LNG, Crude Oil, Maritime & Shipping, Wet Freight

June 16, 2025

Oil markets brace for sharply higher freight, insurance costs on Israel-Iran conflict

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Featuring Sameer C. Mohindru


HIGHLIGHTS

Strait of Hormuz conflict drives tanker market spike

AWRP likely to double

Tanker companies ready to call on Persian Gulf ports

The global tanker market is bracing for a sharp increase in freight and insurance costs due to the Israel-Iran conflict, as most owners are prepared to call on the Persian Gulf ports but for much higher returns, shipping executives in Tokyo, London, Copenhagen and Singapore told Platts, part of S&P Global Commodity Insights, on June 16.

"As of now, there is no restriction from the company management to load cargoes in the Persian Gulf," said a London-based chartering executive with a major shipping company. Each tanker will require separate approval before sailing to any port in the Persian Gulf, the executive added.

No major offers were made in the Persian Gulf spot freight market, but a Long Range I tanker was offered at w260 for June 26 naphtha loading on the Red Sea-Japan route, more than double week-over-week, sources said. The route typically commands a premium over loadings in the Persian Gulf.

Sources at shipowning companies expect freight rates to rise by w50-w100 on key routes in the coming days. "The rewards have to be commensurate with the risk," said a source at one of the world's largest tanker-owning companies, which plans to continue loading cargoes in the Persian Gulf for now.

Except for shipping companies with ownership links to Israel or those whose ships have been damaged in the past, most are prepared to call on Persian Gulf ports for now, sources said.

Sources at three major tanker shipping companies said that unless there is a significant attack on commercial shipping in the region or shipping lanes are blocked, they would not hesitate to load or discharge cargoes in the Persian Gulf. However, Frontline, one of the world's largest shipping companies by fleet size, announced it will not charter its ships for voyages through the Strait of Hormuz. One of its tankers, the Front Altair, was attacked in the region in 2019.

The ongoing conflict is perilously close to the Strait of Hormuz, which connects the Persian Gulf to the Arabian Sea. Approximately 20 million b/d of seaborne crude, condensate and refined fuels pass through the strait, along with nearly 11 Bcf/d of LNG.

Charterers in Japan and South Korea said that their crude and refined cargoes are being loaded on schedule, but owners are refraining from making firm offers for additional charters. "Owners are willing to send their ships [to the Persian Gulf] but are holding back in anticipation of higher freight," said a chartering source in Tokyo.

The available supply is increasing, but the market remains firm due to sentiment, he added.

"It's a question of who will blink first and quote a freight number," said a broker in Copenhagen.

A Greek LR1 tanker was offered at w195 for naphtha loading on the Middle East-Japan route, but it was unclear whether the loading was scheduled in the Persian Gulf or the Red Sea.

Platts, part of S&P Global Commodity Insights, assessed the benchmark Persian Gulf-Japan LR1 route at w25 higher on June 16 at w175. The Persian Gulf-China VLCC route for crude loadings was assessed w12 higher at w60, the data showed.

Insurance

The Israel-Iran conflict will definitely spike the insurance costs, market participants said.

Until June 13, the additional war risk insurance premium (AWRP) for a commodity's transit through the Persian Gulf was around 0.05% of the cargo's value for companies with annual turnover of $500 million or higher, and closer to 0.1% for others, sources said. With the conflict escalating and no signs of a truce, this cost is now likely to double, they added.

The AWRP for the cargo and the ships on which it is loaded is payable separately. Until June 13, the AWRP for tankers was approximately 0.05% of the Hull & Machinery (H&M) value for a seven-day transit through the Persian Gulf, though it varied widely depending on the insurance packages purchased and the fleet's age. A chartering executive said his company's LR2s were paying an AWRP of around $40,000 for spending 21 days in the Persian Gulf.

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