Tankers divert as war risk premiums jump again for Red Sea route

War risk premiums for shipments through the Red Sea region have jumped to about 1% of the ship‘s value over the past week from 0.7%, according to a Reuters report, driven higher by US-led strikes in Yemen in response to attacks on commercial vessels by Houthi militants.

Although many major shipping firms have rerouted container vessels around the Cape of Good Hope, oil tankers had continued with passages through the Red Sea. But there were several attacks against them in recent days, including on US-owned vessels.

The Combined Maritime Forces, set up by the US to protect commercial vessels from Houthi attacks in the Red Sea, advised all ships at the end of last week to avoid using the Bab al-Mandab Strait for a period of several days. Since then, several oil tankers have changed course. QatarEnergy, which exports LNG, was reported earlier this week to have put a hold on tankers using the Red Sea route. Shell was also reportedly suspending shipments through the Red Sea.

Ships were already paying additional premiums adjusted for the increased risk in the Red Sea region, but Reuters said rates are expected to climb even higher and terms have tightened further.

Market sources told Reuters that the risk of attack has increased for vessels associated with the US and UK since the US-led air and naval strikes in Yemen, as well as for dependent flags including Australia and Canada.

The additional insurance premiums for Red Sea passage weigh against the extra fuel costs and time delays for using the longer Cape of Good Hope route.

Analyst Clarksons Securities says war risk insurance premiums for ships have “skyrocketed”. “Shipowners and charterers may find that rerouting around Africa is more cost effective than incurring the combined costs of Suez Canal transit fees and insurance premiums,” it says in a report this week.