As Gulf crude exports find a route to buyers, tanker capacity pays the price

The Gulf is shifting where crude changes hands: Iraq’s state marketer Somo is offering Basrah Medium and Basrah Heavy for ship-to-ship transfer near Oman next month, giving buyers the option to collect Iraqi crude outside the Arabian Gulf for the first time since the Iran war began, Bloomberg reports. Iraq also has agreements in place with companies to move its crude through safer routes for sale beyond the Strait of Hormuz — with some trading groups, including Vitol and TotalEnergies, helping move Iraqi barrels to international buyers.

ICYMI- TotalEnergies had already been assuming more of the shipping risk, chartering roughly 2 mn-barrel VLCCs itself to lift Basrah Medium and Heavy and offering the crude on delivered terms to refiners in South Korea, Taiwan, and China. Somo, by contrast, was still largely leaving buyers to arrange their own vessels into the Gulf.

The shift is already underway elsewhere in the Gulf: QatarEnergy recently made the same switch, offering its first crude cargoes through STS transfers outside Hormuz after an earlier tender requiring buyers to load inside the Gulf went unawarded. Saudi Aramco is also moving crude through the strait aboard dedicated shuttle vessels before transferring it off Fujairah or Sohar.

The two-tanker workaround is pushing costs higher

Benchmark earnings for super tankers hauling crude from the Middle East to China hit a record USD 656k a day on Friday — more than 10x their earnings a year earlier — as more Gulf crude is being offered for export, while few vessels are willing to risk the journey through the strait, Bloomberg reports, citing the Baltic Exchange’s benchmark estimates.

Two ships, two freight bills: A cargo moving from inside the Gulf to China can now incur a large lump-sum charge for the risky Hormuz crossing, followed by a separate freight charge for the onward journey from outside the strait.

But the headline rate masks a much messier market: The index reflects a theoretical round-trip voyage from the Gulf to China, while shipowners are increasingly pricing the Hormuz leg separately. The Gulf of Oman-China leg was assessed at around USD 220k per day, up from USD 131k a month earlier.

That fragmentation is creating some clear beneficiaries: South Korea’s Sinokor Group — a major VLCC operator active in STS transfers — began fixing ships at elevated rates last week, helping push the market higher, market participants told Bloomberg. The company had made the industry’s largest-ever tanker hedge earlier this year, buying dozens of vessels before the war, and chartering them out at higher rates.

For anyone still willing to make the trip, Hormuz itself is becoming the expensive part. TotalEnergies CEO Patrick Pouyanne said last week that moving a shipment through the strait costs around USD 20 mn, with market participants saying that prices rose further in the following days.

Yet the economics can still work — even if crude is cheap enough. TotalEnergies was buying Gulf crude at some USD 50-60 / bbl while Brent traded above USD 90 / bbl, Pouyanne said. That markdown was wide enough to absorb the shipping cost.

The signal: The constraint is no longer only the availability of Gulf crude, but the shipping capacity willing to reach it. Buyers can collect crude outside the strait, but producers and traders must find vessels willing to carry it through. Every cargo can now tie up a shuttle tanker and an onward-delivery vessel, turning shipping capacity — rather than crude availability alone — into one of the constraints on Gulf exports.

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