Avoid the Strait of Hormuz! Oil tankers start to take detours, and freight rates soar more than double in a week
After Israel's attack on Iran, tanker rental rates in the Strait of Hormuz surged more than double within a week, with the rental rate for very large crude carriers rising from $19,998 per day to $47,609, an increase of up to 138%. Shipowners are avoiding this route or significantly raising prices due to geopolitical risks and navigation signal interference. Oil giants like Shell have acknowledged being "particularly cautious" in Middle Eastern shipping and have developed contingency plans
The outbreak of the Israel-Hamas conflict has suddenly made a quarter of the world's oil trade routes "dangerous." The leasing prices for large oil tankers passing through the Strait of Hormuz have dramatically surged, with shipowners either avoiding the area due to safety risks or significantly raising their asking prices.
According to data from British shipping research firm Clarksons Research, the daily rental rate for a Very Large Crude Carrier (VLCC) capable of carrying 2 million barrels of crude oil on a typical route from Gulf countries to China skyrocketed from $19,998 per day on June 11 (last Wednesday), two days before Israel launched its attacks, to $47,609 per day on June 18 (this Wednesday), an increase of 138%.
During the same period, the leasing rates for Large Range 2 (LR2) tankers transporting oil products from Gulf countries to China also surged from $21,097 per day to $51,879 per day. The increase in freight rates on this route far exceeds the 12% rise in the global crude oil tanker freight index—the Baltic Dirty Tanker Index—during the same period.
The Strait of Hormuz carries about a quarter of the world's oil trade and 20% of liquefied natural gas transportation. Joakim Hannisdahl, founder of shipping hedge fund Gersemi Asset Management, stated that shipowners are taking a wait-and-see approach, anticipating higher rental returns in the future.
Richard Fulford-Smith from investment firm Eden Ocean pointed out that market sentiment is partly driven by concerns over whether Iran can maintain its crude oil exports amid the conflict. However, Stephen Gordon, managing director of Clarksons Research in London, noted that there are currently no signs that Israel's attacks have affected Iran's oil export capacity, and oil flows from the region continue, although "some shipowners prefer to avoid the area or demand a higher risk premium to operate there."
Technical Disruptions Increase Navigation Risks
Meanwhile, signal interference has become another significant obstacle for vessel passage.
Recently, Shell CEO Wael Sawan stated at the Japan Energy Summit in Tokyo that the company's shipping operations in the Middle East are "very cautious," primarily due to signal interference issues occurring in the Persian Gulf region. He added:
If this artery is blocked for any reason, it will have a huge impact on global trade. We have developed contingency plans to respond to a worsening situation.
The navigation dangers were confirmed this Tuesday. According to the Financial Times, Frontline, the world's largest publicly traded tanker operator, reported that its vessel Front Eagle collided with a tanker from a "shadow fleet" after leaving the Strait of Hormuz, fortunately with no casualties
