The rise in oil prices on world markets is showing no sign of
stopping. Growing security concerns in the Middle East and rising
tanker freight rates are putting additional pressure on the global
energy market. It is important to understand that a key factor is
the risk that oil may not reach buyers on time, while
transportation costs continue to rise significantly.
The shortage of oil tankers has become a significant cost
driver. As the crisis in the Persian Gulf forces shipping companies
to review existing routes, demand for large vessels has increased
dramatically. This pressure is particularly noticeable in the
supertanker market, which is capable of carrying more than two
million barrels of crude oil per voyage. According to market
estimates, around 50 such vessels are currently being used as
floating oil storage facilities in the Persian Gulf, reducing the
number of tankers available to transport crude to international
buyers.
The cost of a single supertanker voyage from the United States
to China has reportedly reached $80 million. At a cargo capacity of
approximately two million barrels, this translates into about $40
per barrel in transportation costs alone, on top of the price of
the crude itself. Thus, these expenses are changing the economics
of international oil trade. Suppliers are increasingly having to
offer discounts to compensate buyers for the higher cost of
shipping. Saudi Arabia, for instance, has cut prices for Asian
customers by $5-7 per barrel. However, the reductions have not been
sufficient to offset the increase in transportation expenses,
leaving buyers exposed to higher overall procurement costs.
In January 2025, supertanker freight rates surged after the
United States expanded sanctions against Russia’s oil industry,
prompting traders to rush to secure vessels to transport crude from
alternative suppliers to China and India. According to Lloyd’s List
Intelligence, 35 percent of the 669 tankers in the so-called shadow
fleet involved in transporting Russian, Venezuelan and Iranian oil
had been sanctioned by the United States, the United Kingdom or the
European Union. Freight rates on the Middle East-China route rose
by 39 percent, while rates on some routes from Russia more than
doubled. Demand for Very Large Crude Carriers (VLCCs), which can
transport more than two million barrels of oil per voyage,
increased sharply as Chinese and Indian buyers stepped up efforts
to secure crude from alternative sources.
Another factor driving oil prices sharply higher is the repeated
attacks on tankers in the Strait of Hormuz, as well as strikes
targeting critical oil pipelines and energy infrastructure. Just
look at the attacks on Saudi Arabia’s oil infrastructure. As one of
the world’s largest oil producers and exporters, any disruption to
its oil fields or pipelines can send shockwaves through global
markets and push prices even higher. The country’s East-West
pipeline, known as Petroline, is particularly important because it
allows crude oil to reach the Red Sea without passing through the
Strait of Hormuz. Although a drone attack on Saudi Arabia’s Shaybah
oil field last Sunday was intercepted, the incident still caused
damage. Debris from the drone, which was shot down by Saudi air
defense forces, fell on the field’s infrastructure. The field is
particularly important because the crude oil produced there is
transported directly to a Saudi Aramco refinery.
Hurricane Isaias in the Gulf of Mexico caused oil production to
fall by 72 percent. As a result, US President Donald Trump was
forced to release four million barrels of oil from the country’s
Strategic Petroleum Reserve. It later emerged that more than four
million barrels had been released for sale to prevent public
anxiety from escalating ahead of congressional elections. According
to the US Energy Information Administration, commercial crude oil
inventories in the country fell by 3.06 million barrels, while the
Strategic Petroleum Reserve declined by 300,000 barrels. Gasoline
inventories decreased by 2.95 million barrels, and other
inventories fell by 1.67 million barrels. At the same time, US oil
exports declined by 1.12 million barrels and production fell by
410,000 barrels. These developments affected the market, and global
oil prices continued to rise.
Goldman Sachs has already warned that delayed refinery
maintenance and an increase in planned maintenance work globally
could keep supplies of refined petroleum products under pressure
into 2027. Refineries in India and South Korea, major suppliers of
diesel and aviation fuel, are expected to play an important role in
determining export availability in the second quarter of next
year.
Low fuel inventories in major trading hubs leave the market with
limited room to absorb additional disruptions. Meanwhile, the slow
recovery of fuel exports from the Gulf is providing further support
for prices. Ship-to-ship transfers have helped preserve crude oil
transportation volumes, but applying the same approach to refined
products is more complicated because of their different technical
characteristics and higher flammability. These constraints could
have consequences beyond the crude oil market. Higher freight costs
and reduced availability of diesel and aviation fuel may put
additional pressure on industries, airlines and transport
companies, while making energy supplies more expensive for
import-dependent economies.
The latest movements in oil prices illustrate the market’s
sensitivity to both geopolitical developments and expectations
about supply. Prices climbed to near six-month highs before
retreating at the start of the following trading week as
expectations of easing tensions between the United States and Iran
encouraged some investors to take profits. Brent crude subsequently
traded around $115 per barrel, while US benchmark Light crude stood
near $101.
The key question is whether shipping capacity and regional
supply routes can return to normal quickly enough to prevent
transportation costs from becoming a more persistent source of
inflation in the energy market. Even if geopolitical tensions ease,
it may take time to resolve the issue of transferring tankers to
floating storage facilities and the accumulated logistical
problems.
* Photo generated by AI