Potential US-Iran diplomacy could ease supply fears, but tanker shortages, disrupted shipping routes and refinery constraints are keeping the physical oil market under pressure

Global crude oil markets remain caught between hopes of a diplomatic breakthrough in the Middle East and persistent physical supply and logistics disruptions. Brent crude has recently moved back around the $100-a-barrel mark after falling sharply in the previous sessions, as traders assess the possibility of US-Iran talks alongside the actual movement of crude through the Strait of Hormuz.

On Tuesday, September 22, Brent November futures were around $100.57 a barrel in early trading, while WTI October futures were near $95.80. The market was awaiting developments around potential US-Iran discussions at the United Nations General Assembly.

While the diplomatic narrative has reduced some of the immediate risk premium, the physical oil market remains considerably tighter than headline futures prices may suggest. Shipping disruptions, higher tanker costs, rerouting and limited spare transportation capacity are increasing the cost of moving crude, particularly towards Asian refiners.

US-Iran Diplomacy Becomes the Biggest Near-Term Catalyst

The possibility of renewed diplomatic engagement between Washington and Tehran has become a major driver of short-term oil-price sentiment.

US President Donald Trump has indicated openness to meeting Iranian President Masoud Pezeshkian during the UN General Assembly, while Iran has communicated conditions for returning to negotiations through intermediaries, according to Reuters.

For oil markets, the significance of any talks goes beyond political headlines. A credible reduction in tensions could improve tanker movement through the Strait of Hormuz, reduce insurance and freight premiums and gradually restore confidence in global supply chains.

However, the market is unlikely to treat diplomatic statements as equivalent to restored physical supply. Traders will be watching actual vessel movements, export volumes, refinery availability and shipping costs before concluding that the supply disruption has materially eased.

Strait of Hormuz Remains Critical

The Strait of Hormuz continues to be one of the most important variables for the global crude market.

Recent Reuters reporting shows that vessel traffic through the waterway remains well below normal levels. Only 17 commodity vessels crossed the strait over one recent weekend, compared with 37 the previous week and a pre-conflict average of about 125 vessels a day.

At the same time, oil is still moving through the waterway. Saudi Arabia has increased exports from its Gulf terminals following disruptions to the East-West Pipeline and the loss of some Red Sea export capacity.

Saudi Aramco loaded roughly 14 million barrels of crude onto seven VLCCs at Ras Tanura on September 20, according to tanker-tracking data cited by Reuters.

This creates a complicated market situation: supply has not completely stopped, but moving that supply has become more difficult, expensive and operationally complex.

Transit Costs Have Become a Major Part of the Oil Price Equation

One of the biggest changes in the current oil market is the extraordinary increase in transportation costs.

According to the analysis by Mirae Asset Sharekhan cited in the original report, the cost of transporting crude, which historically accounted for roughly 1-2 per cent of the contract value, has risen to around 20-25 per cent for some Asian refiners.

Reuters has separately reported that VLCC freight costs have risen above $30 a barrel in some routes as producers increasingly rely on ship-to-ship transfers and alternative shipping arrangements.

This means the delivered price of crude can remain elevated even if the headline Brent futures price declines.

For Asian refiners, therefore, the relevant issue is no longer simply what Brent is trading at. The final landed cost also depends on freight, insurance, route availability, vessel availability and the additional distance required to move cargoes safely.

Shortage of VLCCs Adds to the Pressure

Very Large Crude Carriers, or VLCCs, are critical to the global crude trade because a single vessel can carry around two million barrels of oil.

The current disruptions have effectively reduced the availability of suitable tankers. Some vessels are being held up in ship-to-ship transfers, while others are being rerouted around longer maritime routes.

The result is a sharp increase in the cost of securing available tanker capacity.

According to the Mirae Asset Sharekhan analysis, renting a large tanker for Middle East-to-Asia routes has risen to more than $1.2-$1.4 million per day, substantially above levels seen earlier.

The problem could persist because the tanker fleet cannot be expanded immediately. New vessels require significant capital expenditure and can take years to enter commercial service.

Ship-to-Ship Transfers Become Increasingly Important

Ship-to-ship, or STS, transfers have emerged as an important mechanism for keeping crude moving despite disrupted conventional routes.

Reuters reported that STS transfers around Oman have expanded substantially, with approximately 2.5 million barrels per day being transferred in September, compared with 1.4 million bpd in August.

The mechanism allows crude to be moved between vessels at sea or near designated offshore areas before being transported onward to its destination.

However, STS operations add complexity and cost to the supply chain. They also require additional vessels, coordination and operational capacity.

Consequently, while such arrangements can prevent a complete supply shock, they do not restore the global oil logistics system to normal conditions.

Refinery Constraints Add Another Layer of Risk

The crude market is not the only part of the energy system under pressure.

Refined products such as diesel, gasoline and jet fuel are also facing supply constraints in different regions. This is important because consumers and businesses ultimately use refined petroleum products rather than crude oil itself.

The Mirae Asset Sharekhan analysis highlights shortages in middle distillates and jet fuel, with disruptions affecting regional refinery balances.

Europe, in particular, is facing a tighter jet-fuel market, while Asian refiners are expected to remain active because of stronger refining economics and opportunities to supply deficit markets.

