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Ulviyya Poladova

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The rise in oil prices on world markets is showing no sign of stopping. Growing security concerns in the Middle East and rising tanker freight rates are putting additional pressure on the global energy market. It is important to understand that a key factor is the risk that oil may not reach buyers on time, while transportation costs continue to rise significantly.

The shortage of oil tankers has become a significant cost driver. As the crisis in the Persian Gulf forces shipping companies to review existing routes, demand for large vessels has increased dramatically. This pressure is particularly noticeable in the supertanker market, which is capable of carrying more than two million barrels of crude oil per voyage. According to market estimates, around 50 such vessels are currently being used as floating oil storage facilities in the Persian Gulf, reducing the number of tankers available to transport crude to international buyers.

The cost of a single supertanker voyage from the United States to China has reportedly reached $80 million. At a cargo capacity of approximately two million barrels, this translates into about $40 per barrel in transportation costs alone, on top of the price of the crude itself. Thus, these expenses are changing the economics of international oil trade. Suppliers are increasingly having to offer discounts to compensate buyers for the higher cost of shipping. Saudi Arabia, for instance, has cut prices for Asian customers by $5-7 per barrel. However, the reductions have not been sufficient to offset the increase in transportation expenses, leaving buyers exposed to higher overall procurement costs.

In January 2025, supertanker freight rates surged after the United States expanded sanctions against Russia’s oil industry, prompting traders to rush to secure vessels to transport crude from alternative suppliers to China and India. According to Lloyd’s List Intelligence, 35 percent of the 669 tankers in the so-called shadow fleet involved in transporting Russian, Venezuelan and Iranian oil had been sanctioned by the United States, the United Kingdom or the European Union. Freight rates on the Middle East-China route rose by 39 percent, while rates on some routes from Russia more than doubled. Demand for Very Large Crude Carriers (VLCCs), which can transport more than two million barrels of oil per voyage, increased sharply as Chinese and Indian buyers stepped up efforts to secure crude from alternative sources.

Another factor driving oil prices sharply higher is the repeated attacks on tankers in the Strait of Hormuz, as well as strikes targeting critical oil pipelines and energy infrastructure. Just look at the attacks on Saudi Arabia’s oil infrastructure. As one of the world’s largest oil producers and exporters, any disruption to its oil fields or pipelines can send shockwaves through global markets and push prices even higher. The country's East-West pipeline, known as Petroline, is particularly important because it allows crude oil to reach the Red Sea without passing through the Strait of Hormuz. Although a drone attack on Saudi Arabia’s Shaybah oil field last Sunday was intercepted, the incident still caused damage. Debris from the drone, which was shot down by Saudi air defense forces, fell on the field’s infrastructure. The field is particularly important because the crude oil produced there is transported directly to a Saudi Aramco refinery.

Hurricane Isaias in the Gulf of Mexico caused oil production to fall by 72 percent. As a result, US President Donald Trump was forced to release four million barrels of oil from the country’s Strategic Petroleum Reserve. It later emerged that more than four million barrels had been released for sale to prevent public anxiety from escalating ahead of congressional elections. According to the US Energy Information Administration, commercial crude oil inventories in the country fell by 3.06 million barrels, while the Strategic Petroleum Reserve declined by 300,000 barrels. Gasoline inventories decreased by 2.95 million barrels, and other inventories fell by 1.67 million barrels. At the same time, US oil exports declined by 1.12 million barrels and production fell by 410,000 barrels. These developments affected the market, and global oil prices continued to rise.

Goldman Sachs has already warned that delayed refinery maintenance and an increase in planned maintenance work globally could keep supplies of refined petroleum products under pressure into 2027. Refineries in India and South Korea, major suppliers of diesel and aviation fuel, are expected to play an important role in determining export availability in the second quarter of next year.

Low fuel inventories in major trading hubs leave the market with limited room to absorb additional disruptions. Meanwhile, the slow recovery of fuel exports from the Gulf is providing further support for prices. Ship-to-ship transfers have helped preserve crude oil transportation volumes, but applying the same approach to refined products is more complicated because of their different technical characteristics and higher flammability. These constraints could have consequences beyond the crude oil market. Higher freight costs and reduced availability of diesel and aviation fuel may put additional pressure on industries, airlines and transport companies, while making energy supplies more expensive for import-dependent economies.

The latest movements in oil prices illustrate the market's sensitivity to both geopolitical developments and expectations about supply. Prices climbed to near six-month highs before retreating at the start of the following trading week as expectations of easing tensions between the United States and Iran encouraged some investors to take profits. Brent crude subsequently traded around $115 per barrel, while US benchmark Light crude stood near $101.

The key question is whether shipping capacity and regional supply routes can return to normal quickly enough to prevent transportation costs from becoming a more persistent source of inflation in the energy market. Even if geopolitical tensions ease, it may take time to resolve the issue of transferring tankers to floating storage facilities and the accumulated logistical problems.

* Photo generated by AI