Insurance rates jump in Middle East conflict zones amid Iran-Israel attacks

Marine insurance costs for transporting energy and commodities in Middle Eastern conflict zones have surged, reflecting heightened maritime risks amid the escalation of the Iran-Israel conflict.

Israel has launched a succession of air strikes on Iran since June 13, including hitting nuclear sites and coastline energy infrastructure, with Iran retaliating by bombing Israeli targets including Haifa port.

War risk premiums for cargo ships sailing to ports in Israel have more than tripled to 0.7% of the value of hull and machinery (H&M) from 0.2% before the initial air strikes on Iran, according to Marcus Baker, global head of marine and cargo at Marsh McLennan.

The risk premiums in H&M coverage for ships moving through the Red Sea have climbed to 0.25%-0.30% from 0.2%-0.25% and for the Persian Gulf to 0.2% from 0.125% over the same period, Baker told Platts, parts of S&P Global Commodity Insights, on June 19.

Market sources said the premiums had stayed at 0.05%-0.07% of a ship's H&M value for spending seven days in the Persian Gulf for 18 months before hostilities escalated in June.

While ship charterers, such as oil traders and importing firms, tend to absorb the H&M premiums, shipowners would purchase war cover for protection and indemnity third-party liabilities in conflict areas.

Combining the two insurance rates, total insurance costs for a VLCC transporting oil from Ras Tanura, Saudi Arabia to Ningbo, China jumped to $0.7/b-$0.8/b overnight on June 13 from $0.25/b a day earlier, according to Xclusiv Shipbrokers.

Moreover, underwriters have attempted to seek more flexible terms for their coverage, with more quotes staying valid for only 24 hours rather than 48 hours, and 96-hour cancellation clauses becoming standard.

Mounting worries

The premium hikes come as maritime authorities, including the Joint Maritime Information Center, have reported increased electronic interference in the Strait of Hormuz and Persian Gulf waters, jamming ships' satellite navigation systems and affecting navigational safety.

On June 17, the Frontline-owned VLCC Front Eagle collided with an alleged shadow fleet tanker, the Suezmax Adalynn, amid electronic interference, in an incident that the shipowner suggested was not directly related to regional conflicts.

Iran has suggested it would target ships linked to Israel and its allies near Hormuz, a chokepoint through which some 20 million b/d of crude, condensate and fuel flows, and the Islamic Republic has in the past attacked or arrested ships when tensions flare.

While analysts suggested a full closure of Hormuz is highly unlikely, Ehsan Khandouzi, Iran's former economy minister, on June 17 posted on X that Iran should only let oil and LNG tankers transit the narrow waterway under its permission for 100 days.

But Middle Eastern producers have continued to export oil at a largely normal pace, even as the number of tankers destined for the Gulf has fallen to its lowest since at least 2021 when adjusted for seasonality.

According to S&P Global Commodities at Sea, average outbound crude volumes via Hormuz stood at 14.58 million b/d as of June 18, marginally lower than the May level of 14.64 million b/d.

"Given that the situation is currently contained within the region, risks are still being placed to enable cargo to flow through these areas," Marsh McLennan's Baker said.