IEA Says Gulf-to-Asia Oil Shipping Tops $37 a Barrel, Squeezing Refiners

More than $37 per barrel: that was the cost by mid-October of moving Middle Eastern Gulf crude to Asia aboard a large tanker, according to an International Energy Agency analysis published October 21. The charge was more than five times its pre-conflict level, turning transportation from a relatively small component of delivered oil prices into a major constraint on refinery economics.

The figure reflects a capacity problem rather than an isolated expensive route. Congestion around the Strait of Hormuz, rerouted cargoes, ship-to-ship transfers and longer voyages are keeping tankers occupied for more time. Crude may remain available, but the fleet can complete fewer deliveries within a given period. That loss of effective capacity has pushed daily charter rates for very large crude carriers on the Gulf-to-Asia route above $1.3 million.

Distance consumes capacity

A tanker fleet is usually described by the number and size of its ships, but its useful capacity also depends on how quickly each vessel completes a voyage and becomes available again. If a route takes longer, or a cargo must be transferred between ships, more vessel-days are required to move the same quantity of oil. Waiting and repositioning have a similar effect: the ship still exists, but it cannot serve another cargo.

This is why shipping markets track tonne-miles, a measure combining cargo weight with distance traveled. In the third quarter of 2026, tonne-mile demand for Suezmax and Aframax tankers was approximately 20% higher than a year earlier. That increase indicates the fleet was being asked to move cargo farther, not necessarily that oil volumes alone had risen by the same percentage.

The pressure has also migrated between vessel classes. When the largest crude carriers are scarce or poorly positioned, charterers can divide cargoes among smaller Suezmax and Aframax ships. Doing so preserves transport options, but it increases demand for vessels that normally serve other routes. By mid-October, Suezmax freight from West Africa to Europe exceeded $22 per barrel, more than four times its pre-conflict level. North Sea Aframax rates had tripled to more than $6 per barrel.

Crude shipping tightness reaches refined products

The same substitution process is affecting tankers used for gasoline, diesel, kerosene and other refined products. High crude-tanker earnings have encouraged some owners to deploy large product tankers for crude service. Product cargoes then shift toward smaller ships, tightening capacity farther down the fleet. Freight for a Long Range 1 product tanker traveling from the Middle Eastern Gulf to Japan approached $27 per barrel, about five times its pre-conflict level.

For Asian refineries dependent on Middle Eastern crude, the immediate engineering and commercial constraint is the delivered cost of feedstock. A refinery earns its margin from the difference between its crude and operating costs and the value of the products it makes. Adding more than $37 per barrel for transport can erase that margin even when the plant itself is operating normally. Some Asian facilities processing Middle Eastern crude recorded negative refining margins in September.

Changing suppliers offers limited relief because alternative voyages also consume scarce shipping capacity. By mid-October, transporting US Gulf Coast crude cost approximately $33 per barrel to Singapore and $24 per barrel to Europe. A refinery may also face process tradeoffs if an available crude grade is less suitable for its equipment and intended product slate.

That leaves operators with a narrowing range of choices: absorb higher delivered crude costs, process less-optimal feedstocks or reduce operating rates. Lower refinery utilization would mean less diesel, kerosene and other petroleum products entering the market. The IEA’s October Oil Market Report said record freight and crude costs had crushed margins in Europe and Asia, while global refinery runs were expected to reach a seasonal low of 81.3 million barrels per day in October.

Reopening routes may not reset rates immediately

Saudi Arabia’s East-West Pipeline, which lets crude reach the Red Sea without passing through the Strait of Hormuz, was temporarily restricted after drone attacks on September 11. It reopened within days, but curtailed Saudi navigation through Bab el-Mandeb and other route disruptions continued to lengthen voyages and reduce fleet efficiency.

Even improved security conditions and fully restored production would not automatically release tanker capacity. Rebuilding depleted inventories would generate additional cargo demand, while high export volumes and persistent routing inefficiencies could keep ships occupied. The $37 charge therefore measures more than the cost of one voyage: it shows how added distance and delay can make a physically intact tanker fleet function as though it were smaller.

By Thomas Caldwell — AMI’s senior editor for mechanical and mobility engineering, covering vehicle electronics, systems integration, electrification, chassis systems, propulsion, and safety policy.