Iran–Israel War Raises Shipping Freight Rates; Logistics Sector Tracks Fuel Price Impact

The ongoing conflict between Iran and Israel, triggered by Israeli strikes on Iranian sites and Tehran’s retaliatory measures, is reverberating across global logistics chains. Key maritime shipping routes such as the Strait of Hormuz are at heightened risk, sending freight rates soaring and forcing logistics firms to reassess their fuel cost exposure and routing strategies.

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Energy Route Under Threat

Iran’s parliament has voted to close the Strait of Hormuz – a critical chokepoint through which around 20% of the world’s oil and 25% of LNG flow daily. Though the decision remains non‑binding and awaits approval from the Supreme National Security Council, the threat itself has rattled markets. Brent crude surged nearly 4% to about $80 per barrel immediately following the vote.

Industry analysts have warned that any disruption, even isolated incidents such as vessel harassment, mine threats or cyber‑attacks, could propel oil to between $100 and $150 per barrel, with worst‑case scenarios exceeding $130, potentially denting global GDP.

Surge in Freight Costs

Freight markets have swiftly responded. Reuters reports that Very Large Crude Carrier (VLCC) rates on the Middle East‑to‑Asia route, tracked via the TD3 benchmark, surged over 20% following the outbreak of hostilities. Forecasts suggest further rises are plausible if risk premiums escalate.

Likewise, chartering costs through the Strait have more than doubled. The Financial Times notes VLCC daily charter rates jumped from nearly $20,000 to nearly $47,600 in just one week, a testament to shipowners avoiding the area. This dramatic escalation equally affects LR2 and Aframax tankers, with long-route charters now surpassing $51,000 per day.

Container freight is also feeling the pressure. Xeneta analysts highlight a 55% increase over the past month in spot rates from Shanghai to Jebel Ali, as routes through the Arabian Gulf become riskier. The Fragile non‑VLCC container flows (about 2–3% of global load) through the strait are vulnerable to rerouting, and especially to delays and insurance premiums, that are shifting volumes via South Asian ports.

Logistics Sector on High Alert

Logistics firms are scrambling to adapt. Freight forwarders are rerouting cargo where possible, adding fuel surcharges tied to bunker prices, and negotiating higher war‑risk insurance premiums. According to Argus Media, gasoline premiums in the Gulf region have risen to their highest levels in over two years, $5.75/bl for 92‑octane gasoline, and war‑risk surcharges are escalating for tankers and bulk carriers alike.

NewL Group notes broader supply‑chain strains: disruptions are hitting inventory levels, complicating sourcing and increasing warehousing and buffer stock pressures.

Implications for Indian Trade

India is particularly exposed. It imports nearly half of its crude and over 50% of its LNG via the Strait. ICRA warns that a sustained $10/bbl rise in Brent crude could widen India's current account deficit by about $13–14 billion (approximately 0.3% of GDP).

Domestic fuel refiners face margin squeezes: ICRA observes that upstream players like ONGC may benefit, but downstream refiners such as IOC and BPCL will bear the brunt of narrower marketing margins and heavier LPG costs. Higher fuel yields combined with freight inflation will translate into elevated costs for manufacturers and exporters.

Echoing this, The Economic Times reports that India’s EXIM trade is likely to see rising sea and air freight charges, pushing up insurance premiums and squeezing margins for Indian exporters.

Market Reaction & Inflation Outlook

In financial markets, Shell’s CEO has warned that the conflict would have a “huge impact on trade” and inflation, citing the doubling of tanker charter rates and navigation interference in the Gulf.

Asian nations like India, which lack local oil substitutes, are expected to pass this cost on to consumers. ABC Asia estimates a 5% risk premium is already embedded in current Asian oil prices, with further spikes possible should the U.S. join the conflict.

Analyst Perspectives

Freightos reports that Middle East‑linked freight benchmarks have yet to fully price in conflict impacts, but warn that any partial closure of Hormuz would send rates sharply higher and reroute volumes via South Asia, adding transit time and cost.

Shipping sources cited by Reuters expect chartering to remain sluggish, as operators take a “wait‑and‑watch” approach. But they agree that war‑risk premiums and insurance hikes will keep upward pressure on freight rates.

Industry Response

In response:

• Major energy shippers are implementing war‑risk surcharges, diverting vessels around the Cape of Good Hope where feasible.
• Tanker firms are avoiding the Strait unless indemnities are assured.
• Logistics providers are passing fuel-linked costs onto customers and exploring alternative routings and buffer stock models, particularly for high‑velocity goods.
• Trade bodies and Indian exporters are urging government action on insurance support and strategic fuel reserves.

Looking Ahead

As the conflict shows no signs of abating, shipping and logistics costs are likely to remain elevated. A formal blockade of Hormuz would mark a tipping point, reshaping global energy flows, shipping patterns and trade costs. For India and other Gulf‑importing economies, managing inflation and trade competitiveness will depend on swift macroeconomic policy adjustments and supply‑chain agility.

For firms, the message is clear: immediate cost-hedging, proactive insurance management, and supply‑chain resilience measures are now vital. Trade diversification and logistics innovation, such as regional stockpiling, alternative transport corridors, and fuel‑efficient vessel deployment, will determine which businesses weather this geopolitical storm.

For countries like India, the ripple effects are real: higher import fuel bills, squeezed logistics margins, consumer inflation and pressure on export competitiveness.