Supertanker Market Sees Surge as War Risk Premium Returns

Supertanker Charter Rates Hit Six-Year Peak Amid Rising Geopolitical Tensions

This year, the market for chartering supertankers has surged dramatically, driven by growing concerns over a potential U.S. military operation in Iran. These geopolitical worries, combined with other supportive factors, have propelled daily charter rates to levels not seen in nearly six years.

Recently, the cost to hire a Very Large Crude Carrier (VLCC)—which can transport two million barrels of oil—on the critical Middle East Gulf to China route surpassed $200,000 per day. This marks the highest rate since April 2020, a period when Saudi Arabia and Russia were flooding the market with crude during a brief price war and global oil demand was collapsing at the start of the Covid-19 pandemic.

Should the ongoing indirect negotiations between the United States and Iran in Geneva break down, as many analysts anticipate, rates could climb even higher in the coming weeks. In such a scenario, war risk premiums would increase, prompting Middle Eastern oil exporters to accelerate shipments to avoid potential supply disruptions.

VLCC Rates Skyrocket

According to Lloyd’s List, the Baltic Exchange’s MEG-China index jumped 46% in the week ending February 25, reaching a daily rate of $206,141 for VLCCs. On the MEG-Singapore route, daily rates soared 66% in just one week to $213,599. These surging rates for Middle Eastern crude shipments have also driven up the global average for VLCC charters.

Several factors are fueling this rally. Chief among them is India’s increased appetite for Middle Eastern oil, as the country seeks to substitute a significant portion of the Russian crude it had been importing over the past three years.

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Additionally, near-term demand for Saudi crude in China has surged after the Kingdom cut its official selling prices for Asia to the lowest level compared to regional benchmarks in over five years. As a result, oil shipments from Saudi Arabia to China in March are projected to reach 56–57 million barrels, up from 48 million barrels in February, according to sources cited by Bloomberg.

Meanwhile, escalating tensions between the U.S. and Iran have prompted both tanker owners and charterers to expedite crude exports from the Middle East.

Structural Shifts in the Supertanker Market

After a brief lull in January, VLCC charter rates have rebounded this month to their highest levels since 2020. This resurgence is partly due to a significant buying spree by South Korea’s Sinokor shipping group, which now controls roughly a quarter of all non-sanctioned VLCCs.

Brokerage Fearnleys noted in its weekly report that the VLCC market has continued its upward momentum, with Sinokor Maritime benefiting from its substantial investments as daily earnings exceed $200,000. The brokerage added that the Middle East Gulf remains the main driver of demand, and the shrinking list of available vessels is leaving charterers with limited alternatives besides the South Korean giant. Fearnleys expects this trend to persist in the short term.

This strong rally in the VLCC market may also boost demand for smaller tankers, such as Suezmaxes, as some traders seek more cost-effective shipping options if market conditions allow.

Michael Ryan, Freight Commodity Owner at Sparta Commodities, explained that strict enforcement of global sanctions and ongoing Middle Eastern tensions are supporting high VLCC rates. He also pointed out that Sinokor’s rapid consolidation of over 40 VLCCs has concentrated market ownership, reducing the likelihood of significant price drops. As a result, global VLCC rates are likely to remain elevated.

Analysts and brokerages agree that Sinokor’s aggressive expansion has fundamentally altered the competitive landscape. According to shipping analytics firm Signal Group, Sinokor is expected to control at least 24% of the VLCC spot fleet by 2026—a level of market concentration never seen before. Just two years ago, Sinokor, Frontline, and COSCO each managed about 12–13% of the spot-trading VLCC fleet.

This dramatic growth positions Sinokor as a dominant force in the spot VLCC market for the foreseeable future, further supporting higher freight rates, especially as geopolitical risks drive producers to accelerate crude exports from the Middle East.

By Tsvetana Paraskova for Oilprice.com

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