Gulf tensions send war rates soaring over and above tenfold increase

Shipowners operating in the Middle East can expect further big increases in the cost of war risk insurance, following the most recent attack on an Iranian oil tanker off the coast of Saudi Arabia, according to law firm DWF. Elborne Mitchell said the attack highlights the increasing problems for insurers, brokers and ultimately insureds operating in the region, as they grapple with the “web” of US sanctions. Things are particularly ambiguous for EU companies, it added. The law firm also said this week’s decision by the US to impose sanctions on Turkish ministries and senior government officials is yet another example of how heightened geopolitical tensions are creating an “extremely challenging” environment for the insurance market and its clients. Commenting on the vessel damaged last week, which Iran alleges was subject to a rocket attack, Jonathan Moss, head of marine and trade at DWF, said buyers can now expect rates to rise “over and above the tenfold increase to rates since the attacks on tankers in May”. “Shipping companies operating in the region will be forced to absorb these added costs, with affordable insurance in this high risk zone becoming harder to find,” Mr Moss said. Tensions in the area have mounted since May, when US officials said Iran was responsible for attacks on four tankers and follow-up attacks on two oil tankers in the Gulf in June and July. Last month, Saudi Arabia blamed Iran for a drone attack on an oil field and processing facility in the country. Details about the most recent attack have yet to be established, with reports at first naming the oil tanker as Sinopa and then Sabiti. Iran’s foreign ministry said two missiles caused damage to the vessel, which leaked oil into the Red Sea. Mr Moss said establishing the facts of the most recent attack will determine where insurance cover for the damage lies. “There were reports that missiles struck the tanker and an accusation that Saudi Arabia had committed an act of terrorism while the vessel was carrying oil to Syria. Whether this was an act of terrorism or indeed a breach of international sanctions is of crucial significance in determining whether and how cover might respond, if at all,” he said. Andy Stevenson, partner at Elborne Mitchell, said navigating the web of US sanctions in the region is becoming increasingly complex. “US insurers are prohibited from dealing with Iran but the situation for EU insurers is more ambiguous. If the ship was insured on the open market, it would raise many questions about the nature of the attack and whether sanctions exclusion clauses apply. Geopolitical volatility is showing no signs of abating and we expect this to have an upward effect on pricing in the region,” he said. Mr Stevenson also noted that the US’s decision to impose sanctions on Turkey means insurers and brokers will have to “scramble to unpick exactly what has been imposed, on whom, and whether they trade with them, so that they do not inadvertently make unauthorised payments”. “For non-US corporations, understanding how they are affected by secondary sanctions is complex, with little practical guidance available from US authorities, and yet the financial consequences of not complying are severe – including heavy fines,” he added. Sanctions were put forward by the Trump administration in response to the military attack on Syria by Turkey. The US Congress has since said it will press ahead with a broader package of sanctions, after those announced by Trump were deemed ineffective.

Gulf tensions send war rates soaring over and above tenfold increase

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