Industry experts indicate that a surge in crude oil exports from the Middle East, combined with traders rushing to charter vessels amid the risk of a potential US-Iran military confrontation, has driven oil shipping costs to their highest level in nearly six years. Data from the London Stock Exchange Group (LSEG) shows that the cost to charter a Very Large Crude Carrier (VLCC) to transport up to 2 million barrels of crude from the Middle East to China has more than tripled since the start of the year. On Tuesday, the rate exceeded $170,000 per day, marking the highest level since April 2020.

According to shipping analytics firm Kpler, Middle East crude exports exceeded 19 million barrels per day in February, the highest level since April 2020, with Saudi Arabia, the United Arab Emirates, and Iran leading the exports. Concurrently, demand from India has risen as it reduces imports from Russia.

"VLCC freight rates are being driven by several supportive fundamental factors. These include the shift of Venezuelan crude from the previous shadow fleet to legitimate shipping, OPEC+ production increases, and strong crude demand from refineries, particularly in India, which has pivoted from Russian crude to Middle Eastern crude," said June Goh, a senior analyst at Sparta Commodities.

"Suezmax and Aframax tanker markets will soon feel the spillover effects from the dirty tanker market," she added, referring to the crude oil and fuel oil transported by smaller tankers than VLCCs.

War risk insurance premiums have become a focal point. Should the US take action against Iran, Tehran might retaliate by disrupting activities in the Strait of Hormuz, a critical chokepoint for Gulf oil exports, thereby increasing shipping costs and potentially causing war risk premiums to rise.

"For crude tankers, the key lies in VLCC spot prices... rates don't require an actual disruption in crude supplies to move," stated brokerage Clarksons in a report. "Rates can be rapidly repriced based on risk perception through mechanisms such as increased war risk premiums, owners demanding compensation to call at the region, and charterers accelerating bookings further in advance to reduce scheduling uncertainty."

Maritime security risk management group Dryad Global reported on Monday that commercial maritime traffic in the Gulf of Oman and the Strait of Hormuz faces increased risks of GPS interference and AIS spoofing, directly linked to ongoing Iranian military exercises.

The global tanker fleet has also shrunk, as hundreds of older vessels have been sold to join the so-called 'shadow fleet,' which transports sanctioned oil from Iran and Russia and often has unclear insurance status. Market sources indicate that major oil companies will not use such vessels, and with new vessels not joining the fleet for the next three years, vessel supply is expected to remain tight.

In a related development, sources report that South Korean shipping group Sinokor Merchant Marine has recently emerged as a major buyer of VLCCs, reducing the overall supply of such vessels on the open market. This has allowed shipowners to increase rates for typical 30-day time charters. Sinokor did not immediately respond to a request for comment.

Estimates from three brokers and shipping officials indicate that Sinokor currently controls approximately 78 VLCCs in the active daily spot market. They project this number will rise to at least 88 within the quarter, potentially reaching a fleet size of 100, or even 120 to 130 vessels. The sources declined to comment further due to the sensitivity of the matter.

"At the 88-vessel threshold, Sinokor would become the largest commercial operator in the VLCC sector, accounting for about 24% of the spot trading fleet and 12% of the global VLCC fleet—an unprecedented level of concentration for a single commercial entity in this market," analysis firm Signal Group said in a report last week.

Market sources suggest the overall VLCC market is expected to remain strong, enabling operators to command higher freight rates. However, Sparta's Goh cautioned, "At some point, high freight rates will impact refinery profitability and could become a trigger for reducing fleet demand."