CRUDE tanker freight rates are poised for significant change if a US-Iran peace framework translates into a reopening of the Strait of Hormuz.

“The US-Iran interim peace deal announced Sunday night is the most consequential event for dirty tanker freight since the Hormuz closure in late February,” wrote Sparta Commodities on Monday.

The new agreement “is by far the most significant jolt to oil and tanker markets since Iran closed the strait at the end of February”, said BRS.

MEG vs Atlantic basin VLCC indexes

There were no major moves in very large crude carrier indexes on Monday versus Friday.

The physical market hasn’t changed yet. The strait is still effectively closed, and scepticism on a sustainable solution remains high.

Clarksons dubbed Monday “a standoffish day, with no fresh cargo on the surface” as “the majority of the market opted to monitor the ongoing situation… in anticipation of an uptick in cargo supply”.

According to BRS, “Initial anecdotal and ship-tracking information is consistent with a conservative return to Hormuz. Several VLCC owners appear to be adopting a wait-and-see approach.

“It is anticipated that some ships returning from discharging in Asia may either slow down or wait in the vicinity of Sri Lanka, Malaysia and Indonesia before [operators direct] their ships to head north towards the Middle East or southwest towards the Atlantic.”

The Baltic Exchange’s VLCC time-charter equivalent index for the Middle East Gulf to China, the TD3C, was at $412,888 per day on Monday, up 1.8% versus Friday.

The MEG-Singapore VLCC TCE index was at $413,319 per day, flat (down 0.4%) versus Friday.

The Baltic Exchange’s US Gulf-China VLCC TCE index was at $106,051 per day on Monday, flat (up 0.4%) versus Friday to its highest assessment since May 20.

The West Africa-China index was at $98,394 per day on Monday, up 5.6% versus Friday to its highest assessment since May 19.

The Baltic Exchange’s Atlantic basin VLCC indexes — which are a whopping $300,000 per day below the MEG indexes — are based on ample data from actual fixtures.

In contrast, the MEG indexes are hypothetical, based on assessments of what panellists believe the freight would be from Ras Tanura, Saudi Arabia to Ningbo, China. As with other indexes, this assessment is based on what panellists believe rates will be 15-30 days in the future, not currently.

Amid the Hormuz crisis, with very few non-Iranian tankers loading inside the strait, panellists have relied on fixtures on comparable trades, such as VLCCs loading in the Middle East outside the strait.

They then tack on an estimated risk premium to calculate what the freight would be if crude were actually loaded in Ras Tanura and transported through the strait 15-30 days later, given the state of geopolitical tensions.

If a US-Iran deal leads to a strait reopening, transit risk is substantially removed, and TD3C assessments are based on ample fixtures for loadings inside the strait and/or a much lower risk premium adjustment, the TD3C level should fall.

As BRS put it: “An increase in liquidity in MEG tanker fixtures could lead to counterintuitive trends in freight rates given that the lack of liquidity has complicated the assessment of Middle East tanker freight since Hormuz was closed.”

Positive outlook for VLCC rates

Even so, VLCC owner earnings should rise because the MEG indexes would reflect actual fixture income, not hypotheticals, and MEG rates after a reopening are expected to be higher than Atlantic basin rates.

The TD3C forward freight agreement contract for 4Q26 was at $181,163 per day on Monday, down 1.6% versus Friday, according to Clarksons Securities.

This was more than double the 4Q26 FFA contract for VLCCs on the US Gulf-China route, at $86,314 per day on Monday.

BRS said: “Considering that a significant portion of the VLCC fleet has now repositioned to the Atlantic and that global VLCC fixtures have plunged by over 25%, thereby leaving less ships ballasting from east to west, Middle Eastern tonnage lists should remain tight for a considerable period.

“Consequently, Middle Eastern dirty freight should remain at a significant premium versus other lifting zones.”

Sparta Commodities counted 48 VLCCs open for MEG fixtures on Monday, down from 60 on June 8 and 58 on June 1.

According to BRS, “The approximate 50 VLCCs waiting outside the MEG or off the west coast of India should cover around two weeks of Middle Eastern exports; after that, much depends on the arrival of sufficient ballasters.”

With more VLCCs ballasting toward the MEG after a reopening, fewer VLCCs would ballast toward the Atlantic basin, supporting Atlantic basin rates. “We are likely to see rates in the West firm due to a reduction in Western ballasters and the options that owners have will begin to return to normal,” said Braemar.

In a strait-reopening scenario, BRS expects that “within the first few days, laden tankers will start to exit Hormuz and these should initially outnumber ships ballasting into the [Middle East] Gulf”.

Incoming MEG ballasters would then take the lead. “Considering that markets have been starved of Middle Eastern crude for almost four months, we anticipate that charterers will flood the market with prompt crude cargoes,” said BRS.

“The anticipated surge in crude tanker demand and fixtures should support rates and earnings for crude tankers voyaging from the MEG.”

According to Clarksons, “We see three phases, with an initial cargo scramble, a short normalisation dip as trapped ships return, and then a longer inventory rebuild.”

In the medium term, MEG and Atlantic basin VLCC freight markets may not re-converge and return to their pre-crisis alignment, even if a peace agreement is reached.

As BRS noted in a report earlier this month, “Now that Tehran has proven that it can close the strait, it raises the prospect that it could periodically disrupt shipping in the region even after a deal to reopen Hormuz has been struck.”

That prospect could limit the number of owners willing to load in the MEG, for fear that the strait could suddenly close again and their ships could get stuck.

Differing risk-aversion levels could partially divide the VLCC fleet, in the same way that only some non-shadow-fleet* suezmax and aframax owners (mainly Greeks) gravitate toward the Russian export business.

Speaking at Marine Money Week in New York on Monday, BW Group executive chairman Andreas Sohmen-Pao said, “For the longest time I would tell people that shipping thrives on disruption but only up to a certain tipping point.

“People would ask me what the tipping point was and I would say: the closure of the Strait of Hormuz.

“I was totally wrong. Lo and behold, disruption was good for shipping again, so I have to reinvent another tipping point. Or maybe there is no tipping point — and the more disruption you have, the better shipping gets.

“And if you extrapolate the trend, which is for a messier world, you can kind of extrapolate that shipping is going to be okay.”