Changes in the Red Sea situation will have a significant impact on the product tanker market. In its latest weekly report, shipbroker Gibson pointed out that the recent ceasefire agreement between Israel and Hamas has once again brought hope for the normalization of commercial shipping through the Red Sea. However, whether this move is sufficient for mainstream shipowners and insurance companies to confirm the Red Sea as a safe route remains uncertain. If Red Sea shipping returns to normal, what impact will it have on the tanker market?
Gibson analysis stated that the large-scale diversions via the Cape of Good Hope have had a particularly strong impact on the product tanker market. In 2024, over 50% of the products transported from the Arabian Gulf and the West Coast of India to Europe chose to divert via the Cape of Good Hope. This significantly boosted ton-mile demand and freight rates in the product tanker market, with LR2 tankers being the main beneficiaries. In the second half of the year, Very Large Crude Carriers (VLCCs) and Suezmax tankers also joined the competition, taking a share of this trade, leading to a significant drop in freight rates. Although this trend moderated afterwards, Suezmax tankers still regularly carry products on this route. Entering 2025, the volume of products transported to Europe via the Suez Canal has increased significantly, currently averaging 40% of the annual volume, and this trend is still accelerating.
After the full resumption of Red Sea routes, demand for the LR2 vessel type is expected to face further pressure. The LR1 and MR vessel types, whose market share was previously squeezed by LR2s, may recover some of their market share. The MR vessel type might increase its share in the Middle East to Europe trade, especially in discharge operations in the Mediterranean. However, this increase could be offset by a corresponding reduction in US oil products shipped to Europe.
Its impact on the crude oil market is relatively limited, as the affected proportion of global crude oil exports is small. Throughout 2025, the volume of crude oil transported via the Suez Canal has continued to increase, providing support for Suezmax tanker demand. The normalization of Red Sea crude oil trade could lead to a decrease in VLCC shipments to Europe, with more crude oil being carried by Suezmax tankers via the Suez Canal. This move could put pressure on crude oil demand from the US Gulf, thereby lowering Aframax tanker rates and releasing more VLCC capacity for long-haul eastbound routes. If shipments from the Black /Mediterranean to Asia see a significant rebound, it would also benefit Suezmax tankers. In summary, the impact is expected to be limited, with some potential benefits for Suezmax tankers. However, a key risk facing this vessel type is increased competition from the LR2 vessel type.
As of now, the situation in Gaza remains volatile, and the subsequent actions of the Houthis are difficult to predict. Furthermore, it will take time for trade patterns to normalize, and the full normalization of Red Sea navigation might require a more stable and long-term peace agreement to be achieved.
