London — The recent spike in attacks on tankers near the Persian Gulf is inflating insurance premiums for ships transiting through the wider Middle East, increasing the cost of transporting oil from the region.
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Insurance rates for crude oil tankers loading in the Middle East are now up to 20 times higher following the latest attacks.
A shipping insurance source said shipowners now have to pay 0.1%-0.4% of the vessel value in insurance, compared with 0.02% prior to the attacks.
"Underwriters are terrified it will happen again over the next few days," the source said.
In some cases, marine insurance underwriters are reluctant to even offer coverage for oil tankers loading in region, shipping sources said.
Two tankers were attacked in the Gulf of Oman on Thursday, next to the Strait of Hormuz, a critical chokepoint through which 30% of the world's seaborne oil transits. These incidents came almost a month after four oil tankers were sabotaged near Fujairah, UAE.
WAR RISK PREMIUM
Any further attacks in the region are expected to lead to a revision in insurance premiums for ships transiting through the region, sources said.
"At the moment with these additional attacks, it has become likely that the situation may deteriorate further. Underwriters are trying not to offer coverage if possible, especially for tankers in this region," a London-based broker from the Edge Group, which provides marine, finance and trade insurance.
"However, when pushed we are seeing rates of between 0.1%-0.4% of the vessel value," he said. "This situation may calm down over the coming weeks, but it really depends on how the situation develops."
The Joint War Committee of insurance body Lloyd's Market Association on May 17 issued a circular adding the Persian Gulf and adjacent waters including parts of Gulf of Oman to the list of areas under risk of "Hull War, Piracy, Terrorism and related perils" following the Fujairah attacks.
Insurer Hellenic War Risks said in a June 13 notice on its website that insurance rates are likely to increase due to "a greatly increased threat to ships trading in the region."
"It is likely that Additional Premium rates will increase with immediate effect and the Association is in discussions with its re-insurers to assist in it continuing to be able to provide Members with the best possible terms," the notice said.
FREIGHT RATE IMPACT MUTED
Despite the significant impact on insurance, freight rates have not yet seen a significant rise.
A lack of demand from charterers and an oversupplied tanker market has kept a lid on freight rates in the region.
"There is not enough inquiry at the moment and tonnage is still willing to go there," a shipbroker said. "I don't think rates will jump just yet, the market will hold off till next week anyway."
But sources have acknowledged that if such attacks persist or become more frequent, a sharp spike in rates cannot be ruled out.
More than 135 VLCCs loaded crude in the Persian Gulf and Red Sea region in April in spot market deals and another 118 in May, according to brokers' estimates. There have been 132 of such spot market fixtures so far in June, the estimates show.
US Secretary of State Mike Pompeo blamed Iran for the attack on the two tankers, as well as attacks a month earlier on pipelines in Saudi Arabia and on ships in nearby waters off Fujairah. Pompeo said the US would raise the attack at the United Nations Security Council.
A spokesman for the Iranian foreign ministry called that the US claim "ludicrous," according to Iran's semi-official Fars news agency.
Iranian President Hassan Rouhani recently suggested Iran could disrupt oil flows through the strait in response to US calls to bring down Iran's oil exports to "zero" under its latest sanctions on the OPEC producer.
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