The current energy disruption is often framed as a geopolitical conflict, but its most immediate and tangible impact is logistical. Shipping markets are under extreme strain. Vessel availability is tight, routes are constrained, and freight costs have surged to levels that fundamentally alter trade economics. Even where cargoes can move, they do so at significantly elevated costs, reflecting both physical bottlenecks and heightened risk premiums. This is not a temporary inconvenience, it is a structural disruption to the flow of global energy.
Refineries Under Pressure, Products Tightening
These shipping constraints are now feeding directly into refining economics. Elevated freight costs, particularly for smaller product tankers, are eroding margins at a time when product markets are already in backwardation. Refiners are increasingly unable to justify moving feedstock in or products out at prevailing rates. As a result, some are beginning to consider cutting runs. This has broader implications: reduced refinery throughput tightens availability of key products like diesel and naphtha, especially as other supply risks, such as disruptions to Russian exports, linger in the background. The result is a market that looks increasingly fragile heading into peak demand periods.
Insurance: The Hidden Barrier to Trade
If freight costs are the visible symptom, insurance is the hidden constraint. Coverage still exists, but at sharply elevated premiums that reflect the real risk of operating in contested waters. Quotes of five to seven percent of a vessel’s value are no longer unusual, an extraordinary increase in cost for a single transit. More importantly, availability depends on the willingness of insurers to underwrite risk in an environment where vessels remain exposed to attack. Until that threat is credibly reduced, insurance will continue to act as a binding constraint on trade, limiting participation and reinforcing the broader disruption across energy markets.