The ongoing escalating conflicts between Iran and Israel with the US starting to get involved, have increased the worry of several companies, as Iran is one of the major players of OPEC, which is the third largest oil-producing OPEC nation producing over 3.3 million barrels per day.
The Baltic Dry Index (BDI) reflects the average price of shipping raw materials. This includes shipping products such as coal, iron ore and grain along major sea routes. The BDI is regarded as an early indicator of global economic activity as it shows the value of changes (up or down) in the demand and supply for these primary goods.
When BDI goes up, it generally means that more materials are in demand and therefore this indicates that global trade is rising and growing. Alternatively, when BDI goes down, this may indicate a slowdown in economic activity. The index has surged by more than 47 percent since 27 May 2025.
The Strait of Hormuz represents an important maritime chokepoint and a vital passage between the Persian Gulf and Arabian Sea—the only maritime channel for exporting oil and LNG from the Persian Gulf producers, like Saudi Arabia, the United Arab Emirates, and Qatar.
Approximately 20 million barrels of crude oil and petroleum products, nearly 30% of all traded seaborne oil, pass through the Strait of Hormuz on any given day, as does about 20% of global liquefied natural gas.
Its narrow dimensions—the narrowest point is only 33 km—also add to its vulnerability to disruption from geopolitical tension and state actions, like Iran has historically threatened to close the Strait of Hormuz, which creates instant friction in the global energy market and drives up oil prices.
Shipping Corporation of India (SCI) and Great Eastern Shipping (GE Shipping) own and operate large vessels (tankers) that transport cargo across the ocean, predominantly crude oil, petroleum products, and chemicals. Think of them as long-distance delivery trucks, but on water.
They earn money from two main types of service:
- Chartering – they rent out tankers to oil companies or traders. They can pay per trip (spot market) or long term (time charter).
- Freight rates are the price that they charge per trip. The freight rate depends on tanker rates, similar to a delivery charge, depending on how much is being shipped. Rates go up and down based on the global demand and supply, but also risk factors such as war and trade interruptions.
When world tanker rates go up (due to uncertainties like the Middle East, or because more oil needs to be moved), oil companies are willing to pay more to rent the ships.
Here’s how SCI and GE Shipping get the benefit:
- They earn more per trip per ship rented out.
- Since many of their costs (crew, fuel, and maintenance) don’t change much per trip, they keep more profit.
- If they have more ships running in the spot market (on rent per trip), they can benefit from the price increase quickly.
So, in conclusion, these companies function in a similar way to oil midstream delivery companies. When shipping costs (tanker rates) go up, they earn more income, similar to how a cab driver earns more money when surge pricing is on. However, geopolitical uncertainties can raise the volatility in its prices as well.
Written by Satyajeet Mukherjee
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