The increase in transportation costs for crude oil from the U.S. Gulf Coast to Asia to $80 million earlier this month reflects the serious impacts of the Iran war on the oil market. This cost is nearly ten times the average shipping rates that were in place years before the Iran war and has significantly diminished the incentives for exporting crude oil to Asia.
Severe Reduction in Crude Oil Orders from Asian Refineries
While shipping rates have decreased since early October, it still costs about $60 million for a large tanker to transport oil from the United States to Asia. Due to these high costs, Asian refineries are reducing their orders for American crude oil. According to information provided by anonymous traders, orders from Asian refineries for American crude oil in November have dropped to about 25 million barrels, representing a 50 percent decrease compared to September.
Impacts of the Iran War on the Oil Market and Tanker Fleet
The war in the Middle East and the efforts of Middle Eastern oil producers to transport oil from the Strait of Hormuz have disrupted the global tanker market and added to the transportation crisis amid supply and fuel price crises. This war has altered trade routes and caused more tankers to be caught in inefficient and lengthy voyages. Increased oil flows from the Strait of Hormuz, particularly with ship-to-ship transfers in the Gulf of Oman, have kept large tankers waiting for these transfers for weeks, resulting in limited access to Very Large Crude Carriers (VLCCs) for key global trade routes.
Currently, the shuttle fleet in the Gulf of Oman has increased to about 80 VLCCs. However, average round-trip travel times have reached 23 days, more than double the optimal 9-10 days for a round trip from Basra in Iraq to the coastal rocks of Oman. These conditions have left the market facing a shortage of tankers, and the rising shipping rates are currently a major issue in the oil market.
Randy Hawkins, Vice President of Supply and International Crude Oil Trading at Valero Energy, stated that the cost of moving a VLCC from the Gulf Coast to Asia is now averaging about $30 to $35 per barrel. This is compared to an average of $5 per barrel in 2025. This increase in transportation costs has created severe discrepancies in global oil prices, as refineries seek to find barrels closer to their location, and sellers are forced to discount barrel prices to compensate for shipping costs.
Asian buyers have turned to more crude oil from the Middle East, but they are purchasing on a delivered basis to reduce costs. In Europe, refineries are looking for closer volumes within the region due to rising shipping rates. This increased demand for European and Middle Eastern crude oil has led to higher premiums in some grades of oil.
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