Insurance Rates for Crude Oil Tankers to Jump After Gulf Attacks

By Julian Lee, and | June 14, 2019

Oil tanker owners are turning increasingly nervous about loading cargoes from the world’s largest export region for crude after the latest round of attacks on vessels.

Both owners and the companies that charter their ships paused bookings on Thursday as they re-evaluated risks to shipping barrels from the Middle East in the wake of attacks on two more tankers just a month after similar incidents. Insurance costs from the region look set to rise too.

The U.S. pointed the finger at Iran for the attacks just outside the Strait of Hormuz, a vital corridor for crude exports. The Persian Gulf country immediately denied being responsible. Nevertheless, six tankers, hauling a variety of cargoes, have now been targeted in the space of just 32 days — the kind of threat to merchant shipping that hasn’t been seen in the region for decades.

“We need to remember that some 30% of the world’s crude oil passes through the Straits,” said Paolo d’Amico, chairman of Intertanko, the biggest trade group for tanker owners. “If the waters are becoming unsafe, the supply to the entire Western world could be at risk.”

The Joint War Committee, a group that advises insurers, designated the entire Persian Gulf and waters just outside it a so-called Listed Area after the incidents a month ago. The classification gives underwriters room to charge more. As of Thursday, owners were reluctant to send vessels to the region while there was also a dearth of cargoes, according to traders and shipbrokers involved in that market, who spoke on condition of anonymity.

DNK, the mutual insurer that covered one of the ships damaged Thursday, will increase its rates for war insurance, according to a person familiar with the matter. Rival insurer Hellenic War Risks Club will probably increase a so-called additional premium that owners pay when sailing to the Persian Gulf with immediate effect, according to a notice on its website.

Japan’s Mitsui OSK Lines Ltd. has ordered ships it operates in the area to keep a 12-mile radius from the zone where the two tankers were attacked, a company spokesman said on Thursday evening.

Intertanko said it is “extremely worried” about the safety of crews in the region. It also said two of its members suffered explosions at or below the water line in what the group described as an attack.

Rare Disruptions

Escalations that materially disrupt Middle East oil supplies are relatively rare. The Iran-Iraq war coincided with a big slump in OPEC oil output in the first half of the 1980s. That conflict saw tankers destroyed as the two countries tried to damage one another’s economies.

By contrast, Iraq’s 1990 invasion of Kuwait, and the Gulf War that followed, were a long way from Hormuz and had a relatively small impact on flows through the Strait, with Saudi Arabia replacing much of the lost Iraqi and Kuwaiti crude.

In the short-term the rates for chartering ships in the Middle East could rise as some owners consider avoiding the region, lowering supply, JPMorgan Chase & Co. analyst Noah Parquette wrote in a report.

Shares of tanker companies responded bullishly, suggesting a view among some investors that the tensions could drive up freight rates. Frontline Ltd. — the owner of the Front Altair — led the way, rallying as much as 11% in Oslo on Thursday.

–With assistance from Jack Wittels, Firat Kayakiran, Alaric Nightingale, Verity Ratcliffe, Tsuyoshi Inajima, Ann Koh and Javier Blas.

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