Maritime insurance costs could spike in the short-term should the situation surrounding the seizure of a South Korean-flagged tanker in Arabian Gulf waters by Iran’s Revolutionary Guards Corps (IRGC) on Monday escalate.
The IRGC seized the tanker and has detained its crew, which includes nationals of South Korea, Indonesia, Vietnam and Myanmar. The seizure follows an escalation of tensions in the region on the one-year anniversary of the assassination of IRGC Commander Qassem Soleimani, and following increased animosity between Tehran and Seoul over Iranian funds frozen at South Korean banks due to US sanctions.
“The more activity that occurs, the more questions the market will need to ask in order to price the risk, until the situation is clearly defused,” Neil Roberts, the Head of Marine and Aviation at Lloyd’s Market Association (LMA) said.
Roberts suggested that there was anticipation for a certain amount of political maneuvering for position in the Gulf region before the US presidential transition occurs.
“This seizure could be taken as a further demonstration of capability by Iran,” he said.
Noting that insurance premiums for annual maritime war risk cover are exceptionally low – equivalent to insuring a family car for less than a one British pound a year – Roberts added that it is “a very competitive market.”
In May 2019, the LMA Joint War Committee said that the Arabian Gulf, part of the Gulf of Oman, Oman and the United Arab Emirates were added to their Listed Areas, a term referring to a region with higher risk of attack. Saudi Arabia’s risk areas were meanwhile expanded to include its coasts. The move followed attacks on four oil tankers from Saudi Arabia, Norway and the UAE, off the coast of Fujairah.
“In the Listed Areas such as the Gulf, where notification of voyages is required, and additional premiums can be charged, rates will be impacted by spikes in activity, but if there is no repetition, it will soon settle back, driven by commercial pressures,” he said. This was the pattern seen in 2019, he added.
The LMA represents all underwriting businesses on the centuries-old Lloyd’s of London insurance market. It normally gathers every quarter to assess security risks to shipping around the world. Watched closely its guidance influences underwriters’ considerations over insurance premiums.
The Norwegian Shipowners’ Mutual War Risks Insurance Association, known as DNK, said war risk premiums grew 10-fold in 2019, with ships crossing the Strait of Hormuz paying between $300,000 and $400,000 per sailing, according to the Wall Street Journal.