Insurance costs to rise as two more tankers hit in Gulf of Oman

Two further torpedo attacks on oil tankers in the Gulf of Oman that left one vessel ablaze and both adrift are likely to drive insurance rates up and persuade marine and energy insurers to tighten conditions, according to international law firm DWF. The likely total value of goods involved in the latest attacks is about $65m, according to risk management software and advisory firm Russell Group. "The connected risk for insurers will be the effect on supply chains, which means credit risk, business disruption and defaults," said Russell Group managing director Suki Basi. The Norwegian Front Altair caught on fire after an explosion that a source blamed on a magnetic mine, reported news agency Reuters. The ship’s crew were picked up by a vessel in the area and passed to an Iranian rescue boat. Russell Group estimates the value of goods to be $25m. The Japanese-owned tanker Kokuka Courageous was abandoned after being hit by a suspected torpedo, the firm that chartered the ship said. The crew were also picked up. Russell Group estimates the value of goods in this case to be $40m. The US has blamed Iran for the attacks, that were the second in a month in the key oil supply route. The price of oil rose 4% as the news broke. Last month, the US and Saudi Arabia blamed Iran for attacks that used limpet mines on four tankers off the coast of the United Arab Emirates. The Iranian government denies the accusation. “Increasing uncertainty and high political instability in the Gulf region is likely to lead insurers to raise premiums, renegotiate terms of cover and introduce riders to marine and energy contracts of insurance and reinsurance,” said Jonathan Moss, DWF partner, head of transport and shipping. “Global insurance markets are accustomed to factoring geopolitical uncertainty into pricing models, nevertheless this geopolitical fallout has not been seen since 2003. In 2003, rates for hull and machinery, [and] war risk cover for tankers in the Persian Gulf, increased significantly [because of] the political instability in the region,” pointed out DWF. “This coming year will see a drive by insurers to raise premium in the face of a cocktail of instability in the region. Global marine insurers are closely monitoring the current situation, employing complex risk models,” added the law firm. DWF pointed out that determining the level of risk in the region is difficult as long periods of calm are followed by a spate of notifications to marine insurers of large claims caused by acts of aggression. Following the incidents involving two Saudi-flagged tankers plus one Norwegian vessel and one from the UAE on 12 May, London market marine insurers met on 16 May to discuss whether to increase rates for tankers in the Arabian Gulf. “The Joint War Committee (JWC), which includes LMA members and insurance providers, met extraordinarily to discuss the issue. As a result, London market marine insurers have extended the list of waters deemed high risk under their hull war, piracy, terrorism and related peril policies to include Oman, the United Arab Emirates and the Gulf, after recent ship attacks off Fujairah. Saudi Arabia's risk areas were expanded to include its coasts,” explained DWF. The JWC has stressed that premium increases will vary. “Given the risk of hostility in the Persian Gulf, underwriters will be closely scrutinising voyages on a case-by-case basis, with premium increases covering vessels in the region a near certainty,” added DWF. Russell Group said closure of the Strait of Hormuz could wipe $10bn per week from global trade. It said Saudi Arabia would be most affected, as the country has $3.5bn of weekly trade across the Hormuz, with $2bn moving in and out of its main port, Ras Tanura. United Arab Emirates ($3.3bn), Iraq ($1bn), Iran ($844m), Qatar ($763m), Kuwait ($706m) and Oman ($421m) would also be affected, according to Russell Group. Russell Group’s Mr Basi added that the closure of Hormuz would impact Asian economies rather than Western ones. According to Russell analysis, Saudi exports to Asian economies such as China ($31bn), Japan ($28bn), India ($21bn) and South Korea ($19bn), far outweigh the US ($19bn).

Insurance costs to rise as two more tankers hit in Gulf of Oman

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