Suez Canal LR2 tanker premium hits record $500,000 on Russia sanctions rush

The premium for Long Range 2 tankers transiting the Suez Canal, compared with the longer Cape of Good Hope route, hit a record high of about $500,000 as traders and refiners are in a rush to deliver cargoes to Europe ahead of new sanctions against Russia set to take effect in January, according to market participants Dec. 16.

Under the 18th sanctions package, the EU will enforce molecule traceability starting Jan. 21, prohibiting the import of products refined from Russian crude oil -- even if processed in third countries. The EU will implement this regulation nearly four years after the onset of the Russia-Ukraine war.

Several suppliers from the Persian Gulf and India are seeking to avoid lengthy documentation and increasing shipments of refined products, such as jet fuel and diesel, into Europe ahead of the looming deadline, according to brokers, charterers and ship owners operating on these routes.

"The number of cargoes going on these routes has jumped significantly in the last two weeks," said a source with a clean oil tanker owner, whose ships have been chartered for this purpose.

Some charterers are placing these cargoes into storage in Rotterdam, and according to the source, by the time the Jan. 21 deadline for the new Russian sanctions takes effect, many gasoil tanks in Europe could be full, even as winter demand begins to ease.

The premium for the Suez Canal transit over the Cape of Good Hope route for Long Range 2 tankers has surged from $300,000 three weeks ago, according to Platts data from S&P Global Energy.

Until October 2025, the Suez Canal transit was at a discount compared with the longer Cape of Good Hope route. In November and December 2023, following increased Israel-Hamas tensions and heightened Houthi activity near the Bab al-Mandab Strait, the discount for the Suez Canal route reached $900,000, according to tanker brokers' data.

Route preferences

The number of tankers willing to transit the Suez Canal had been limited for more than two years. During this period, charterers were generally comfortable routing their cargoes via the longer Cape of Good Hope route, due to insurance advisories and associated risks.

Over the past two years, the differential narrowed as owners sought a risk premium for the shorter route. The introduction of the EU's 18th sanctions package has now triggered a rush for transits through the canal.

"There is a pressing hurry because it saves all the efforts on documentation that will be needed [just over] a month from now," said a chartering executive, whose company transports cargoes on this route.

Some markets for refined products are in backwardation, making it sensible to quickly sell cargoes now and enjoy better returns, according to the source with a clean oil tanker owner. "Due to this reason, charterers do not mind paying a freight premium," he said.

The latest LR2 fixtures concluded on the Persian Gulf-UK Continent routes have been around $4.4 million via the Suez Canal and $3.9 million through the Cape of Good Hope, despite the latter voyage being up to two weeks longer, according to tanker brokers.

A limited number of ship owners, mainly those of Greek, Chinese and Persian Gulf origin, are willing to send their vessels through the Bab al-Mandab Strait and the Suez Canal, despite an improved risk perception and a decline in maritime incidents in the region, a UAE-based tanker broker said. Consequently, more charterers are choosing the Suez Canal route than there are ship owners prepared to take it.

The tanker broker said some insurance contracts specify that tankers transiting the Bab al-Mandab Strait are either ineligible for coverage or subject to additional premium charges. Two executives from tanker companies said that insurance firms routinely issue advisories to their clients, recommending they avoid the region.

Charterers believe that tanker owners prefer to continue using the longer Cape of Good Hope route because, until recently, it yielded higher freight and kept their fleets engaged for a longer duration.

Platts assessed the Persian Gulf-UKC route at $4.4 million for LR2s and at $3.65 million for LR1s via the Suez Canal on Dec. 15, both up $150,000 day over day.