Tanker rates hit war highs as freight costs become the new front in the oil crisis

The Iran war has already produced a crude crisis and a refined-products crisis. Now it has generated a third: a shipping crisis that is quietly rewriting the economics of every barrel of oil reaching Asia, even as physical flows from the Middle East have partially recovered.

Brent crude is trading above $111 a barrel. But the headline crude price is increasingly a misleading guide to what buyers are actually paying. Freight rates for very large crude carriers (VLCCs) on the Middle East Gulf-to-China route have reached $24 per barrel, according to Kpler — meaning shipping now accounts for 25% of the delivered crude price for Asian refiners loading inside the Strait of Hormuz, up from 17% at the start of the conflict and roughly 5% before the war began.

We started this conflict with a crude crisis. Then it turned into a product crisis. Now we have more crude oil coming out of the Middle East, but it is turning into a shipping crisis.— Russell Hardy, CEO, Vitol

The trigger is a sharp acceleration in attacks across the Persian Gulf and Strait of Hormuz. Kpler counts roughly 24 successful strikes claimed by both sides over the course of the conflict — eight attributed to the US and the remainder to Iran — with the pace picking up notably over the past two weeks. Despite the violence, oil is still moving: US Navy convoys are escorting shuttle tankers through the Strait, and the latest seven-day moving average of oil flows from the region — including via Hormuz, the Red Sea and the Gulf of Oman — is just above 24 million barrels a day, above its pre-war average, according to Kpler data cited by CNN.

But keeping oil moving has come at an extraordinary logistical cost. Because tanker crossings through the Strait itself remain well below pre-war levels, much of the traffic has shifted to ship-to-ship (STS) transfers in the Gulf of Oman — a process Vitol's Hardy described as 'very inefficient' at the Energy Intelligence Forum in London. Supertankers waiting for those transfers can be tied up for weeks, shrinking the pool of vessels available for other global routes.

The numbers illustrate the squeeze. VLCC daily rates on the Persian Gulf-to-China route surpassed $1 million a day in September — a record at the time — before jumping another 40% in the first week of October alone to top $1.4 million a day, according to Bloomberg data cited by Oilprice.com. Commodity trading house Trafigura reportedly chartered a supertanker to ship crude from the US Gulf Coast to China for a total fee of $76 million, according to a source cited by CNBC — ten times the pre-war rate of $7 million to $10 million for the same voyage, implying a freight cost of around $38 per barrel. A separate supertanker on the US Gulf-to-Japan route was reportedly offered at $82 million, up 50% from three weeks earlier, according to Bloomberg.

There is really not quite enough shipping to go around.— Russell Hardy, CEO, Vitol

The crunch is spreading beyond the conflict zone. High Gulf of Oman premiums are pulling vessel owners toward Middle Eastern employment, forcing Atlantic Basin charterers to bid higher to retain tonnage. Smaller vessel classes — Suezmax and Aframax tankers — have also seen rates surge as buyers unable to secure supertankers move down the size ladder.

The VLCCs' smaller sisters, Suez- and Aframaxes, are showing no sign of slowing down either so there's really nowhere to hide right now.— Fearnleys analysts

For Asian refiners, the delivered cost of crude is now being set more by freight than by the underlying flat price — a structural shift that Kpler says will force product crack spreads to widen further if refinery margins are to survive. Argus analysts warned that 'freight premiums are adding tens of dollars per barrel to delivered crude costs, raising questions about demand destruction and the sustainability of current market pricing,' according to Oilprice.com.

Kpler's analysts believe rates are near a natural ceiling — not because geopolitical risk is falling, but because the market's adjustment mechanism is changing. Further attacks at the current pace are more likely to constrain loadings outright than to push freight even higher, meaning the next escalation would show up as reduced crude availability rather than another freight spike.

The broader energy picture is darker than crude prices alone suggest. IEA executive director Fatih Birol told the Financial Times Energy Transition Summit in London that diesel prices have doubled from pre-war levels — due largely to the Iran conflict but also partly to attacks on refineries in Russia. With seasonal diesel demand rising and major refineries entering planned maintenance, Birol warned: 'We are on thin ice.' He said IEA member countries 'will not hesitate to look into the option of releasing further stocks' if needed. Of the 400 million barrels released in a historic emergency draw-down agreed in March, 80% have already reached the market; member countries retain roughly 1.6 billion barrels in reserve.

I don't see any credible pathway that 2027 will be a year of normalisation.— Fatih Birol, Executive Director, International Energy Agency

We don't use crude oil, we use products.— Fatih Birol, Executive Director, International Energy Agency

Iran has signalled it is preparing for another round of conflict, issuing public threats against Washington in what CNN described as an apparent bid to deter President Donald Trump from reigniting the current stalemated fighting. Saudi Arabia has meanwhile faced deadly attacks from Iran-backed Houthi militants, disrupting oil shipments and forcing the kingdom to cancel its flagship investor conference — planned for later this month — just a week before it was due to open. Birol warned of 'overlapping crises' and noted that the Strait of Hormuz, which transported a fifth of the world's oil and gas supply before the war, 'has been closed once — it can be closed again.'

Why it matters — A war-driven shipping crisis is now adding tens of dollars per barrel to the cost of oil reaching Asia, meaning even if crude prices stabilise, consumers and refiners face a sustained squeeze through higher fuel and product costs — and the IEA sees no path to normalisation before 2028 at the earliest.

Reported by reuters.com, kpler.com, marketwatch.com, oilprice.com, iea.org, ft.com, cnn.com