Iran War Sends Oil Tanker Prices Over $1 Million a Day: Who’s Paying the Bill and Who’s Making the Money? | Today’s news
Oil tankers crossing the Strait of Hormuz now earn even more than $1 million a day, as the Iran war has increased the risks and urgency of moving oil through the key shipping hub.
The cost of chartering a large oil tanker to transport crude from the Persian Gulf to China, which must pass through the Strait of Hormuz, reached $1.035 million a day this week, according to Baltic Exchange data cited by Fortune. In fact, for the first time, the rate exceeded the $1 million mark. Before the war, similar shipping cost about $208,000 per day, according to the Platts VLCC Index.
The price pressure comes as commercial traffic through the Strait of Hormuz has fallen sharply, with the US-Iran war now in its seventh month. Meanwhile, the need to move oil out of the Persian Gulf increased as tight supplies pushed oil prices back above $100 a barrel.
What is causing the price increase?
“It’s all about risk,” Ioannis Papadimitriou, chief freight analyst at Vortexa, told Fortune.
This risk factor became the main reason for the increase in the shipping bill. On Friday, two tankers were hit by projectiles in the Strait of Hormuz, underscoring that commercial vessels remain the main target of attacks.
Insurance costs have also increased. Vessel premiums have risen to about 10% of assets on board, compared with about 0.5% to 1% before the war, Papadimitriou told Fortune. These higher costs are now passed on to the tenant.
Fewer vessels willing to cross the more disturbed eastern side of the strait further tightened shipping capacity. At the same time, some shipping companies are expanding their fleets to ensure cargo deliveries and strengthen their position in the supply chain.
Who pays the price and who profits?
Refineries ultimately feel the higher transportation bill. They face not only more expensive shipping, but also higher oil costs, while alternative routes may take longer. The pressure on refining margins can then also affect consumers.
Fortune reported that diesel prices exceeded $6 for the first time, up about 60% from pre-Iran war levels.
Meanwhile, shipping companies benefit from extraordinary rates. Clarksons, the world’s largest shipbroker, reported record profits in its latest quarter, including a 55% year-on-year rise in operating profit.
Gains also extended to shipping-focused investors. The Breakwave Tanker Shipping ETF is up more than 3,600% year to date, according to Morningstar data cited by Fortune.
“Every time there is more geopolitical instability that causes trading inefficiencies, it’s the shipping players that really benefit,” Papadimitriou said. “And this time is no different.
