Additional premiums for war risk marine insurance have jumped more than 10 times since the attacks on two tankers in the Gulf of Oman, according to marine insurance market sources. Because of the high value of modern product tankers, shippers and product owners will be facing additional premiums totaling over six-figure USD amounts for every trip into the Persian Gulf region.
Figure 1. M/T , Kokuka Courageous
Source: NationalPost.com
Up until the current escalations in the Persian Gulf and Iranian areas, additional premiums had been around 0.02%. With the tanker attacks in May and now 13 June 2019, these premiums are changing rapidly. The raise is consistent with the perception of a much higher risk.[1] The additional “war risk” premiums are on an average of 0.15%-0.3%.
There remains doubt who positively carried out the attacks on the Japanese-owned M/T Kokuka Courageous and M/T Front Altair, owned by Frontline Ltd, yet the US has publicly blamed forces linked to Iran for the attack, providing what it claims is video proof.
The managing director of the Norwegian Shipowners’ Mutual War Risk Insurance Association, said his group had already increased its additional premiums after similar attacks on 12 May 2019 that targeted four tankers off Fujairah, UAE and were closely watching area events to possibly raise rates again. The insurance group stated that “it’s fair to assume that going forward rates will be 10 times higher than they have been to date.”
VesselsValue, a private company who specializes in fleet value data said the 2016-built, 111,088 dwt M/T Front Altair is worth $42m. Insuring tankers of similar size and vintage could be expected to increase additional “war risk” premiums of up to $126,000.00.
Figure 2. Limpet mine replica
The US has been involved in a conflict with Iran over its nuclear program and has now linked Iran to the ship attacks, identifying limpet mines[2] as the means of attack. The latest attacks will be excluded from standard Protection and Indemnity (P&I) cover[3] insurance if the cause is determined to be acts of terrorism, the UK P&I Club[4] reported to Lloyd’s Maritine. In such cases, members should expect their P&I liabilities to fall within the scope of their war risk policies, indicated a marine mutual representative. Terrorism is outside standard P&I cover under Rule 5 E on Exclusion of War Risks, the marine mutual emphasized.
According to Lloyd’s of London, the type and extent of primary war P&I cover provided by war risk insurers varies between policies. In some cases, war P&I cover is effectively a write back of an owner’s P&I cover which has been excluded by reason of the operation of the war risk peril causing the loss, or giving rise to actual or potential liabilities. Though the danger of an immediate confrontation over last week’s tanker attacks appears to have receded, tensions over the strategic route remained high. A fifth of the world’s oil passes through the Strait of Hormuz.
The US has announced sending an additional 1,000 troops into the area. The UK Royal Navy is reportedly planning to deploy 100 marines to the region to protect British ships. The UAE is supporting shipping companies to increase sea-lane security in the Persian Gulf, the Strait of Hormuz and the Gulf of Oman, the Wall Street Journal reported, citing Gulf officials familiar with the discussions. Plans for this deployment began several weeks ago and a security committee is expected to meet this week to discuss the matter. Saudi Arabia’s energy minister said, “there must be a rapid and decisive response to the threat” to energy supplies, market stability and consumer confidence after the attacks in the Gulf area, the Saudi Energy Ministry reported on Twitter.
Iran continues to deny any involvement in the May or June 2019 ship attacks. It is reported that the Iranian regime has called upon the British ambassador in Tehran to complain about its “unacceptable stance,” after the UK Foreign Secretary gave his backing to the US. The UN Secretary-General has called for an independent investigation to determine the ship attack’s origin. China and the European Union (EU) are calling for “restraint.” The German Foreign Minister publicly issued a statemen explaining that the US video was “not enough’’ evidence to condemn Iran. Russia said it “severely” condemned the attacks and has warned against drawing and “hasty conclusions.”
- The ship attacks pushed very high trading volumes freight futures, which reached the highest levels since 2014. A recent example, this that this instability is pushing front-month trading rates 19 percent higher in a two day period. Further gains are anticipated as charterers seek to lock in future prices ahead of rising shipping costs in the Middle East. Total lots traded for crude tanker forward freight agreements (FFAs) totaled 12,942 for the week ending 17 June 2019, according to the London-based Baltic Exchange.
- The damage to M/T Kokuka Courageous and M/T Front Altair is being assessed off the UAE. The former arrived safely at anchorage at Kalba, UAE, with damage assessment and preparation for the ship-to-ship transfer cargo to start upon completion of security check by the port authorities, said BSM Ship Management. The 21 crew members were returned to the vessel by the US Navy after being rescued. Frontline said a specialist team would inspect the tanker and advise on how to unload the naphtha on board.
- Saudi Arabia publicly announced they “won’t hesitate to deal with any threat” to the kingdom’s interests.
- Russia is warning against “baseless accusations” and is calling for a “sober appraisal of evidence.” Russian authorities are saying, “such incidents can undermine the foundations of the world economy. That’s why it’s hardly possible to accept baseless accusations in this situation.”[5]
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[1] https://lloydslist.maritimeintelligence.informa.com/LL1127943/War-risk-marine-rates-rise-tenfold
[2]A limpet mine is a type of naval mine attached to a target by magnets. It is so named because of its superficial similarity to the limpet, a type of sea snail that clings tightly to rocks.
[3] P&I cover responds to liability for damage or loss which the assured has caused to others.
[4] https://www.ukpandi.com/cover/
[5] https://www.thetelegraph.com/news/article/Test-of-resolve-credibility-in-US-Iran-nuclear-14013257.php
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