Hormuz tensions raise freight costs, disrupt global oil trade

Heightened tensions in the Arabian Gulf due to the ongoing Israel-Iran conflict are reverberating across global energy and shipping markets, pushing up freight rates, disrupting vessel schedules, and reviving fears over the strategic Strait of Hormuz - a crucial artery for global oil and gas flows.

- Issac John

While a direct blockade of the strait is still seen as unlikely, the mere risk has significantly altered the cost dynamics and logistics planning for energy transporters and traders.

According to LSEG data, the global benchmark rate for a very large crude carrier (VLCC) moving oil from the Middle East to Japan surged by more than 20 per cent in a single day following the outbreak of hostilities. The rate held at around W55 on the Worldscale measure early this week, with analysts warning of further upward pressure if uncertainty persists.

Charter activity all but halted on Friday after the escalation, and while vessels within the Arabian Gulf are still seeking outbound charters, many shipowners and traders are pausing decisions as they assess the evolving situation. Sentosa Shipbrokers reported minor initial rate increases but forecast further rises as insurance premiums, vessel availability, and war-related risks compound.

Operational challenges

Vishnu Sudharakan, CEO of Dubai-based Livro Shipping, said operational challenges across the Gulf logistics network are intensifying. “Even the perception of heightened strategic risk around the Strait of Hormuz is triggering vessel diversions, schedule changes, and increased operational costs. War-risk premiums and rising insurance charges are adding significantly to freight costs,” he said.