The global market for very large crude carriers (VLCCs) is experiencing an unprecedented supply squeeze, with surging freight rates rendering some long-haul crude trades economically unviable and fundamentally reshaping global energy flows.

Simultaneous disruptions from the Russia-Ukraine conflict and Middle East tensions have rattled the global refining system, pushing diesel profit margins to record highs in August. This week, the average US diesel price climbed to $6.45 per gallon, an all-time high.

Shipping a cargo of crude from Houston to Asia now costs approximately $26 per barrel, or $52 million per voyage, roughly a quarter of the WTI crude futures price.

Saad Rahim, chief economist at Trafigura Group, one of the world's largest commodity traders, stated plainly at the Bloomberg Commodity Investor Forum: "The cost of moving crude oil around the world has never been this high."

Traders are worried that exorbitant freight costs are squeezing refining margins for processing long-haul imported crude into fuel, pushing profits toward zero even as demand for diesel and gasoline remains strong. High freight rates are forcing global refiners to abandon distant supply sources and scramble for nearer-term cargoes.

The capacity crunch has cascaded from VLCCs to smaller vessel classes, elevating rates across all segments. Tanker owners, meanwhile, are reaping windfall profits, with the valuation of the world's largest tanker stocks surging to a record near $70 billion this week. Against this backdrop, a South Korean shipping magnate's forward-thinking bet of over $7 billion is emerging as the biggest winner in this freight rate surge.

Record Freight Rates Deliver Windfall Profits to Tanker Owners

This surge in shipping costs is creating enormous wealth for the few owners dominating the tanker market. On the industry's key benchmark route, daily earnings for VLCCs carrying 2 million barrels of crude from the Persian Gulf to China have exceeded $1.2 million.

Saad Rahim, chief economist at commodity trading giant Trafigura Group, noted that as freight costs constitute a growing share of total cargo value, "when you start looking at it from a logistical standpoint, this becomes a much more severe problem." Numerous shipbrokers with decades of experience say they have never witnessed such a scarcity of available VLCCs, and several industry executives echo that they have never experienced a similar market. They point out that in certain time windows, virtually no supertankers are available for charter in some regions.

The capacity tightness is cascading down to smaller vessel classes, with daily earnings for Suezmax tankers exceeding $300,000, a level typically seen only on routes near conflict zones. Asian refiners have begun substituting Aframax tankers, with a capacity of 700,000 barrels, for VLCCs to transport US crude, while cargoes from the Atlantic coast, including Brazil, are being split between two Suezmax ships instead of a single VLCC.

Xavier Tang, senior market analyst at analytics firm Vortexa, pointed out: "Freight rates have never accounted for such a large portion of the landed cost of crude, but now their role in the oil market has increased significantly, and this is having a knock-on effect on end buyers."

Long-Haul Routes Lose Appeal, Buyers Scramble for Nearer Supplies

High freight rates are stripping the economic value from strategically vital long-distance routes. According to Vortexa vessel tracking data, US-to-Asia cargo volumes have fallen markedly in recent weeks as freight rates have roughly tripled.

Reports citing informed sources indicate that a Japanese refiner recently purchased Alaskan crude from Exxon Mobil, a grade typically not suited to its processing equipment, primarily due to the shorter voyage. Competition for supply is equally fierce in the European market. With Brent futures briefly approaching $110 per barrel this week, the physical Dated Brent spot price in Europe has surged above $131, reflecting buyers' urgent demand for short-haul cargoes.

Saudi Arabia's suspension of next month's contracted supply to European buyers has further intensified sourcing pressure on local refiners. In more distant markets, Angolan crude sales, typically shipped over thousands of miles to China, have also slowed. Sumit Ritolia, senior modeling manager at analytics company Kpler, stated: "At current freight levels, this could be self-correcting in the long run; it will eventually close arbitrage windows and curb demand for the most expensive long-haul crude."

Two Driving Forces: War Impact and a South Korean Tycoon's Historic Bet

Two core forces are behind the freight rate surge. The first is the ripple effect of the US-Iran conflict. Tankers transshipping cargoes near the Strait of Hormuz are occupying more vessels for longer periods, with a large number of tankers diverting around Africa to pick up cargoes in the Mediterranean. Asian buyers are also substituting American supplies to fill the gap left by Middle Eastern barrels. These factors collectively extend the effective voyage distances for the global tanker fleet, pushing overall freight rates higher.

The second is the remarkable positioning of a low-profile South Korean businessman. As reported, before the US and Israel launched attacks on Iran, Korean shipping magnate Ga-Hyun Chung had quietly spent around $7 billion to build the world's largest owned tanker fleet, a bet widely regarded as one of the single largest market wagers in maritime history. Chung's family firm, Sinokor, was founded by his father in 1989, initially focusing on container shipping between China and South Korea. According to estimates from Eirini Diamantara of Greek brokerage Xclusiv Shipbrokers, Sinokor currently operates over 160 tankers, nearly half of which are VLCCs.

According to Kpler data, Chung pre-positioned VLCCs near the Strait of Hormuz before the conflict erupted, leasing them as floating storage facilities in the early stages of the war. Some vessels were subsequently used for short-haul transshipment, ferrying crude to ports outside the gulf for onward shipment to Asia by other ships. Additionally, Sinokor's derivatives trading team has been simultaneously operating paper contracts linked to freight markets, further profiting from the upward move in rates.

The Logic of the Bet and Historical Risks

Industry insiders believe the core rationale behind Chung's strategy is that a single player, commanding a sufficiently large fleet, can influence freight levels by controlling vessel supply. Conditions supporting this logic include: Greek, Northern European, and Asian major owners have not established market dominance; a large number of tankers have flowed into the "shadow fleet" transporting sanctioned crude, steadily shrinking available mainstream capacity; and the opaque secondhand vessel market makes it difficult for regulators to track or intervene.

Initially, industry veterans were shocked by the bet but not worried, even willing to sell ships to this "industry newcomer," believing that the cyclical nature of the tanker market would eventually exact a toll. History does offer a cautionary tale. In the 2000s, Taiwanese tycoon Nobu Su amassed substantial profits by controlling a large fleet of bulk carriers, then attempted to replicate the strategy in the tanker market, only to be crushed by the 2008 global financial crisis.

For now, Chung's gamble is paying off, but whether tanker freight rates can sustain these elevated levels depends on the trajectory of the wars, the speed at which global energy trade patterns adjust, and the eventual rebalancing of market supply and demand.