A report from China Merchants Securities (CMSC) indicates that short-term US-Iran negotiations are at a stalemate, with escalated military deployments raising risk premiums. In the medium to long term, the transition between old and new global powers is deepening geopolitical instability. Demand in compliant crude oil transportation markets is set for concentrated release, while industry supply cannot promptly meet requirements in the short to medium term. Leading players are rapidly increasing their market share, potentially altering the industry's pricing logic. The tanker sector is expected to retain significant elasticity, with recommendations to focus on COSCO SH Energy (600026.SH, 01138) and China Merchants Energy Shipping (601975.SH). Key viewpoints from CMSC are as follows:
Freight rates continued to climb in early 2026, with time charter rates hitting new highs. As of February 23, VLCC rates from the Middle East reached $176,000 per day, showing a sharp increase. Most cargo shipments for late February have been completed, and shipowners exhibit strong pricing intentions. The deadlock in US-Iran talks persists, maintaining risks for shipping routes through the Strait of Hormuz and supporting firm freight rates. Time charter rates have also accelerated, with 6-month charters for Eco-type VLCCs now exceeding $120,000, while one-year charters have risen to approximately $90,000–$100,000.
In the short term, US-Iran tensions remain unresolved; in the medium to long term, geopolitical instability may intensify. On February 17, the second round of indirect talks between the US and Iran broke down. The US is expected to form a dual aircraft carrier battle group while deploying a significant number of fixed-wing fighter aircraft to the Middle East. On February 16, Iran commenced live-fire exercises in the Strait of Hormuz, signaling a deterrent to global oil shipping routes. Looking ahead: 1) Iran shows no compromise on ballistic missile issues, increasing the likelihood of US precision strikes to push negotiations; 2) If Iran concedes, its illicit oil channels may be disrupted by the US; 3) Israel strongly opposes a US-Iran agreement and may take unilateral actions destabilizing the region. Therefore, multiple scenarios present favorable conditions for the tanker industry. 4) From 2026 to 2028, the shift in global power dynamics may further exacerbate geopolitical chaos.
The US and Europe continue to intensify sanctions on vessels linked to Iran and Russia. In early February 2026, the EU proposed its 20th round of sanctions against Russia, implementing a comprehensive ban on maritime services for Russian crude oil—lifting the Russian oil price cap and requiring some European shipowners (approximately 18.5%) to shift to long-distance compliant transportation. As of February 23, 154 VLCCs were under sanctions, accounting for 16.87% of global deadweight tonnage capacity, a 0.3% increase from the end of January. As Western sanctions intensify, it is expected that privately-owned shadow fleet operators will face greater operational challenges, with some older vessels likely exiting the market.
SINOKOR's large-scale vessel acquisitions are boosting industry concentration and improving pricing power. SINOKOR's core business spans tankers, containers, and dry bulk sectors. Bullish on the VLCC market, the company sold its container fleet to MSC, raising billions to expand its VLCC scale. From December to January, a total of 54 second-hand VLCC transactions occurred, with most believed acquired by SINOKOR. Once all vessels are delivered, SINOKOR will control 118 VLCCs, representing about 16% of compliant capacity. Industry insiders project its market share could further rise to 25%. At that point, collaboration between shipowners and traders may reshape the industry's pricing logic.
Supply and demand dynamics in the sector continue to improve. On the demand side, benefits are expected from Middle Eastern production resumption and output growth from new sources in South America and West Africa, alongside major importers shifting to compliant markets. Overall, global seaborne crude oil demand measured in ton-miles is projected to grow by 1.5% in 2026 and 1.7% in 2027. Notably, compliant market demand is set for sustained release: 1) Russia-India trade continues to shrink, potentially adding several hundred thousand barrels per day of compliant oil volumes with longer shipping distances; 2) If Iran compromises with the US and halts illicit oil trade, over 1 million barrels per day of compliant oil volumes could be redirected.
On the supply side, crude oil tanker capacity is forecast to grow by about 2.8% in 2026 and 4.3% in 2027, with VLCC growth at 2.8% and 4.9%, respectively. However, 19% of the global crude tanker fleet is currently under sanctions, including approximately 17% of VLCCs. Over 60% of these vessels are more than 20 years old, indicating that additional industry supply remains highly constrained.
Risks include a significant easing of geopolitical tensions, suspended production increases in the Middle East, and insufficient domestic demand.