The war in the Arabian Gulf, which began in March, has significantly impacted dry bulk freight markets, strengthening year-on-year amid geopolitical disruption and operational inefficiencies. This conflict has driven higher fuel prices and caused ongoing disruption to global trade flows. Pacific Basin Shipping Limited, a dry bulk shipping company, reported improved earnings in Q1 2026, with its Handysize and Supramax fleets achieving average net daily TCE earnings of $12,130 and $13,970 respectively, representing year-on-year increases of 11% and 14% and outperforming market indices. The company focused on fuel efficiency, optimization, and safety to navigate these challenges, while also modernizing its fleet by securing attractively priced newbuildings for delivery from 2028 to mid-2029.
The US resumption of strikes on Iran in July, following President Donald Trump's declaration that a ceasefire was over, has further intensified the situation, making the Strait of Hormuz a "worse-case scenario" for oil tankers. Traffic through the strait significantly decreased, falling to a three-week low with only eight vessel transits on July 16, down from 15 the previous day, compared to over 100 daily transits before the US and Israel attacked Iran on February 28. At least nine ships have been attacked since July 6, as Iran attempts to force vessels through its territorial waters.
Shipowners are assessing the risks, with some continuing to transit Hormuz while others avoid it. Some oil tankers have made their way through the Persian Gulf by using routes close to Oman's coastline or sailing close to Iran, while liquefied natural gas traffic has largely halted. The fear among crews is high, making them reluctant to transit the strait regardless of financial incentives. The US military has launched six rounds of airstrikes against Iran in retaliation for tanker attacks, and Iran and its Houthi allies are threatening to shut down ship traffic in the Red Sea, an alternative route for Saudi oil exports.
The conflict has led to a drastic and immediate surge in Asia-US ocean freight rates. Since the start of the Iran crisis on February 28, spot rates for Far East to US West Coast transit surged 231% to $6,225 per forty-foot equivalent (FEU), and 234% to $8,846 per FEU to the East Coast. Far East to North Europe prices are up 135%, and Far East to Mediterranean ports, 96%. While carriers may use the conflict and rising bunker costs to justify surcharges, market fundamentals of rising capacity and cooling demand are expected to temper these increases, though rates remain at a very healthy level for carriers. Some blank sailings are appearing, but geopolitical tensions are unlikely to defy the gravitational pull of market fundamentals.
Shipping firms are seeking reliable reassurances from both Iran and the US regarding the safety of Hormuz. In the absence of an agreement, the US continues strikes on Iranian military assets. Traffic could increase if shippers believe the US has successfully degraded the threat from Tehran. The traditional route through the middle of Hormuz remains too dangerous due to the threat of mines, with vessels navigating close to Oman or Iran. The attacks have resulted in casualties, including one seafarer killed and multiple injured.
