Oil Freight at $37 a Barrel: Gulf Exports Are Rising, but the Way Oil Moves Has Changed
The International Energy Agency put a number on the table this week that is hard to argue with. By mid-October, moving crude from the Middle East Gulf to Asia on a large tanker cost more than $37 a barrel - over five times the pre-war level. For a VLCC carrying two million barrels, that is more than $74 million in freight for a single voyage, against less than $15 million before the conflict.
The counter-intuitive part is the volume. Vessel-tracking data from Kpler shows Middle East crude exports averaging more than 24 million barrels a day in the week to 18 October, above the pre-war average of 23.3 million barrels a day. This is not a supply shock pushing rates up. It is a market that has improvised a more expensive, slower and more dangerous transport system and kept the oil moving through it.
That system has three components. First, pipelines: about 17% of Middle East crude exports bypassed Hormuz before the war; by September the share had reached 40%, as Saudi Arabia and the UAE pushed barrels to terminals outside the strait. Second, shuttles: tankers run through the strait along the Omani coast under US military escort and discharge at anchorages outside it. Third, ship-to-ship transfers in the Gulf of Oman, where cargoes are split and reloaded onto ocean-going vessels. The combined result is that flows through Hormuz, including transfers, are still only about 82% of pre-war levels, while total exports have overtaken them.
The cost lands squarely on vessel capacity. Ships spend longer at sea, fleet efficiency drops, and charterers split full cargoes into several parcels, switching to Suezmax and Aframax tonnage. IEA data shows tonne-mile demand for those two classes running about 20% above a year earlier in the third quarter. With smaller ships taken up, prices followed: by mid-October, Suezmax freight from West Africa to Europe exceeded $22 a barrel, more than four times pre-conflict levels, while North Sea Aframax rates tripled to above $6 a barrel.
The spillover reached refined products as well. Exceptional crude earnings led some owners to redeploy LR2 product tankers into crude trades, tightening product tanker supply. By mid-October, LR1 freight from the Persian Gulf to Japan was close to $27 a barrel, again five times the pre-war level. Maritime security reports count roughly 30 attacks on vessels so far in October.
For shippers moving energy products, three things need recalculating.
First, change the cost basis from freight per tonne to landed cost per barrel. A single cargo may now travel from the loading terminal through a strait shuttle, an anchorage transfer and an ocean leg - two extra handling operations and a stretch of waiting. Loading and discharging charges, transfer fees, anchorage time and war-risk surcharges sit in different places along that chain. Comparing ocean freight rates alone will miss 30% to 40% of the real spend.
Second, pin down title and insurance at the transfer point. Ship-to-ship transfer has established international operating practice, but liability allocation depends entirely on the contract. Shippers need three answers: who arranges the transfer, whose insurance covers cargo damage during it, and how the bill of lading is issued or switched in transit. If that link fails, every later claim stalls.
Third, buying war-risk cover is not the end of the question. Insurers are adjusting terms for specific trading areas, and rates and deductibles move with attack frequency. Before booking, confirm in writing with your broker whether the ports on this voyage fall inside a listed area, how long the quoted rate holds, and what the contract says if crew exercise a right to refuse sailing. At October's attack density, those clauses decide profit and loss more than the headline rate does.
There is also a timing effect that is easy to miss. As the pipeline share rose from 17% to 40%, more cargo loads at terminals outside the Middle East, where berth, tank and inland-connection capacity is limited. Waiting time at the loading port is therefore easy to underestimate at quotation stage. On Middle East energy cargoes, A-Choice builds loading-port waiting and transfer arrangements into the plan rather than quoting an ocean rate on its own.
Whether rates come down depends on two things: whether attacks stop for seven consecutive days or more, and whether Hormuz throughput climbs above 82%. Until both signals appear, designing transport as multi-leg, divisible and insurance-first is a safer bet than betting on a rate decline.
