Despite threats from Iran, more oil tankers are still crossing the Strait of Hormuz, and a high-risk shuttle oil transport system is rapidly emerging, with a single round trip costing as much as $40 million. Demand has surged for dangerous shuttle shipments through the Strait of Hormuz.

Since the war broke out, crude oil has continued to be shipped out of the Persian Gulf even as Iran threatened to block shipping. But the cost of moving oil is astonishingly high: a voyage lasting several days can cost as much as $40 million.

For Gulf oil-producing countries, that money is worth paying. The economic loss from crude being stranded and unable to be exported is greater than bearing high freight costs and selling crude at compressed margins. As a result, Gulf producers have begun chartering very large crude carriers, or VLCCs, to carry out this dangerous "shuttle transport." Tankers enter the Persian Gulf through the Strait of Hormuz, load oil at ports, sail out of the strait and then transfer the crude to another vessel waiting outside the waterway.

This is the new economic order that has taken shape around the Strait of Hormuz: a wartime rush for profit is forcing producers to bear record freight costs just to keep crude flowing; shipowners are reaping returns rarely seen in the industry for decades; and the crews carrying out these dangerous crossings are receiving unprecedented pay.

The high rewards come with enormous risks. Data from the United Kingdom Maritime Trade Operations, an agency under the Royal Navy, shows that after a brief calm period of several days, seven vessels have been attacked since September 28. Several maritime security agencies confirmed that a number of the tankers attacked were shuttle oil tankers.

This shuttle model was not needed before the war. But after Tehran began attacking commercial ships in the strait, buyers in Asia and elsewhere were unwilling to send their own vessels into the Gulf to collect oil. Shipbrokers say producers now have to pay $30 million to $40 million for a round trip moving tankers in and out of Hormuz, with unit freight excluding insurance at $15 to $20 per barrel.

Dimitris Maniatis, founder and chief executive of maritime risk consultancy Marisks, said: "For many shipowners, the income levels brought by the current market are very rare in the industry's modern history."

Freight rates for shipping crude directly from the Persian Gulf to global markets have also hit new highs, further increasing the appeal of shuttle transport. Data from maritime intelligence agency Clarksons Research shows that at the end of September, the daily charter rate for a VLCC from the Persian Gulf to China exceeded $1.2 million; before the war, that cost was about $231,400 per day; in early January this year, the daily rate was still less than $40,000.

The windfall from shuttle transport is gradually flowing down to ordinary crew members. Seafarers willing to go to the war zone for voyages, many from India, the Philippines and China, are drawn by pay two or three times their normal monthly salary. According to crew information and recruitment advertisements, a ship labor company in Shandong even offered a bonus of up to $25,000 for a single round trip. For engine room workers and interns, that money is equivalent to more than a year's wages.

An executive at the labor company said it is currently recruiting engine room workers and ordinary sailors with a salary of $25,000 to board a VLCC repeatedly entering the Persian Gulf. Richard Matthews, director of consulting and research at shipbroker E.A. Gibson, said: "Right now shipowners are making millions of dollars at every turn, and this money means nothing to them."

Shuttle fleet continues to expand

After Saudi Arabia's East-West Pipeline was shut down by a drone attack, demand for shuttle oil transport surged last month. To maintain crude exports, Saudi state oil company Aramco, like its regional peers, also deployed shuttle tankers.

Claire Jungman, head of maritime risk and intelligence at ship-tracking agency Vortexa, said the core shuttle fleet, meaning tankers that have completed at least four shipments and unloaded Gulf crude at ship-to-ship transfer areas outside Fujairah, Sohar and Khor Fakkan, increased from 30 vessels at the end of August to 39 currently, with the share used by Saudi Arabia rising rapidly.

Shipbrokers say the trade is currently dominated by companies including South Korea's Sinokor and Dynacom, owned by Greek billionaire George Procopiou; many small and medium-sized shipowners have also joined in, including owners of older tankers that previously carried Venezuelan and Russian crude. If such vessels obtain insurance and suffer a total loss, shipowners can receive a full insurance payout for the vessel, which from an economic perspective may even be better than eventually scrapping the ship.

But obtaining insurance is not easy. Sandeep Khera, head of marine at global insurer Beazley, said: "When these types of vessels seek insurance, we assess the strength of the operator. Have they done this kind of business before? Who operates the vessel? If the vessel is attacked, do they have the industry resources to complete repairs?"

Anoop Singh, global head of shipping research at commodities broker Oil Brokerage, said that even if Saudi Arabia's East-West Pipeline partially restarts, Saudi Arabia is still likely to rely on shuttle transport in the short term. More crude will be transported by pipeline to the Red Sea port of Yanbu in the future. But that crude still needs to be moved north to the Suez Canal, a route far longer than going through the Strait of Hormuz.

Singh said: "If Saudi Arabia wants to export 3 million barrels per day from Yanbu, move it north to Suez and then around Africa to East Asian markets, it will face a shortage of tanker capacity." He estimates that ultimately two-thirds of Saudi crude will still be exported through the Strait of Hormuz.

Perilous voyage

Behind the high pay is real and enormous risk. Data from the International Maritime Organization and the United Kingdom Maritime Trade Operations shows that in the past two weeks alone, nine commercial ships were attacked near the Strait of Hormuz, leaving two crew members injured and one dead.

Crew members on two different VLCCs described their experiences. One chief officer on a shuttle tanker said he had already made two round trips through the Strait of Hormuz in the past month, both sailed at night with cabin windows closed and all lights turned off. During each crossing, the ship's GPS signal was interrupted for several hours, and the crew relied on traditional navigation: using radar to measure the distance and bearing of islands and capes to determine the vessel's position.

He said that after one round trip, half the crew chose to resign; but after the ship management company offered high pay, replacement crew were quickly recruited. He himself received triple his monthly salary while sailing in the conflict zone.

A crew member on another VLCC said he knew Iran might use drones to attack ships, but did not expect to face missile strikes. He received double his daily wage.

Background in brief

The situation in the Middle East has pushed up shipping risks in the Strait of Hormuz, and Asian buyers are unwilling to send their own vessels into the Gulf to collect cargo, creating this "shuttle oil transport" model: shuttle tankers risk entering the Gulf to load oil, then after leaving the strait transfer the crude at sea to other safer vessels. Tanker charter rates and crew danger allowances have risen sharply; old tankers have poured into this high-risk business because of the payout logic of total-loss insurance. Even if Saudi Arabia uses its east-west onshore pipeline, the pipeline ends at the Red Sea, and the oil still requires long-distance tanker transport afterward, meaning the Strait of Hormuz will still carry most of Saudi Arabia's crude exports.