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Iran Conflict 2026
23JUL

Two Suezmaxes cost $2m more than one VLCC

2 min read
19:27UTC

Substituting two Suezmax tankers for one VLCC on the abandoned Bab el-Mandeb run costs roughly $2 million more per voyage and stretches transit to 54 days, a cost the Baltic's headline VLCC benchmark never prints.

ConflictDeveloping
Key takeaway

The Baltic's VLCC benchmark prices the wrong ship, hiding the Suezmax cost Saudi shippers now pay.

Chartering two Suezmax tankers to stand in for one VLCC on the Bab el-Mandeb run costs roughly $2 million more per voyage, and the passage stretches from 24 days to 54 by way of Suez or the Cape⁠1. A VLCC, or Very Large Crude Carrier, hauls about two million barrels; a Suezmax carries around a million, so replacing one with two roughly doubles the vessels tied up per barrel moved.

TD3C, the Baltic Exchange assessment for the Gulf-to-China VLCC route that most desks read for this conflict, captures none of that cost, because it prices a different ship on a different stretch of water. When the Baltic assessed TD3C at WS372 on 17 July, it was quoting the direct VLCC voyage, not the Yanbu-Suez Suezmax pair-up that Saudi shippers now pay for. The marginal freight on the rerouted flow never reaches the screen the market watches.

That gap is the structural point. Mediterranean aframax rates had already jumped 198% month-on-month to $151,308 a day, so the freight complex was tightening before the reroute added a second Suezmax leg on top. A desk hedging its landed cost on VLCC indices alone is left exposed to a Suezmax basis it cannot see moving, on the majority of Saudi export volume now leaving through the Red Sea. The cost is small against a large flat-price swing, but it is durable and route-specific, and it accrues on every cargo for as long as the strait stays shut.

Deep Analysis

In plain English

Big oil tankers called VLCCs are too large to use some alternate routes easily, so when the direct route through Bab el-Mandeb closes, shippers use two smaller Suezmax tankers instead. That costs about $2 million more per trip and takes over twice as long. The trouble is that the market's main price gauge for this shipping route, called TD3C, was built to track the old direct route and doesn't count this extra cost at all, so traders relying on it may be underestimating true shipping expenses.

Deep Analysis
Root Causes

TD3C prices a single VLCC on the direct Gulf-to-China route; it was built before Bab el-Mandeb closures were a standing feature of the market and has no mechanism to price a two-vessel Suezmax substitution.

Rebuilding a benchmark requires enough historical fixture data to backtest a new route definition, which takes the Baltic Exchange months to assemble and certify, so the pricing gap persists structurally even after the physical rerouting becomes routine.

What could happen next?
  • Risk

    Freight desks hedged purely against TD3C carry unrecognised basis risk on cargo actually moving via the Suezmax substitution route.

  • Opportunity

    A Baltic Exchange sub-index for the Suezmax substitution route would close the pricing gap once enough fixture data accumulates.

First Reported In

Update #20 · Saudi crude reroutes to Suez, freight bites

The National· 27 Jul 2026
Read original →
Different Perspectives
Wang Yi
Wang Yi
China's foreign minister and Djibouti's issued a joint communique on 21 October saying the war should not reach the Horn of Africa and stressing free navigation through Bab al-Mandeb. The text names neither Iran nor the Houthis, and Djibouti hosts China's only overseas military base, opposite the Yemeni coast.
Ministry of External Affairs
Ministry of External Affairs
India's foreign ministry called the attacks on Saudi civilian and energy sites "unacceptable" on 22 October and said they must stop at once. An Indian died at Dammam, Indians were injured there and at Shaybah, and about 4,000 Umrah pilgrims remain stranded by one MP's count.
Iraq
Iraq
Iraq closed the al-Sheeb crossing with Iran to travellers and trucks from 21 October and said other crossings would close gradually. Unlike September's closure, which ended on a staged timetable, this one has none, and Iran's interior ministry said it received no notice.
Abdel Fattah el-Sisi
Abdel Fattah el-Sisi
Egypt's president said on 21 October that Cairo's support would "defend Saudi territory, and does not include an attack on Yemen". Araghchi warned that Egyptian involvement would further complicate the situation, and Cairo's limit matches the one Ankara set on 8 October against attacking another state's soil.
UK Ministry of Defence
UK Ministry of Defence
The MoD said on 20 October that RAF Typhoons over Saudi Arabia will not strike the Houthis, but extended tanker support to Saudi operations including against Houthi targets in Yemen. The tanker line sets no limit on strikes, so British aircraft may now refuel Saudi jets on bombing runs.
Turkey
Turkey
Ankara sent the Mecca Joint Defence Agreement to parliament around 20 October, and its published text treats an attack on one party as an attack on all. Article 16 brings it into force only on the last ratification, so the 5 October invocation in Riyadh could not yet bind Turkey.

Written with AI from Lowdown's published reporting. Not individually reviewed by an editor. Editorial standards.