In light of recent sanctions imposed by the US on Russia, the cost to hire oil supertankers on key routes to China has seen a dramatic increase, according to Bloomberg. This development underscores the sweeping impact of geopolitical tensions on the global shipping market.
Read also: Global Shipping Faces Turbulence: Chokepoint Disruptions Threaten Trade and Supply Chains
Following sanctions that affected approximately 160 tankers transporting Russian crude, daily rates for very-large crude carriers (VLCCs) on the Middle East-to-China route soared by 112% to $57,589 last Friday, as per Baltic Exchange data. Similarly, the US Gulf-to-China and West Africa-to-China journeys have experienced jumps of 102% and 90%, respectively.
Amid these developments, Chinese refiners are urgently sourcing crude oil from the Middle East, Africa, and the Americas to offset the shortfall of Russian oil. A VLCC moving from the US Gulf to China was booked last week for $9.5 million, distinctly higher than the low-$7 million range seen in previous months. Moreover, Indian Oil Corp. continues to procure Middle Eastern barrels, further straining the available vessel capacity.
Compounding concerns is the potential for tanker rates to remain high if US President-elect Donald Trump, who is to be inaugurated later today, exerts more pressure on Iran. Junjie Ting, a Singapore-based shipping analyst at Oil Brokerage Ltd., noted, “Rates could hold at these levels if Trump dials up the pressure on Iranian oil shipments, which is more likely than not.”
The heightened demand for VLCCs impacts costs not only for these larger vessels but also for smaller ones such as Suezmax tankers, which can transport about 1 million barrels. This ripple effect is evident in shipping markets globally, with the SSY shipbroker report indicating climbing rates due to increased demand and constrained supply.