The latest ceasefire between Israel and Hamas has again raised hopes of a normalisation of Red Sea transits for commercial shipping. Earlier this week, the Houthis announced a pause to attacks on commercial shipping provided the ceasefire holds. Whether this will be enough to convince mainstream shipowners as well as insurance companies that the Red Sea is safe to cross so far remains highly uncertain. If the Red Sea is once again seen as a safe route, how would that impact tanker markets?
Large scale rerouting via the Cape of Good Hope has especially affected the clean tanker trade. 2024 saw over 90% of clean volumes from the Arabian Gulf and West Coast India to Europe sail around the Cape, giving a significant boost to clean tonne miles and freight rates, with LR2s the main beneficiaries. Later in the year, VLCCs and Suezmaxes started cleaning up and cannibalising this trade, which saw freight rates drop significantly. Whilst this trend has moderated since, Suezmaxes especially have continued to regularly carry clean cargoes on this route. However, throughout 2025, clean volumes from the East to Europe using the Suez Canal have increased sharply, averaging around 40% of the total so far this year, following an accelerating trend.
This partial resumption has seen LR2 tonne mile demand decline, and a full normalisation of Red Sea transits should see a further decrease in vessel demand for LR2s. LR1s and MRs, which have been losing market share to LR2s, could regain some lost ground. MRs could increase their share of Middle East-Europe trade, particularly for Mediterranean discharges. However, this could be offset by a corresponding decline in USG to Europe trade on MRs.
On the dirty side, the impact has been much more limited, as a far smaller share of global crude exports has been impacted. Here, 2025 has also seen accelerating volumes routing via the Suez Canal throughout the year which has supported demand for Suezmaxes. Normalisation of crude trade through the Red Sea should see a decline in VLCC trade to Europe, with more barrels being shipped on Suezmaxes via the Suez Canal. Greater volumes here could see lower demand for crude from the US Gulf, pressuring Aframaxes and freeing up more crude for long haul trade to the East on VLCCs. If there is a substantial rebound in Black Sea/Mediterranean shipments to Asia this could also benefit Suezmaxes. All in all, the impact here is expected to be limited, with some potential upside for Suezmaxes. However, a key downside risk for Aframaxes could be increased competition from LR2s.
Thus far, the situation in Gaza remains volatile and any consequent Houthi actions hard to predict. Regardless, it will take time for normalised trade patterns to reestablish themselves, and it may be that a more secure and long-term peace deal is needed for complete normalisation of Red Sea transits.
Middle East Gulf (excl. WCSA) and India to Europe Clean Trade (kbd)
Data source: Gibson Shipbrokers