War risk insurance cost off highs but still elevated in Persian Gulf

The Additional War Risk Premium for moving tankers across the Persian Gulf eased in the week ended March 27 as more ships crossed the risky waters of the Strait of Hormuz amid hopes that an agreement may eventually be reached to end the war in the Middle East, market participants said March 27.

The AWRP had reached around 2.5% of the Hull and Machinery value of ships per seven-day period in the Persian Gulf earlier in March, but it is now close to 1%, multiple maritime insurance executives said on the sidelines of the Asia Pacific Maritime conference in Singapore.

Some of the tankers that successfully transited the Strait of Hormuz even paid around 0.8% AWRP, after factoring in the no-claims bonus, a shipping insurance company official said. However, even at these levels, the AWRP remains up to eight times higher than in the pre-war period, when the value was around 0.1%-0.15%, or even lower, two maritime insurers said.

It is uncertain whether the downward correction in AWRP would be sustained because risks remain high and the hopes that supported the decline may be belied, the maritime insurers said.

Even during the attacks by the Houthis rebels in Yemen on ships in the Red Sea and the Bab al-Mandab Strait, in 2024, the AWRP rarely reached 1% of the H&M value. Most of the time, it remained between 0.4% and 0.7%, while it was less than 0.1% at the time in the Persian Gulf, according to two maritime insurance brokers.

There have been cases where some stranded tankers paid up to 10% of the H&M value as AWRP in mid-March, a source with a clean oil tanker owner said, adding that a crude-laden Suezmax tanker's premium was a whopping $7.5 million, even exceeding the freight to its destination at $6.5 million.

Despite insurance coverage, the number of tankers transiting the Strait of Hormuz has reduced to a trickle due to safety concerns. Consequently, as of early last week, close to 40 Long Range tankers were stuck in the Persian Gulf, according to estimates from two shipping brokers, prompting importers to look for alternative sources for their purchases, such as the US Gulf and West Coast India.

"Insurance is available, and no mines have been confirmed, and the reason for not transiting the Strait is crew safety," said an insurance underwriter.

Two chartering sources with tanker owners said their companies have taken war risk insurance, but management does not permit calling on Persian Gulf ports due to safety compliance requirements. For Medium Range tankers, the current AWRP is around $40,000 per seven days in the Persian Gulf, four times the pre-war level, one of the chartering sources said. Depending on the age and value of the tankers, some owners have paid about $80,000-$120,000 for the same period. Another chartering source pegged it at around $250,000 for Long Range tankers.

The ships belonging to companies listed on US stock exchanges, having American and Israeli flags, or any other links to these countries, have to pay a higher AWRP, a maritime underwriter said.

Two Long Range II tankers owned by global tanker company Navig8, carrying jet fuel and naphtha, have successfully passed through the Strait of Hormuz in the past few days, Platts, part of S&P Global Energy, reported March 27.

The jet fuel-laden Abu Dhabi III sailed to West Coast India for a ship-to-ship transfer of the cargo to Shell's LR2, the Proteus Rebecca, for Singapore delivery, while naphtha-laden Al Ruwais is en route China, sources with knowledge of the matter said. Shell did not respond to a request for official comment March 27.