LONDON – Insurers are expected to increase the cost of covering merchant ships crossing the Red Sea after a series of incidents that have hit ships around Saudi waters, industry sources have said.
The possibility of further attacks on commercial ships carrying oil and commodities through these waterways is increasing after the outgoing US administration’s decision to designate the Iran-aligned Houthi movement in Yemen as a foreign terrorist organization.
“We are seeing an increase in tariffs for ships calling in the Red Sea due to concerns about the risk of attack by militias, whereas previously it was a more serious problem in the Persian Gulf,” said Mike Ingham with Gallagher Insurance Broker. “This will have an impact on ships going to Red Sea ports such as Jeddah.”
Each ship needs various forms of insurance, including annual war risk coverage as well as an additional “breach” premium when entering high risk areas. These separate premiums are calculated based on the value of the vessel, or hull, for a period of seven days.
Violation rates have climbed to around 0.015% of insurance costs from around 0.012% at the end of December, which equates to tens of thousands of dollars for a seven-day trip, according to market estimates.
“The real debate is on the Red Sea side after the incidents involving explosive devices. Everyone is watching what happens next, ”said one war underwriter.
Saudi Arabia said last month that an oil tanker anchored at the port of Jeddah was hit by a boat laden with explosives in what it called a terrorist attack. This follows another incident at another Saudi terminal in the Red Sea, where an oil tanker was damaged by an explosion.
The US Maritime Administration warned seafarers last week that “escalating military activity and heightened political tensions in this region continue to pose serious threats to commercial vessels.”
The Red Sea is one of the world’s busiest shipping lanes leading to the Suez Canal, with thousands of transits made each year through the Bab al-Mandab Waterway at its southern end.
There are wider tensions after Iran seized last week of a South Korean tanker further in the Strait of Hormuz.
(Edited by Jane Merriman)
On this Monday, January 4, 2021, an archive photo published by the Tasnim news agency, an oil tanker seized under the South Korean flag is escorted by Iranian Revolutionary Guard boats in the Persian Gulf. Iranian national television admitted that Tehran had seized the tanker, MT Hankuk Chemi, in the Strait of Hormuz. Photo credit: Tasnim News Agency via TBEN, dossier.
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