What's Happening?
The cost of shipping oil is projected to remain elevated into 2026 due to the impact of international sanctions on the so-called 'shadow fleet.' This fleet, which operates outside of Western scrutiny,
includes older vessels with opaque ownership and lacking top-tier insurance. Many of these ships have been sanctioned for transporting oil from countries like Iran, Russia, and Venezuela. As a result, the availability of vessels for hire has decreased, driving up shipping costs. Currently, the daily cost for very large crude carriers (VLCCs) has surged to approximately $130,000, fueled by high demand from OPEC and its allies. The fleet utilization rate for VLCCs is expected to rise to 92% next year, the highest since 2019, as per estimates from Jefferies analyst Omar Nokta. This situation is compounded by disruptions in shipping routes due to geopolitical tensions, such as attacks by the Iran-backed Houthi militia, which have forced longer voyages.
Why It's Important?
The sustained high cost of oil shipping has significant implications for global oil markets and economies reliant on oil imports. The sanctions on the shadow fleet reduce the number of available vessels, thereby increasing shipping costs and potentially affecting oil prices worldwide. This situation could lead to higher energy costs for consumers and industries, impacting economic growth. Additionally, the reliance on older, less efficient tankers raises safety and environmental concerns, as these vessels are more prone to accidents and spills. The situation underscores the complex interplay between geopolitical tensions and global trade, highlighting the challenges of enforcing sanctions without unintended economic consequences.
What's Next?
The delivery of new tankers is expected to increase later in 2026, which could help stabilize shipping rates. However, the market remains volatile, and any changes in geopolitical dynamics, such as a resolution to the Red Sea shipping disruptions, could quickly alter the outlook. Shipping companies and oil firms will need to navigate these uncertainties, potentially seeking alternative routes or investing in newer, more efficient vessels. The ongoing sanctions and their enforcement will continue to play a critical role in shaping the global oil shipping landscape.
Beyond the Headlines
The rise of the shadow fleet highlights the challenges of global regulatory enforcement and the unintended consequences of sanctions. As these vessels operate outside of standard maritime regulations, they pose risks not only to the environment but also to the integrity of international trade systems. The situation calls for a reevaluation of sanction strategies and the development of more robust international maritime governance frameworks to address these challenges effectively.
