A 1,000% war-risk premium shock

As conflict in the Middle East spills deeper into global shipping lanes, the biggest cost for oil markets is no longer only the crude prices but the rising cost of moving oil and other items safely.

War-risk insurance premiums are climbing sharply as vessels face mounting security threats across two of the world's most critical energy corridors - the Strait of Hormuz and the Red Sea.Fresh attacks and growing caution among shipowners are beginning to disrupt shipping patterns across the two routes, even though oil supplies continue to flow.

The developments are adding to concerns over transport costs for crude and petroleum products, with insurers, shipowners and energy traders preparing for a prolonged period of elevated geopolitical risk.Also Read: Trouble is brewing at Middle East's two key chokepointsWar-risk insurance premiums climb as shipping risks increaseWar-risk premiums on Gulf shipping routes have hardened significantly in recent months as geopolitical tensions intensified.

Premiums for voyages through high-risk areas are estimated to have increased by between 200% and 300%, while some routes have seen increases of more than 1,000%, according to Equirus Raghnall Insurance Broking.The brokerage said insurance costs for the riskiest voyages have risen from around 0.2%-0.5% of a vessel's value to between 3% and 5%.

It added that any prolonged disruption could also raise insurance costs for Russian crude shipments to India while increasing the landed cost of the country's crude imports."War-risk insurance is typically the first component to react to heightened geopolitical tensions.

Even without a formal closure of the shipping lane, insurers and reinsurers are likely to reassess the risk, leading to higher war-risk premiums, tighter underwriting and, in some cases, reduced capacity.

If the threat persists, premiums for transiting the affected region could increase several-fold, adding materially to voyage costs," Amit Goel, Director, Equirus Raghnall Insurance Broking, said.Even a relatively small increase in war-risk insurance can translate into hundreds of thousands of dollars in additional costs for a seven-day voyage.Also Read: Houthis claim attacks on Saudi tankers in Red SeaHormuz and Red Sea shipping routes face fresh security concernsShipping disruptions are beginning to emerge across the Strait of Hormuz and the Red Sea as the ongoing US-Iran conflict raises security concerns and prompts some vessels to pause, divert or reconsider their voyages.Yemen's Houthi militia said on Thursday it had attacked two Saudi Arabian oil tankers in a military operation.

A Saudi news agency later confirmed that one of the two vessels had caught fire following an attack while sailing through the Red Sea.Earlier this month, several oil tankers were seen either stopping or reversing course after some shipowners received emails from the Houthi group warning vessels against calling at Saudi ports.

At least one tanker, Xin Long Yang, later resumed its original voyage towards the Bab el-Mandeb Strait.Also Read: Why the Red Sea remains one of the world's most dangerous shipping routesThe incidents have unsettled energy markets, not because crude shipments have stopped, but because ships are increasingly adjusting their routes in response to perceived risks around two waterways that remain vital to global oil trade.India's crude import costs could rise if tensions persistFrom an insurance perspective, higher war-risk premiums, combined with increased hull and machinery exposure and additional security costs, are expected to push up the landed cost of crude imported into India.

While insurance forms only one part of overall logistics expenses, prolonged increases in war-risk pricing could materially alter import economics, particularly for cargoes originating from or passing through West Asia."The Indian marine insurance market is estimated at approximately Rs 5,500 crore to Rs 5,800 crore.

We expect marine insurance pricing to remain firm in the near term, with geopolitical developments continuing to influence war-risk premiums.

A sustained easing of tensions, however, could help moderate pricing pressures over time.

However, for now, war-risk cover is likely to remain the main pressure point," Goel said.Bloomberg reported earlier this month that London marine insurers were receiving fewer enquiries for voyages through the Strait of Hormuz, while some insurers said the cost of cover had increased.

This points to growing caution among shipowners as the United States and Iran continue to exchange attacks. ...