Hormuz, oil tankers and the arbitrage crisis in the global oil market

Hormuz, oil tankers and the arbitrage crisis in the global oil market

Mehrad Bezarfesh, former Minister of Roads and Urban Development, wrote in an exclusive comment to Tasnim News:

🔹Disruptions in the security of the corridors, the increase in the transport rates of tankers and limited capacity have weakened the price convergence mechanism between the derivatives market and the physical oil market. The derivatives market serves as a place to transfer risks and discover future prices, while the physical market includes actual costs such as ship charters, insurance, financing and supplies. Under normal conditions, arbitrage between these two tiers helps reduce any price differences.

🔹However, the 319% jump in freight rates for shipments from West Africa to China, along with high purchase wage rates for tankers in the Middle East, significantly expanded the no-arbitrage range. The cost of transportation, basis risk, and arbitrage expenses all increased, slowing price convergence. As a result, physical oil delivered to Asia reached around $150 a barrel, while Brent futures traded close to $100.

🔹The Strait of Hormuz brought these limitations into sharp focus. Even with a partial recovery in oil flows, extended sailing cycles, security risks and higher insurance costs have reduced the economic viability of shipments. Financial markets may appear calmer following political developments, but the physical market reflects actual shipping costs. In times of disruption, understanding oil prices requires looking not only at Brent but also at tanker freight rates, insurance costs and the true cost of physical oil delivery.

📝 Read the full comment here.