CITIC SEC: Geopolitical conflicts strengthen the oil shipping cycle momentum, profits of leading oil tankers in 2026 expected to reach record high

CITIC SEC released a research report stating that valuation ends and structural opportunities on the asset side in the oil shipping sector are expected to continue. The restructuring of the supply chain due to geopolitical conflicts has become the core driver of this oil shipping cycle. The Strait of Hormuz accounts for approximately 30% of global crude oil and petrochemical transportation, and in the event of any disruptions, it is highly likely to become a "call option" for the oil shipping cycle, with VLCC showing leadership flexibility. Geopolitical influences have become the dominant factors in the pricing and valuation of the oil shipping cycle, driving the concentration of overseas shipowners and reshaping the pricing mechanism of oil tanker rates. Under the backdrop of geopolitical factors, geopolitical conflict events will strengthen the cycle's momentum, and in 2026, profits for leading oil tankers are expected to reach new highs. CITIC SEC's main points are as follows: Looking back at history, geopolitical conflicts have often led to rapid increases in VLCC rates and valuations. At the current point in time, VLCC rates and valuations are expected to further increase, with the disruptive accelerator effect expected to play a role. The Strait of Hormuz is a strategically important global energy channel, with crude oil and condensate flow accounting for 35.9% of global maritime traffic, mainly flowing towards Asian countries such as China. Attention should be paid to the duration of the strait's reduced capacity due to geopolitical conflicts. Geopolitical conflicts will directly drive up insurance premiums, with adjustments in capacity distribution combined with operational efficiency impacts leading to short-term imbalances in regional supply and demand structures, acting as important accelerators for rapid rate hikes. During the Gulf War, VLCC TCE rates increased from $27,400 per day on November 26, 1990, to a peak of $65,300 per day on February 24, 1991. Energy security demands have been highlighted in the negotiations between shipowners and charterers, and the continual effects of disruption have been evident. In the week of March 1, 2026, one-year charter rates had already surpassed $100,000 per day, with spot rates approaching historical highs of $200,000 per day for TD3C. Overseas shipowners are increasing capacity control, and the expected increase in concentration is set to reshape the pricing mechanism. It is anticipated that Iran's geopolitical influence will strengthen the momentum of the oil shipping cycle, with profits for leading oil tankers expected to reach new highs in 2026. The continued reshaping of the pricing mechanism through a rise in concentration benefits from Iran's geopolitical conflict. Operating non-compliant vessels will become more challenging under geopolitical conflicts, making compliant capacity more favorable, and floating storage capacity may increase in the future. According to Clarkson's forecast, 35 VLCCs are planned for delivery in 2026. If the conflict's duration exceeds expectations and Iran's market, which has a high proportion of black-market capacity, sees a significant decrease in operational efficiency, the concentration of VLCC capacity may witness a historical increase as the pricing mechanism is reshaped. On one hand, the "quasi-alliance" enhances the bargaining power of shipowners, while the alliance formed by Sinokor, MSC, and Trafigura, assuming a break-even point of $50,000-60,000 per day in 2024-25 and a current one-year charter level of $100,000 per day, the bank calculates that each vessel can generate nearly $20-30 million in operating cash flow per year. The surplus in charter income for the fleet enhances the alliance's ability to further expand VLCC capacity, with increased concentration expected. In 1Q25, crude oil transported through the Strait of Hormuz to China accounted for 46% of China's imports, with geopolitical conflicts restructuring the supply chain. VLCC rates are expected to receive new momentum, and the shift towards alternative compliant demand is set to accelerate. According to EIA data, in 1Q25, 20 million barrels per day of oil were transported through the Strait of Hormuz, with 5.351 million barrels per day destined for China, accounting for approximately 46% of China's imports. Geopolitical conflicts are driving trade route adjustments and increasing compliance-based oil transportation demands in East Asia. On the other hand, oil companies are amplifying their demands for supply chain security, with a willingness to pay a premium. In June 2025, as tensions escalated with Israeli airstrikes on Iranian military facilities and US airstrikes on Iran, concerns over the blockade of the Strait of Hormuz increased. Looking at China's crude oil import structure in 2H25, according to data from the General Administration of Customs, China's crude oil imports from Malaysia and the US decreased by 815,000 barrels per day year-on-year, while imports from Brazil, Canada, and the Middle East (Saudi Arabia, UAE, Kuwait) increased by 965,000 barrels per day. Referring to 2H25, the bank predicts that imports from the Middle East and the Gulf region are expected to increase by 700,000-800,000 barrels per day. Geopolitical conflicts are restructuring the supply chain, providing new momentum for VLCC rates, with a shift towards alternative compliant demand poised to accelerate. Risk factors: Massive resumption of operations for non-compliant vessels; Rapid resolution of geopolitical conflicts; Lower-than-expected transportation demand; Trade pattern adjustments lower than expected.