Seven-day war risk cover for vessels transiting the Gulf was up tenfold at the end of last week –– more than doubling over the past week alone. Maritime analysts tracked a wide spectrum of pricing — with lower-risk vessels securing cover at about 1% of hull value or less, while higher-risk ships are being quoted rates between 7.5% and 10%. Premiums are expected to climb further following the string of attacks on vessels in the Arabian Gulf late last week.

When it comes to war risk contracts, every quote is bespoke –– vessels with a perceived US, British and, or Israeli association are regarded as top targets, and inevitably have higher tickets. Meaning, if a five-year-old VLCC on charter to US players is currently valued at USD 138 mn, ins. could be charging up to USD 14 mn to cover a single voyage through the strait.

The tipping point

Attacks tally rise: Incidents impacting vessels in the Arabian Gulf total to 16 over the last fortnight. Of these, six vessels have been struck across Gulf waters, including three ships hit in a single day. Two additional ships were struck off the coast of Iraq causing a fire onboard both vessels. Another ship — operated by Hapag-Lloyd — was hit off the coast of the UAE.

Where do we stand? “There remains approximately 1k vessels, about half of which are oil and gas tankers, with an aggregate hull value exceeding USD 25 bn in the Persian/Arabian Gulf and surrounding waters,” Lloyd’s Market Association’s CEO Sheila Cameron said last week.

Why this matters

“The risk calculus for shipping has changed,” Lloyds List Editor Richard Meade said on a call attended by EnterpriseAM. Shipowners who “had been planning to exit their vessels” now questioned that decision, as “the assumption that certain flags or affiliations were low risk enough to get through –– that has been proven fatally wrong in some cases.”

Despite the obvious risks, “interest in getting vessels through the Strait of Hormuz had picked up significantly this week,” according to maritime analytic firm Lloyds List. Nevertheless, “trade has been halted, not by a lack of available ins., but by obvious safety concerns. The market for marine war risks is operating in the manner we would expect,” chief executive of the International Underwriting Association Chris Jones added.

Traffic still holds — much of it dark. Around 77 transits were recorded since the beginning of this month, Lloyd’s data analyst Bridget Diakun said, with 17 of those deemed as dark transits by both sanctioned shadow tankers and mainstream ships hoping to avoid detection. Over half of the vessels transiting the strait are shadow ships, which are already used to disruptions and have a “high risk appetite.” While “a lot of [the transits are] linked to Iran, around half, unsurprisingly,” Diakun clarified, adding that some 12% are linked to China or China-affiliated vessels.

Disruption is trickling down to the consumer level

Blockade begins to bite downstream: Basmati shipments to core Middle Eastern markets –– Saudi Arabia, Iraq, Iran, and the UAE — are effectively halted in transit due to the Hormuz blockade. An estimated 400k mt is currently stuck — leaving exporters uncertain about when cargo will be unloaded or when payments will be received.

Indian rice exports slow as freight and ins. costs soar. New export agreements for Indian rice have hit a significant bottleneck due to the halt of movement through the strait. India is experiencing its worst gas crisis in decades as the Strait is a critical energy lifeline for New Delhi, with 40% of its crude imports passing through the waterway.

What’s next?

Some flags could get a green light: Two Indian-flagged LPG carriers sailed through the strait on Friday in a rare exception to the blockade, four sources told Reuters. The first LPG tanker — named Shivalik — passed through the waterway under escort from the Indian Navy.

A signal that the potential for diplomatic negotiations to negotiate safe passage is not entirely off the cards. India’s government is locked in negotiations with Iran to ensure the safe passage for six LPG tankers through the strait, sources told Bloomberg. The vessels are hauling a combined 270k tons –– of which India is experiencing an acute shortage of in the country.

Could we be seeing a pattern? Ships are beginning to call between Larak and Qeshm, before gaining Iran’s approval to transit via the strait, as EOS maritime analyst Martin Kelly flagged Pakistan-flagged tanker Karachi as doing. While we cannot confirm if this is a pattern or a one-off exit, Kelly has stated "multiple ships [are] doing this.”

We’re waiting to hear more about the US’ grand plan: US ins. giant Chubb was selected aslead underwriter for US the International Development Finance Club (IDFC)’s USD 20 bn plan to relaunch commercial shipping in the strait last week. However, confidence in the US’ plan was further shaken last week when they pedaled back on its proposed plan to safeguard vessel transits through the strait — fulfilling shipping analysts' expectations.

Trump is seeking naval backup: US President Donald Trump called on China, France, Japan, South Korea, and the UK over the weekend to send warships to force open the Strait of Hormuz along with US naval forces. So far, Australia has said it will not be sending vessels, while the other nation states are said to still be deliberating.

Tags: