Arabian Sea war risk premia for ships stable, may rise if India-Pakistan conflict escalates

The insurance costs for commercial ships, including tankers moving to and from the Indian subcontinent, are stable and no incremental war risk premia have been levied due to escalating tensions between India and Pakistan, maritime executives and navy officials said May 7.

A nominal Additional War Risk Premium, or AWRP, for passing through the Arabian Sea has been in place for several years now, but it has not been increased by most insurance companies after the recent heightened tensions between India and Pakistan, said a shipping executive tracking such deals.

The commercial shipping lanes in the Indian Ocean and the Arabian Sea are safe and all transits are taking place normally, Sri Lanka's navy chief, Vice Admiral Kanchana Banagoda told Platts at the IMDEX Asia Maritime Security Conference in Singapore.

"Our President has communicated to both countries to have a dialogue so that the region remains peaceful, secure, and stable because both are our friends," Banagoda said.

India is a major importer of crude, LPG, and LNG passing through the Arabian Sea, and also one of the largest exporters of refined oil products worldwide.

As of now, there is a nominal AWRP charge as a percentage of the value of the hull and machinery of the ship, which for older crude carriers is equivalent to $40,000-$50,000 for a seven-day transit through the Arabian Sea. There is no immediate increase in the prevailing war risk insurance costs so far for the Arabian Sea, added an Oslo-based maritime insurance executive.

Shipping operators, brokers, and navy officials at the IMDEX conference said that if the Indo-Pakistan situation escalates, international voyages in the region will become longer because AWRP will increase, and ships will avoid the war zone by staying at least 200 nautical miles away from Indian waters.

They said that currently, most ships go from near India's Cochin, which they would avoid in the event of a war. Instead, they would move from west of Minicoy Island, near Lakshadweep, and Galle, bypassing parts of the Indian Ocean, heading towards Ras al Hadd, the entrance point of the Gulf of Oman.

An Indian Navy official in Singapore for the ASEAN-India naval exercise said that India has no intention of escalating the conflict any further. He said, "We are here for the exercises as per schedule, and it shows that India does not want conflict." A Saudi Arabian naval official said his country had been briefed on India's missile raids in Pakistan May 7 in response to a terror attack in India-administered Kashmir on April 22.

"I will defer to the US political leadership on this matter," Commander of the US Pacific Fleet Admiral Stephen Koehler said when asked about how the tensions between India and Pakistan can be reduced and the conflict de-escalated.

Charterers and end receivers of cargoes are already reeling under high insurance charges due to the prevailing AWRP for moving commodities through the Red Sea and the Persian Gulf, which are designated as high-risk areas. Voyages are longer and costlier due to very limited use of the Red Sea and Suez Canal, and their substitution with the Cape of Good Hope. Higher tariffs and counter tariffs by the US and China have not helped and added to the delivered cost of commodities, sources said.