- Shipping risks may push up insurance costs.
- Red Sea return to normal may be delayed.
Maritime war risk premium in the Middle East could increase if the Israel-Iran conflict escalates following the latest Israeli attacks, market participants said June 13, reports Platts.
“It all depends on how sustained the conflict is. More than a year ago, there was a barrage of [Israel-Iran] air attacks for a short while, which did not sustain,” a chartering executive in Tokyo said.
Risk premium in the Middle East could increase
The additional war risk premium is currently around 0.05%-0.07% of a ship’s hull and machinery value for spending seven days in the Persian Gulf and has remained largely unchanged for the past 18 months, chartering sources in East Asia said.
One charterer said naphtha importers in North Asia are already paying up to $50,000 per voyage from the Persian Gulf due to the region’s designation as a high-risk area by a consortium of maritime insurers for the past six years.
The HRA designation followed a series of attacks on oil tankers. In June 2019, the LR2 tanker Front Altair was attacked while transiting the Gulf of Oman.
Since then, incidents in the region have been few and far between, but due to risk perceptions, the AWRP has remained a significant source of revenue for maritime insurers.
However, sources said insurers offer hefty discounts through bundled packages for owners with sizeable fleets — either by allowing transits longer than seven days or by combining the transit periods of two or more ships in the same fleet to lower costs.
“Discounts or no discounts, overall delivered cost can now increase,” a VLCC broker said, noting that these expenses are passed on to charterers, meaning any retaliation by Iran would drive up cargo costs, insurance charges and freight rates.
Slumping freight rates
Tanker freight rates have slumped so far in June, with the Platts-assessed benchmark LR2 Persian Gulf-North Asia route down $3.50 on June 13. Platts is part of S&P Global Commodity Insights.
Market participants anticipate further downside following Israel’s latest strike on Iran. Meanwhile, earnings for dirty tankers have been so abysmal that some operators have switched to transporting clean cargoes.
A common refrain among Asian shipping market participants is that geopolitics may rescue owners by supporting freight rates, but at the cost of increased risks to their assets and crew.
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Source: Platts
