel & Iran, any disruption to ships passing through the Strait of Hormuz could have a significant impact on tanker rates out of the region, reports Break Wave Advisors.
Potential Impact of Geopolitical Tensions
A potential response from Iran to any major attacks on its oil infrastructure might mirror current activities in the Red Sea, where Houthis are targeting Western-owned tankers. In such a scenario, Iran could allow Chinese-owned vessels to continue trading through the Strait of Hormuz, ensuring a steady oil flow to China. Ships operating in this high-risk environment would likely command a significant premium.
Drawing parallels to the crude tanker market post-Russian invasion of Ukraine, spot rates for tankers out of the Black Sea soared for the few able to operate, while other routes remained largely unaffected. If western-owned tankers avoid the Arabian Gulf, surplus tonnage may flood alternative routes, potentially driving rates lower. However, rates for tankers continuing through the Strait of Hormuz could skyrocket.
An initial rush to secure vessels would likely cause a brief global rate spike, but this surge is expected to be short-lived. The longer-term reality could see revenues for tanker operators drop, as oversupply on alternative routes could suppress rates. On the other hand, freight futures for Very Large Crude Carriers (VLCCs) out of the Middle East could see significant gains, possibly reaching multiples of current spot rates. While these scenarios may seem unlikely, they can no longer be dismissed as zero-probability events.
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Source: Break Wave Advisors
