Peace between U.S. and Iran could upend oil market; shippers already counting losses

Shipping companies are bracing for a significant downturn in charter rates, anticipating a potential U.S.-Iran agreement that could reopen the Strait of Hormuz. This waterway normally handles about one-fifth of global oil supplies. The prospect of renewed peace between the two nations looms large over the industry, which has seen unprecedented profits since the conflict began.

According to Clarksons, a leading global shipping broker, the sector's profits soared to $36 billion in the first quarter, shattering the previous record of $26 billion set in 2022. This boom has spurred a wave of new ship orders, with AXSMarine reporting that this year's orders for the largest tankers have already surpassed any previous full year on record. This surge in capacity has fueled fears of another boom-and-bust cycle, a recurring pattern in the shipping industry for decades.

Alexander Saverys, CEO of CMB Tech, expressed concern, stating, "It is certain that at some point the market will crash." He added, "In my opinion, far too many ships have been ordered. Sooner or later we will feel the effects." Indeed, tanker charter rates have already begun to decline from their peaks in the early weeks of the conflict. Daily rates for hiring a tanker, which once reached $162,992, and even $386,685 for the largest vessels capable of carrying 2 million barrels of oil, have since fallen.

Although traffic through the Strait of Hormuz remains largely paralyzed, average daily rates for larger tankers have dropped to between $55,000 and $95,000 in recent weeks. The market is pricing in the possibility of the waterway reopening. However, these levels are still higher than the average of $30,000 to $40,000 per day seen in recent years. The Financial Times notes that the tanker industry would be among the few sectors to suffer from a return of traffic through the Strait of Hormuz to pre-war levels.

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It is certain that at some point the market will crash. In my opinion, far too many ships have been ordered. Sooner or later we will feel the effects.