Insurance premiums for vessels operating in the Gulf are spiking after Iran threatened maritime traffic in the Strait of Hormuz, doubling for ocean cargo in the waterway responsible for about 50% of global crude supply.
Economics professor from North-West University, Waldo Krugell, said the price of oil had immediately reacted following Saturday’s missile strikes launched by the US and Israel against Iran.
News that a tanker had caught fire off the tip of Hormuz, presumably after it was struck by ordnance while sailing close to the coast of Musqat in Oman on Sunday morning, has raised significant concern.
Krugell said the price of oil was expected to continue rising north of the $70 mark because of tension in the Gulf.
On Monday morning, Oilprice.com reported the price as $70.11 per barrel while Brent Crude was $76.51 per barrel.
American investment manager Franklin Templeton reported that “shipping costs are already moving”, and that “insurers are the accelerant”.
The consultancy confirmed what Krugell had pointed out to RSG radio, that “insurers are issuing cancellation notices and repricing Gulf war-risk coverage”.
Increases of up to 50% have been reported for some voyages.
On certain key lanes, predictions are that insurance coverage could spike by 60%.
Oslo-based marine insurer Skuld has cancelled war risk cover for the Persian Gulf and Gulf of Oman altogether, London-based markets tracker Argus Media reports.
"It is already evident that reinsurers' appetite for war risk exposure is tightening, and in practical terms, it will result in reinsurers withdrawing capacity at short notice," Skuld said.
"Against this backdrop, the Association [Skuld] has therefore decided to issue the assureds with a notice of cancellation of the War Risk Cover."
Cancellation of risk cover comes into effect at midnight on March 5 (GMT).
Argus writes that, according to Skuld, the notice of cancellation supersedes any other terms with respect to war risks that may be agreed.
“It applies to war risk cover only; all other terms of cover are unchanged. The notice does not alter the position of any other area currently restricted or excluded under respective policies. The notice does not affect mutual protection and indemnity (P&I) and freight, demurrage and defence (FD&D) cover, and the excess war risks cover afforded to assureds with mutual P&I cover, according to Skuld.”
