13 hours ago
Hormuz tensions raise freight costs, disrupt global oil trade
Heightened tensions in the Arabian Gulf due to the ongoing Israel-Iran conflict are reverberating across global energy and shipping markets, pushing up freight rates, disrupting vessel schedules, and reviving fears over the strategic Strait of Hormuz — a crucial artery for global oil and gas flows.
While a direct blockade of the strait is still seen as unlikely, the mere risk has significantly altered the cost dynamics and logistics planning for energy transporters and traders.
According to LSEG data, the global benchmark rate for a very large crude carrier (VLCC) moving oil from the Middle East to Japan surged by more than 20 per cent in a single day following the outbreak of hostilities. The rate held at around W55 on the Worldscale measure early this week, with analysts warning of further upward pressure if uncertainty persists.
Charter activity all but halted on Friday after the escalation, and while vessels within the Arab Gulf are still seeking outbound charters, many shipowners and traders are pausing decisions as they assess the evolving situation. Sentosa Shipbrokers reported minor initial rate increases but forecast further rises as insurance premiums, vessel availability, and war-related risks compound.
Vishnu Sudharakan, CEO of Dubai-based Livro Shipping, said operational challenges across the Gulf logistics network are intensifying. 'Even the perception of heightened strategic risk around the Strait of Hormuz is triggering vessel diversions, schedule changes, and increased operational costs. War-risk premiums and rising insurance charges are adding significantly to freight costs,' he said.
Sudharakan added that logistics providers across the GCC are contending with stricter port inspections and heightened security protocols, resulting in delays and growing costs. He warned that a further escalation could send shockwaves through global shipping lanes, stressing the need for contingency planning and close client coordination.
About 18 to 19 million barrels of oil and petroleum products flow through the Strait of Hormuz each day, accounting for nearly one-third of global seaborne oil trade. Any sustained disruption would have far-reaching implications for both energy markets and shipping economics.
Emril Jamil, senior analyst for crude and fuel oil at LSEG Oil Research, said the freight market is pricing in increased risk, with insurance premiums now expected to range between $3 and $8 per barrel if threats intensify. 'The war risk premium is expected to remain elevated for the near term, and could surge if critical oil and gas infrastructure across the region is targeted,' he noted.
Shipping rates for clean products such as gasoline, diesel, and jet fuel have also spiked. Before the latest conflict, shipping 90,000 tonnes of such products from the Middle East to destinations west of the Suez Canal cost between $3.3 million and $3.5 million. Following the flare-up, some brokers have quoted rates approaching $4.5 million, though finalised offers are still scarce due to market uncertainty.
Adding to the volatility, several shipowners are holding back vessels from Arabian Gulf routes. This has opened up opportunities for alternate loadings from northwest India or the Far East for westbound shipments, according to brokers.
Forward freight agreements for July — the market's bets on future costs of transporting Middle East crude to Asia — have jumped 15 per cent to $12.83 per metric ton, according to data from Marex Group Plc. Shipbrokers confirmed that spot charter rates are tracking higher in parallel.
Tanker stocks have rallied in response, with some of the world's largest owners expressing caution in exposing vessels to high-risk zones. Lars Barstad, CEO of the company managing Frontline's fleet, confirmed, 'We are far more hesitant about offering vessels for charter from the Middle East. The risks right now are not theoretical.'
The UK Navy and the Joint Maritime Information Center (JMIC) have both warned of growing risks to commercial vessels, including potential missile threats and increased electronic jamming. Operators have been advised to prepare for navigation disruptions and maintain alternative planning options.
During previous periods of regional tension, tankers have moved through the Strait of Hormuz in naval-escorted flotillas to ensure safety. However, this approach is logistically inefficient and contributes to further delays, reduced fleet availability, and ultimately, higher shipping costs.
Despite past threats by Iran to close the Strait, most analysts and industry participants believe any outright shutdown would be temporary at best, given the strategic reliance on the waterway by oil exporters and their major clients. Even so, targeted harassment of vessels owned or flagged by countries viewed as adversaries remains a plausible tactic, adding another layer of uncertainty for shippers.
At any given time, around 10 per cent of the global VLCC fleet is present in the Arabian Gulf, with approximately 20 vessels transiting the Strait daily. Beyond crude, the region also contributes over 10 per cent of global dry bulk trade, and escalating conflict could impact shipments of industrial commodities like iron ore and fertilizer.
Krishna Raj, a senior shipping analyst, said, 'Additional war-risk premiums will rise sharply for all trade to and from the Middle East. The supply chain recalibration takes time, and immediate cost adjustments are inevitable.'
Analysts said as the shipping industry grapples with heightened risks and operational disruptions, global energy markets are likely to see further volatility in pricing, supply planning, and insurance provisioning. While full-scale interruptions remain improbable, the elevated uncertainty surrounding the Arab Gulf's maritime security is already leaving a deep economic imprint, they added.
