The competition for energy resources is escalating globally as major Asian buyers, anxious to secure supplies, are offering higher prices to divert shipments of essential fuels like oil and liquefied natural gas (LNG) originally destined for other regions. This forceful redirection of cargo flows is a primary catalyst driving international crude prices to their highest levels since the onset of the Russia-Ukraine conflict in 2022. Furthermore, freight rates for Very Large Crust Carriers (VLCCs) are positioned for significant increases, potentially outpacing the rise in oil prices themselves.

Recent vessel-tracking data reveals that in recent days, five large tankers carrying diesel, jet fuel, and other energy products initially sailing westward have abruptly changed course and are now heading toward East Asia. Three of these shipments originated from India, while the other two departed the Persian Gulf just before the effective closure of the Strait of Hormuz last week. In a notable example, the large vessel Brest, originally en route to Rotterdam, has turned around and its current destination signals indicate Singapore. These dramatic reroutings underscore the severe economic impact on Asia, the world's largest energy-importing region, stemming from heightened Middle East tensions and the inability to secure crucial oil and gas supplies from the Persian Gulf.

Major Asian economies with robust energy demand, including China, Japan, and South Korea, have instructed their refiners to cut exports. Long queues have formed at gas stations across Asia for several days. Fuel prices in the Asian market have surged continuously, primarily because refiners across the region are reducing operating rates and scaling back capacity and exports due to crude shortages. Concurrently, major Middle Eastern oil producers and advanced refineries are cutting production as storage capacity reaches its limits. Planned quarterly maintenance at some Asian plants, scheduled before the conflict, has further tightened supplies of refined products. Asian refineries typically procure crude based on maintenance schedules, limiting their ability to quickly ramp up production in the short term.

Will the rally in international crude prices persist? Is the upward trend for LNG even sharper? Crude prices soared to near $120 per barrel on Monday, a surge of nearly 80% since the outbreak of hostilities, which markets interpret as a stagflationary shock combining higher inflation and a more pessimistic economic outlook. Sustained price increases could force central banks, including the U.S. Federal Reserve, to maintain tight monetary policies to curb inflation even amid slowing economic growth, potentially leading to a prolonged global struggle with stagflation. In the short to medium term, the signal of forcibly redirected cargo flows itself acts as a typical catalyst for pushing oil prices higher. The core logic extends beyond supply cuts from major Middle Eastern producers due to Strait of Hormuz constraints; the market has shifted from "fearing supply disruptions" to an "actual battle for physical cargoes." This is evidenced by Asian buyers paying premiums to divert shipments replacing Hormuz supplies, China mandating refinery export cuts, and Asian diesel and jet fuel spot premiums and refinery margins hitting multi-year highs. For commodity traders, this indicates that not just paper crude futures are rising, but also the prices of the marginal physical barrels and refined products they closely monitor, suggesting the oil market has entered a positive feedback loop: physical hoarding widens regional price differentials and crack spreads, which in turn further supports crude prices.

The upward momentum for LNG appears even more acute, as it is more reliant on spot seaborne LNG shipments and has less flexibility for substitution compared to crude oil. The halt in supplies from Qatar sent European gas prices soaring by approximately 50% in a single day. From a trading perspective, LNG is no longer pricing average supply-demand dynamics but is instead pricing tail-risk scarcity. Prices are prone to sharp increases as long as disruptions from key suppliers, route diversions, and tight vessel availability persist. With the Strait of Hormuz obstructed and Qatari supplies interrupted, more LNG cargoes are being redirected to Asia, which accounts for over 80% of Qatar's LNG exports. Qatar is the world's second-largest LNG exporter. Consequently, the scramble for cargoes drove the European TTF gas benchmark up by 50% in one day, while the Asian LNG benchmark price surged nearly 40%, forcing buyers from countries like India and Bangladesh to compete with European nations for spot LNG at prices exceeding $20 per million British thermal units.

Are VLCC freight rates set to continue their ascent? VLCC rates have strong drivers for further significant increases, potentially more severe than the rise in oil prices. The core reasons are threefold: First, risks in the Strait of Hormuz directly inflate war risk insurance and owners' risk premiums. Second, Asia's need to find replacement crude from more distant sources increases demand measured in ton-miles. Third, some vessels avoiding the Middle East, taking longer routes, or being replaced by smaller ships further tightens effective vessel supply. Data indicates that spot VLCC rates on the Middle East-to-China route have surpassed $40,000 per day, a record high. Reports also state that the shipping cost from the Middle East to China is equivalent to about $20 per barrel, far above last year's approximate $2.50, while VLCC freight rates from the U.S. to Asia have also hit new peaks.

Therefore, if the current oil and gas rally continues, the surges in crude prices, natural gas prices, and VLCC rates are not independent trends. Instead, they form a single chain: supply shock triggers a physical buying frenzy, leading to tight vessel capacity, which in turn elevates shipping costs and final delivered prices. For VLCC rates, potential factors that could lead to moderation include a large-scale release of strategic reserves by G7 nations, partial restoration of transit through the Strait of Hormuz, or high prices triggering demand destruction. Under the current framework, however, the directional bias remains tilted towards further increases.