The cost of hiring large oil tankers could reach its highest point this decade due to increasing concerns over a potential US attack on Iran and a more concentrated ownership of these vessels.
So far this year, earnings for very-large crude carriers (VLCCs) traveling from the Middle East to China have nearly tripled, reaching $151,208 per day, the highest rate since 2020, as reported by the Baltic Exchange.
The US is building up its military presence in the Middle East, and with President Donald Trump stating that Iran has only 10 to 15 days to negotiate a deal regarding its nuclear program, rates are expected to climb even further. A significant military strike could obstruct traffic in the crucial Strait of Hormuz, increasing the cost to charter ships. Additionally, a buying spree for VLCCs by South Korean company Sinokor Merchant Marine is tightening the market.
Anoop Singh, global head of shipping research at Oil Brokerage Ltd., mentioned, “Military action in the Middle East will likely push VLCC rates to heights not seen since 2019.”
The anxiety surrounding a possible attack on Iran is also noticeable on other shipping routes, with earnings for supertankers traveling from the US Gulf to China reaching their highest levels since late 2022, according to the Baltic Exchange.
The last time rates were this high on the Middle East-to-China route was in 2020, when producers started storing large quantities of crude oil at sea due to reduced demand from COVID-19 lockdowns and limited onshore storage capacity.
This time, charterers face rising oil production while vessels for immediate hire are becoming increasingly rare. The International Energy Agency reported a global crude output increase of about 3.9 million barrels per day in January compared to a year prior.
Sinokor's rapid acquisition of VLCCs has concentrated the market further. The company now owns around 120 supertankers, while competitor Okeanis Eco Tankers Corp. recently estimated it holds nearly 40% of the unsanctioned ships available for hire. These developments have made the sector more vulnerable to geopolitical tensions.
According to Kenneth Hvid, CEO of Teekay Tankers Ltd., the consolidation in the VLCC market will heighten any rush to secure tonnage quickly in the Middle East if US-Iran relations escalate into military action. He mentioned in an earnings call just before Trump's deadline on Iran, “Right now it’s more in anticipation of something happening. It’s just a situation we need to watch.”