Asian Refiners Could Benefit From Stronger Margins

Asian refiners have become an important balancing force in the current market.

China exported about 6 million tonnes of petroleum products in August, representing a sharp increase from July, according to the analysis cited in the report.

South Korea has also emerged as an important source of jet-fuel exports to Europe. Reuters reported that South Korean jet-fuel shipments to Europe were running at about 129,000 barrels per day in September.

Indian refiners are also positioned to benefit from strong product cracks if European and other international markets remain undersupplied.

For India, this is particularly relevant because the country's refining system is capable of processing large quantities of crude and exporting refined petroleum products to international markets.

India Faces a Mixed Impact

For India, elevated crude prices remain a major macroeconomic risk because the country imports a substantial portion of its oil requirements.

Higher crude prices can increase the country's import bill and put pressure on the trade balance. They can also influence domestic inflation, transportation costs, corporate margins and the rupee.

However, Indian refiners with strong export capabilities can benefit from elevated refining margins and strong demand for petroleum products in overseas markets.

This creates a divergence within the energy sector: upstream and refining companies may respond differently from industries that consume large quantities of petroleum products.

Higher Freight Costs Could Outlast a Fall in Crude

An important point emerging from the current market is that crude prices and transportation costs do not necessarily have to move together.

Even if geopolitical tensions ease and Brent falls from elevated levels, freight rates could remain high because tanker availability cannot be restored immediately.

The shipping industry has experienced relatively limited new capacity investment in recent years, according to the analysis cited in the original report. If additional vessels take two to three years to come online, the current shortage could continue to influence the delivered cost of crude even after the immediate geopolitical shock fades.

This creates a potential scenario in which headline crude prices decline while delivered crude remains relatively expensive for Asian buyers.

Product Prices Could Keep Inflation Risks Elevated

The refined-product market remains another key risk.

Diesel, gasoline, jet fuel and fertiliser prices can feed directly or indirectly into broader inflation. Higher transportation costs affect logistics, while higher energy prices can increase production costs across several industries.

For central banks, this creates a difficult situation. A geopolitical oil shock can increase inflation even when the underlying domestic demand environment is not particularly strong.

The longer the disruption continues, the greater the possibility that energy costs begin affecting inflation expectations and monetary-policy decisions.

Saudi Export Routes Are Being Reconfigured

Saudi Arabia's export strategy is also changing in response to disruptions affecting its Red Sea route.

After an attack disrupted the East-West Pipeline and affected shipments through Yanbu, Saudi Arabia increased crude loadings from eastern Gulf terminals. Reuters reported that the shift contributed to increased oil movement through the Strait of Hormuz.

This demonstrates how the global oil market is attempting to adapt rather than simply shutting down.

However, shifting exports towards alternative routes increases dependence on the Strait of Hormuz and simultaneously adds pressure to the available tanker fleet.

Physical Market Still Shows a Geopolitical Premium

Although futures prices have eased from recent highs, the physical market continues to indicate elevated geopolitical risk.

Reuters reported that Brent prices had fallen below $100 at one point as Saudi export flows improved, but the transportation system remains under strain and freight costs remain exceptionally high.

This distinction is important for traders and refiners.

A decline in futures prices does not necessarily mean that all supply-chain risks have disappeared. The physical market can continue to carry a premium through higher freight, insurance and route-related costs.

What Could Push Crude Lower?

A sustained decline in crude prices would likely require more than a single diplomatic statement.

The market would need evidence of:

• A durable reduction in US-Iran tensions

• More consistent traffic through the Strait of Hormuz

• Restoration of disrupted Saudi export routes

• Greater tanker availability

• Normalisation of refinery operations

• Improvement in global crude supply balances

If these developments occur together, the geopolitical premium embedded in crude could gradually decline.

What Could Push Oil Higher?

The opposite scenario remains a significant risk.

A breakdown in diplomatic efforts, renewed attacks on energy infrastructure, disruption to tanker traffic or further restrictions around the Strait of Hormuz could quickly push crude higher.

The market is particularly sensitive because transportation capacity is already constrained. A relatively small additional disruption could therefore have a disproportionately large effect on freight rates and delivered crude prices.

Recent attacks on vessels and regional infrastructure have already demonstrated how quickly oil-market expectations can change.

Crude Oil Outlook

The near-term outlook for crude oil is likely to remain highly headline-driven. The possibility of US-Iran diplomacy has helped reduce some immediate supply concerns, while increased Saudi exports through the Gulf have also provided evidence that physical flows are continuing.

However, the underlying logistics picture remains tight. Vessel traffic through the Strait of Hormuz is still far below normal levels, while VLCC freight rates have surged and ship-to-ship transfers have become an increasingly important part of the global supply chain.

The analysis cited from Mirae Asset Sharekhan expects Brent to find support around $95 a barrel, while a prolonged US-Iran standoff could push prices towards $110-$115 by the end of October. These are the research firm's scenario levels, not a certainty.

For Indian investors, the key variables to monitor will be Brent crude, Strait of Hormuz traffic, tanker freight rates, refinery margins, the rupee, India's oil import bill and developments in US-Iran diplomacy.

The central issue for the market is increasingly not just the price of crude in the futures market, but the cost and reliability of physically delivering that crude to the world's major refining centres.