War insurance rates surge following Houthis attack in Red Sea

An attack by Houthi rebels on a Greek-flagged oil tanker in the Red Sea has led to a near-doubling of war insurance rates for ships sailing through the region, according to Reuters.

The attack by the Yemeni-based and Iran-aligned Houthis took place on 21 August, when the MV Delta Sounion tanker was hit by gunfire and multiple projectiles.

According to insurance industry sources cited by Reuters, additional war risk premiums for vessels sailing through the Red Sea have risen from 0.4% of the value of the vessel to 0.75% following the latest incident, which could still turn into one of the biggest environmental hazards ever seen.

The tanker was sailing from Iraq to Greece, carrying 150,000 tonnes and one million barrels of crude oil. According to the US Defense Department, the stricken vessel poses a severe environmental risk that could result in an oil spill four times worse than the Exxon Valdez disaster of 1989 in which 275,000 barrels of oil were leaked into the sea off the coast of Alaska.

“The MV Delta Sounion now sits immobilised in the Red Sea, where it is currently on fire and appears to be leaking oil, presenting both a navigational hazard and a potential environmental catastrophe,” said Pentagon press secretary Major General Pat Ryder.

Houthi rebels have been carrying out drone and missile attacks in the Red Sea since November, reportedly in solidarity with Palestinians in the war between Israel and Hamas militants in Gaza.

So far, there have been more than 70 attacks in which two vessels have been sunk, another has been seized and at least another three seafarers have been killed.

Although premiums reached as high as 1% of the vessel’s value back in February, the latest surge shows the volatility of coverage in the region.

Reuters’ sources state that some insurers have stopped providing any coverage at all given the heightened risk of attack.

There is also a political element to the risk with Chinese ships reportedly facing 50% lower premiums since February because they are less likely to be attacked in comparison to European or US-aligned vessels.

The salvage of the Sounion has been further complicated by the reluctance of insurers or salvage companies to get involved for fear of attack. However, the Houthi group has now reportedly agreed to allow rescue ships and tugboats to access the oil tanker.