The ongoing Iran conflict has disrupted global tanker operations, leading to a dramatic rise in shipping costs and a significant drop in U.S. crude oil exports to Asia. Freight rates for transporting crude from the U.S. Gulf Coast to China have surged to as high as $80 million, a tenfold increase from pre-war levels. While rates have slightly eased, they remain at around $60 million for a supertanker, making it unprofitable for Asian refiners to order large volumes of U.S. crude for November delivery. This has led to a 50% decline in Asian refiner orders for U.S. crude this month, with some analysts warning of the lowest volumes in seven years if the trend continues.
The conflict has also reshaped trade routes and created bottlenecks in the global tanker market. Increased oil flows through the Strait of Hormuz, facilitated by ship-to-ship transfers in the Gulf of Oman, have tied up supertankers for extended periods, reducing the availability of very large crude carriers (VLCCs) for other key routes. The average round-trip time for these vessels has doubled to 23 days, far exceeding the optimal 9–10 days. This inefficiency has further exacerbated the shipping crisis and driven up freight costs, with some analysts noting that the surge in rates is now the main story in the market.
The high freight costs are causing significant disruptions in global crude pricing. Refiners are seeking to source crude closer to home, while sellers are forced to discount barrels to account for the increased shipping costs. Asian buyers are increasingly turning to Middle Eastern crude on a delivered basis to mitigate expenses, while European refiners are opting for regional supplies. This shift has led to record premiums for certain Middle Eastern crude grades, such as Norway’s Johan Sverdrup, which has hit a $24 per barrel premium to Brent. In contrast, African and U.S. crudes have seen their premiums fall and discounts widen due to the high costs of long-haul shipping to Asia.
The U.S. market has also been affected, with the premium of WTI at the Midland East Houston hub dropping to just $0.25 per barrel above WTI, down from over $3 in early September. Similarly, the premium for U.S. Gulf of Mexico’s Mars crude has fallen to $6 per barrel, a sharp decline from $17.50 in March. These changes highlight the broader impact of the shipping crisis on global oil markets, as high freight costs continue to reshape trade patterns and pricing dynamics.