Middle East war risks push oil shipping costs to $20 a barrel

The cost of transporting crude oil on the global market has surged amid rising war risks in the Middle East and uncertainty over shipping through key maritime routes, with average freight rates climbing nearly 567% in a year.

The average cost of crude oil transportation has risen to $20 a barrel from $3 a year ago, an increase of $17, according to the figures cited in the report.

From mid-October to the end of the month, freight rates for crude oil shipments from the Middle East to various destinations ranged between $21 and $37 a barrel, depending on the route and type of tanker.

Shipping costs from the Persian Gulf to Asia exceeded $37 a barrel, while transport to Singapore cost $36 a barrel. Freight rates for shipments to the United States stood at $26 a barrel.

Uncertainty over shipping through key Middle Eastern waterways, coupled with attacks on tankers and heightened conflict risks, has driven transport costs sharply higher.

Oil industry news outlet OilPrice recently reported a significant increase in insurance premiums for vessels carrying oil through the Black Sea near Bulgaria.

The cost of insuring a vessel has risen from around $200,000 to $2.5 million, a 12.5-fold increase, according to the report.

Meanwhile, oil prices have remained volatile on the global market. Brent crude stood at $113.43 a barrel on Sunday, while US West Texas Intermediate (WTI) crude traded at $104.12.

Over the past year, Brent crude prices have risen by 75.13%, while WTI prices have increased by 70.74%.

A Goldman Sachs report published in October put freight rates on Middle Eastern routes at $35 a barrel. It attributed the additional costs to several factors, including a $7-a-barrel premium for war risks in the Strait of Hormuz, $4 linked to higher fuel prices and another $4 for ship-to-ship oil transfers in the Gulf of Oman.

Restrictions on shipping through the Strait of Hormuz have lengthened transit times, leaving tankers tied up for longer periods. This has reduced the availability of vessels for new shipments and increased supply costs for oil refineries.

In a report dated 21 October, the International Energy Agency (IEA) said freight rates for crude oil shipments from the Persian Gulf to Asia had exceeded $37 a barrel by mid-October, more than five times their level before the conflict began.

Over the same period, freight rates for shipments from West Africa to Europe surpassed $22 a barrel, more than four times the pre-conflict level. Transport costs from the North Sea region also tripled to more than $6 a barrel.

Source: OilPrice.com