Oil supertanker rates soar as insurers drop war risk cover

Oil supertanker costs in the Middle East have risen to record highs as the conflict between the US and Iran has disrupted shipping through the strategically important Strait of Hormuz.

Major maritime warfare risk providers have begun covering ships operating in the Persian Gulf as a sudden security shock hobbles key shipping routes in the region.

The benchmark freight rate for Very Large Crude Carriers (VLCC) – used to transport 2 million barrels of oil from the Middle East to China – hit an all-time high of $423,736 a day on Monday, LSEG data showed. That marked an increase of more than 94% from Friday’s close.

In addition to a significant jump in oil and gas prices, a meteoric rise in the cost of transporting crude followed the US and Israeli attacks on Iran over the weekend. The widening conflict has effectively shut down shipping traffic through the Strait of Hormuz – one of the world’s major oil choke points in the Gulf between Oman and Iran.

A senior Iranian Revolutionary Guards official warned on Monday that the Strait of Hormuz had been closed and that any ship attempting to pass through the waterway would be attacked, state media reported. Fox News reported that this claim was disputed by the US military’s Central Command, CENTCOM.

“Charters in the VLCC segment have withdrawn from the market and avoided securing vessels, as multiple incidents have raised the risk level around the Strait of Hormuz, while the waterway has not been officially closed,” Sheel Bhattacharjee, head of commodity pricing in Europe at Argus Media, told CNBC by email.

Oil producers in the Middle East have yet to suspend any production or loading and ports in the UAE, Oman and Kuwait are operating, Bhattacharjee said, citing market sources.

“But most ship owners were avoiding shipping through the Strait of Hormuz after insurers canceled war risk coverage for ships in some areas of the region,” Bhattacharjee said.

According to Argus Media, roughly a third of seaborne crude oil trade is estimated to move through the strategically important waterway, along with 19% of global liquefied natural gas (LNG) flows and 14% of global refined products trade.

Major marine insurers have canceled war risk cover for ships operating in the Middle East in recent days, amid reports of attacks on many ships passing through the Strait of Hormuz.

Along with the New York-based American Club, marine insurers including Norway’s Gard & Skuld, Britain’s Northstandard and the London P&I Club said they were canceling war risk cover for ships in the region.

Even if oil tankers are temporarily blocked from the Strait of Hormuz, that could raise global fuel prices, increase shipping costs and cause significant supply delays.

The Strait of Hormuz is important for global container trade. The region’s ports, such as Jebel Ali and Khor Fakkan, are specialized transshipment hubs that act as intermediary hubs in global networks.

Shipping giants including MSC, Maersk, Hapag-Lloyd And CMA CGM has issued new guidance to prioritize safety amid the deteriorating security situation.

Maersk, widely regarded as a global trading benchmark, said on Monday it would suspend special cargo acceptance in the United Arab Emirates, Oman, Iraq, Kuwait, Qatar, Jordan, Bahrain and Saudi Arabia until further notice.

It had previously said that US services from the Middle East-India to the Mediterranean and the Middle East-India to the East Coast would be rerouted around the Cape of Good Hope.