Swiss Oil Trader Makes $60 Million Arbitraging in Hormuz

Swiss commodity trader Lytton SA recently successfully escorted a supertanker carrying nearly 2 million barrels of Iraqi crude oil out of the Strait of Hormuz. Amidst geopolitical conflicts that nearly shut the strait, the high-risk shipping routes are bringing substantial arbitrage opportunities for traders. According to Bloomberg, Lytton SA purchased this batch of crude oil at a discount of $18 per barrel below the benchmark price in the port of Basra, with an estimated gross profit of $60 million on paper. Currently, the profit margins of the world's major oil traders have skyrocketed from the usual a few cents per barrel to $20 to $30 per barrel.

The high gross profit is behind extremely high logistics costs and geopolitical risks. Affected by the conflict, the freight for this tanker has risen to between $35 million and $40 million, and it faces the risk of high demurrage charges. During its passage through the strait, it was twice ordered to return by Iran and was only allowed to proceed after diplomatic intervention by the Iraqi government. On May 10th, after exiting the strait, the tanker was intercepted by the US Navy and inspected for 5 days on suspicion of carrying Iranian crude oil, and was eventually released after intervention by the buyer, Vietnam's national oil company.

This high-risk trade is attracting more market participants, as Iraq's national oil company has offered buyers willing to pick up the cargo in the Persian Gulf a discount of up to $33.40 per barrel this month. In addition to Lytton SA, established in 2024, the world's largest commodity trader, Vitol Group, has also begun ship-to-ship transfers outside the strait. Apart from physical risks, traders also face the pressure of sanctions. The US Treasury Department warned that paying passage fees to Iran would violate US sanctions, and both Lytton SA and the ship management company stated that they did not pay any fees to Iran.