A report from Dongxing Securities indicates that even without considering the impact of the Iran situation, the crude oil shipping industry is currently in a relatively certain upward cycle. With external catalysts, the industry's average freight rate for 2026 is expected to exceed previous forecasts. The firm recommends focusing on leading crude shipping companies such as
Recent events have seen a rapid escalation of the situation in Iran. The United States and Israel have launched sustained long-range strikes against Iran, resulting in the confirmed death of Iran's Supreme Leader Khamenei. Retaliatory actions from Iran have led to explosions reported in Bahrain, the UAE, Qatar, Saudi Arabia, Kuwait, and Jordan, with the US Fifth Fleet service center in Bahrain being targeted by missile attacks. In response to the conflict, Iran has announced a blockade of the Strait of Hormuz, bringing shipping in the region to a standstill. Several European governments have issued emergency directives to their flagged oil tankers en route, prohibiting passage through the Strait of Hormuz to avoid security risks arising from the escalating situation.
Even prior to this escalation, the crude shipping market was already in a state of high prosperity. Freight rates have been rising consistently this year. Recently, influenced by expectations of a worsening situation in Iran, VLCC-TCE rates had already climbed to high levels exceeding $200,000 per day before the conflict erupted. The strength in crude shipping rates is the result of multiple factors.
On the supply side, increasingly strict sanctions by the US and Europe on the "shadow fleet" associated with Iran and Russia, coupled with continued US pressure on countries purchasing Russian oil, have led to a significant decline in non-compliant crude imports by countries like India. The operational space for the shadow fleet is shrinking, reducing effective industry capacity. As non-compliant crude is replaced, demand for shipping compliant crude has increased, leading to an improvement in the supply-demand balance for the oil shipping industry.
Regarding industry structure, due to substantial purchases and charters of VLCCs by Sinokor Merchant Marine, it is estimated that the company now controls close to 150 VLCCs. Considering that a large portion of VLCC capacity is tied up in long-term contracts, the capacity controlled by Sinokor is approaching nearly 40% of the global total of available, unsanctioned VLCCs not bound by long-term agreements. This has significantly increased the bargaining power of shipowners. Conversely, charterers, faced with extremely limited alternative capacity, find themselves in a passive position during freight rate negotiations, forced to accept pricing in a seller's market.
Geopolitically, the situation in Iran has been unstable since last year. Even before the official outbreak of this conflict, the US had been applying sustained pressure on Iran through various channels. Market concerns about escalating conflict have been brewing, driving up the industry's risk premium.
The recent escalation has now led Iran to announce a blockade of the Strait of Hormuz, sharply increasing market fears of a disruption to Middle Eastern crude supplies. The Strait of Hormuz is the only sea passage from the Persian Gulf to the Indian Ocean. A blockade could trigger short-term surges in demand for immediate oil cargoes or vessels, causing both oil prices and shipping rates to rise rapidly due to panic. Furthermore, if safe passage through the Strait cannot be resolved promptly, more severe consequences could follow. Although some crude from Saudi Arabia and the UAE could be rerouted via pipelines bypassing the Strait, pipeline capacity would likely be insufficient to cover the gap created by a closure of Hormuz, potentially forcing a restructuring of the global energy supply landscape. However, the firm considers the probability of such an extreme outcome to be low.
Regardless of the eventual outcome, the current escalation has already intensified short-term panic sentiment. VLCC freight rates are highly likely to remain at elevated, even "frenzied," levels in the near term until a more definitive de-escalation of the situation occurs.
Risk factors include changes in the geopolitical situation, slower-than-expected scrapping of older vessels, and demand weakness due to economic recession.
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