Major oil tanker owners are warning of a potential market collapse following a surge in profits driven by the closure of the Strait of Hormuz, a critical maritime chokepoint through which about one-fifth of global oil supplies normally pass. The disruption, which began in February amid conflict involving Iran, has created an unprecedented profit spike for the sector but also raised concerns over a sharp downturn if the strait reopens.

During the first quarter of the year, the shipping industry recorded earnings of approximately $36 billion, marking a new quarterly high that surpassed the previous record of $26 billion set in 2022, according to data from Clarksons, a leading shipping broker. The closure of the strait has stranded more than 160 oil tankers in the Gulf region, severely limiting vessel availability worldwide and driving up freight rates.

The high charter rates reached historic peaks in the conflict’s early stages, with average daily costs for tanker hire hitting $162,992 overall, and soaring to $386,685 for the largest vessels capable of carrying around two million barrels of oil. To circumvent risks posed by the Red Sea and Houthi rebel attacks, many owners have rerouted shipments around the Cape of Good Hope, further inflating shipping costs.

However, in recent weeks, daily charter rates have moderated to between $55,000 and $95,000 for large tankers, reflecting market anticipation of a possible resolution between the US and Iran that would restore traffic through the Strait of Hormuz. Despite this decline, rates remain significantly elevated compared with the typical range of $30,000 to $40,000 seen prior to the conflict.

Industry leaders caution that the boom may be short-lived. The intense profitability has spurred major investment in new tanker orders, with vessel purchases this year already surpassing any full year on record and on track to match 2024's previously busy calendar, according to maritime data firm AXSMarine. Alexander Saverys, CEO of CMB Tech, among the largest listed shipping firms, warned that the market has “ordered way too many ships,” implying a looming oversupply that could trigger another severe downturn.

Harry Vafias, a prominent gas and oil tanker owner, echoed concerns over the rapid buildup in both newbuild and second-hand acquisitions, underscoring the need for caution amid shifting market dynamics.

Greek shipowners dominate the tanker industry, controlling a fleet valued at around $66.4 billion—substantially exceeding that of China, which stands at $26 billion in fleet value, according to Veson Nautical, a shipping technology company.

The wider energy market remains vulnerable. If the supply disruption persists, with commercial oil inventories continuing to decline at rates seen in April and May—about 100 million barrels per month—analysts project crude prices could average $130 to $140 per barrel in June, potentially rising further. International bodies including the International Energy Agency, IMF, World Bank, and WTO have recently issued warnings about the rapid depletion of oil stocks.

Efforts to moderate the supply crunch, such as China’s significant reduction in crude imports and strategic petroleum reserve releases by the US and others, have so far provided only temporary relief. US oil stocks have fallen to a 22-year low, and rig counts remain well below levels seen during the 2002 global energy shock, limiting the ability to quickly ramp up production.

As geopolitical tensions evolve, the tanker sector faces an uncertain future. The potential reopening of the Strait of Hormuz could ease supply bottlenecks and depress freight rates sharply, threatening to reverse the extraordinary profits seen earlier this year and possibly provoking a market downturn akin to past boom-and-bust cycles in the shipping industry.