Transport costs emerge as the next phase of the oil crisis

One lesson from the US-Iran conflict is the oil market's ability to circumvent disruptions.

Despite the upheaval affecting traditional shipping routes, crude continues to flow from the Middle East. However, the cost of transporting those barrels has climbed dramatically.

Arguably, the next phase of the oil shock lies in shipping expenses. Over time, the focus will shift from outright supply losses to the cost of moving energy globally.

Oil producers are increasingly using ship-to-ship transfers off the coast of Oman as the conflict hampers usual export channels. Such transfers are forecast to hit about 2.5 million barrels per day in September, up from roughly 1.4 million bpd in August.

While this adaptation keeps the physical market functioning, it carries a significant cost.

Freight rates for very large crude carriers on some Gulf routes have exceeded $30 a barrel. That figure may not seem high, but with crude near $100, transport now accounts for more than a quarter of the barrel's cost, versus just a few percent before the conflict.

According to the author, focusing solely on oil prices risks missing part of the picture. Markets typically gauge an oil shock by a single figure—the screen price. Yet that is merely the starting point.

Consider the barrel itself. There is transportation, refining, and then another transport leg before the final product reaches businesses and consumers.

If each step in the chain becomes costlier, the inflationary effect can accumulate and persist even if crude prices level off. This signals that the physical oil market is becoming less efficient.

A barrel that once traveled via a simple route may now involve ship-to-ship transfers, extra voyages, increased insurance expenses, and more complex logistics.

Ultimately, the crude still reaches its destination, but the cost of getting it there has risen substantially.

Therefore, stable oil prices should not be taken as proof that the energy shock is fading. A stronger sign of genuine normalisation would be freight costs declining while oil flows continue.

Conversely, if shipping costs stay elevated, it could be argued that part of the oil shock has not vanished—it has merely shifted downstream.

Inflation risks persist because maintaining oil flows through these alternative channels remains costly.