The recent agreement between the US is expected to restore part of shipping traffic, without however immediately bringing oil flows back to pre-blockade levels. According to Braemar’s analysis, a key practical obstacle is the permanent additional chartering cost in the Persian Gulf, which makes transporting Saudi crude via the East-West pipeline to the port of Yanbu on the Red Sea economically more viable.
Under these circumstances, the Strait of Hormuz is estimated to permanently lose approximately 4 million barrels per day from pre-war crude flows. This volume will be further reduced next year, when the United Arab Emirates doubles the capacity of its own pipeline to Fujairah. Consequently, the difference between full operation and blockade will settle at lower levels, now representing about 12 million barrels per day for crude oil, 3.5 million for clean refined products, and 0.7 million for fuel oil.
The caution of shipowners constitutes an additional factor restraining trade flows. Several tankers located in the wider Gulf region may avoid transit, assessing the risk from mines, which Iran has committed to clearing within 30 days. At the same time, the interim agreement is characterized by instability, as it postpones critical geopolitical issues to the future, turning the 60-day deadline for finding a permanent solution into a potentially dangerous target.
In the event that Middle Eastern crude exports increase by 8 million barrels per day and refined product exports by 4.2 million in the coming months, the impact on freight rates will depend on the rate of absorption of capacity. If the Strait remains open and imports return to pre-war levels, by the end of the first quarter of 2027, 160 to 200 additional monthly VLCC loadings are estimated globally. In the rapid recovery scenario, the increase in demand could reach 250 to 320 vessels, recording a rise of 27% to 35%.
This specific increase will not be entirely distributed to the active commercial fleet, as a significant portion of VLCCs remains idle. Approximately 54 vessels are anchored near the Gulf, waiting for cargoes. At the same time, the restart of Iranian exports, which could amount to 2 million barrels per day, is expected to reactivate the idle NITC fleet. If sanctions are lifted, the majority of the volume will be covered by the company’s 37 VLCCs and 7 Suezmaxes, although a share will inevitably shift to the spot market.
In conclusion, the fundamentals for VLCCs are improving. While this development would theoretically drive freight rates to new highs, the abundance of crude in the market reduces the pressure on charterers to immediately find capacity, which historically sustained prices during crisis periods. Freight rates are expected to stabilize at pre-blockade levels, however the constant threat of future disruptions will maintain an elevated risk premium for the coming months.
Source: Braemar
