The daily hire cost of Very Large Crude Carriers on the Middle East-to-Asia route has surged past $1.2 million for the first time. Escalating pressure on global energy markets from the Iran war is being amplified by a sharp spike in tanker freight rates that shows no sign of easing.
The conflict has created a severe shortage of the world's largest oil vessels, known as VLCCs, as ships are forced to alter routes and travel significantly longer distances. Shipping data from broker Braemar reveals that freight charges for these tankers, each capable of carrying around 2 million barrels of crude, have more than doubled since late August on the Middle East-to-Asia route. Braemar also notes similar increases on other routes, with Brazil-to-Asia oil transport costs jumping by a third in the past week alone.
Where to begin
Amrita Sen, founder of energy consultancy Energy Aspects, described the situation as a parabolic surge in freight rates. "In the short term, shipping costs are likely to become the decisive factor pressuring the market, with Asian crude landing prices already approaching $150 per barrel," she said. Baltic Exchange data shows that for most of last year, daily VLCC rates fluctuated between $20,000 and $50,000. Before the conflict erupted, structural vessel shortages had already driven up Gulf freight costs, reaching a historical peak of $120,000 per day in February.
The surge in crude transport costs, combined with record-high refined product prices, has squeezed refinery margins, forcing some operators to cut output. Diesel prices in Singapore hover around $180 per barrel, while those in the US and Europe have breached $200 per barrel. Meanwhile, Brent crude has retreated to near $100 per barrel this week, well below the war-time peak of over $125 reached in April.
Sen predicts further downside for crude prices as refineries scale back purchasing. She noted a trader's recent remark: "Everyone wants the crude, but no one is willing to commit to buying." The Gulf conflict has pushed refineries to source oil from distant regions, lengthening vessel turnaround times and driving up shipping costs. Martin Ratz, an analyst at Morgan Stanley, highlighted that Indian refineries are now buying from Brazil, Guyana, West Africa, or the North Sea, with one-way voyages taking 30 to 40 days.
Why 10 tankers matter
Meanwhile, around 60 tankers are loitering near the Strait of Hormuz, transferring crude to other vessels in the Gulf of Oman for onward delivery. Broker Clarksons estimates that roughly 15% of the global tanker fleet is currently waiting off Oman's coast. This transshipment process causes extensive delays, as VLCCs must queue outside the Gulf to load cargo. Ratz explained that ship-to-ship transfers are time-consuming, with a single VLCC potentially idling for 10 days without conducting transport operations.
Tankers navigating Middle Eastern waters also face hefty insurance premiums, with war-risk coverage in some cases reaching about 10% of the vessel's hull value, a common metric in marine insurance. In lower-risk zones, such premiums typically stand at 3% or less. Tom Reed, head of crude oil market analysis at Platts, stated that shipping costs have transitioned from a marginal factor to a core driver of oil price movements, now accounting for roughly one-fifth of the total cost of crude arriving at refineries, directly transmitting maritime disruption to landed prices.
Data from shipping brokers indicates that the VLCC rate spike has already triggered knock-on effects across the entire freight market, with clean product tankers also commanding unprecedented premiums. Industry participants warn that if the conflict persists, these elevated transport costs could persist well into the next quarter, further straining global supply chains.