US Midterms may change Iran war stalemate, but tanker inefficiency will remain

President Trump has made much noise about possible action against Iran following the US Midterm elections. We see three broad scenarios for tanker markets.

1. Large-scale escalation: initially bullish for rates, but then weakened by tanker demand destruction

The most extreme scenario would be a return to large-scale bombing or an escalation in warfare, with significant US attacks on Iranian military sites and infrastructure followed by Iranian retaliation against US strategic assets in the Middle East and/or other Middle East countries’ infrastructure, including energy infrastructure.

The immediate tanker reaction to this development would be bullish for rates. If Middle East Gulf exports were disrupted, Asian refiners would need to source replacement barrels in the Atlantic Basin. VLCCs would initially be out of position if long-haul Atlantic Basin demand resumed, given most of the fleet is in the East of Suez. VLCC earnings could spike initially, which could also benefit Suezmaxes and then Aframaxes if buyers were forced to move Atlantic cargoes East on smaller segments because of uneconomical Atlantic VLCC rates.

This story was originally published by Breakwave Advisors. Read the full story at Breakwave Advisors →