Major marine insurers have canceled war risk coverage for ships operating in the Gulf as the escalating conflict with Iran disrupted shipping and caused some freight costs to rise.
At least 150 vessels, including oil and liquefied natural gas tankers, have dropped anchor in the Strait of Hormuz and surrounding waters, and at least three tankers were damaged and one seafarer was killed over the weekend.
The vital sea route, through which around 20% of the world’s oil supplies and 20% of sea-going gas tankers pass, is effectively closed after the United States and Israel launched intense airstrikes against Iran on Saturday.
Several leading marine mutual insurance companies, including Norway’s Gard and Skuld, the U.K.’s NorthStandard and London P&I Club, and the New York-based American Club, said they were canceling war risk coverage for ships operating in the region.
This is likely to further deter shipowners from crossing the Gulf. Insurers said war risk coverage, which normally covers ship owners for costs and damage resulting from war, terrorism and piracy, would be canceled in Iranian waters, as well as in the Gulf and adjacent waters, with effect from March 5.
Peter Hulyer, UK head of protection and indemnity (P&I) at leading insurance broker Marsh, said this relates to non-poolable war cover for these mutual insurers, intended for specific, often higher risk exposures such as chartered vessels. “In most cases, clubs will offer to reinstate war cover on terms to be agreed. The mutual P&I cover offered by clubs is not affected by the above.”
Marcus Baker, global head of marine insurance at Marsh, said several other insurance markets, including Lloyd’s of London, had issued cancellation notices, to give insurers time to look at the increased risks in the Middle East and evaluate their rates.
He said insurance rates could increase by 50% to 100%, or even more, from 0.25% to 0.5% to 1% of the value of the insured asset. This compares to a 5% rating after the Russian invasion of Ukraine in 2022 for ships arriving in Odessa.
The cost of transporting goods rose as shipping was rerouted and oil prices rose sharply on Monday.
The containerized freight index, tracked by the Trading Economics website, rose 6.5%.
Freightos terminal container rates from Shanghai to Jebel Ali in Dubai, the Middle East’s largest port, rose from $1,800 for a 40-foot container on Saturday to around $3,700 on Monday, according to the online shipping marketplace.
Dubai-based DP World suspended operations at Jebel Ali over the weekend after an aerial interception sparked a fire on Saturday night, although operations have since resumed.
Freightos said that as only about 2% to 3% of global container volumes passed through the Strait of Hormuz, its effective closure may not have much impact on the overall container market.
However, given the wider disruption in the region, including the Red Sea, he added: “For importers or exporters attempting to move goods into or out of the Middle East, services will be significantly disrupted and costs will increase for goods that can be moved.”
John Wyn-Evans, head of market analysis at UK wealth management group Rathbones, said: “Any rate increase would be linked to a combination of diversion and higher oil prices – diversion involves being at sea for longer, which reduces capacity and if loads have to get there in a certain time, they have to sail faster, which uses more fuel (and is exponential, like driving faster in a car and see how MPG (miles per gallon) go down)”.
Iran-backed Houthi rebels in Yemen, who had suspended attacks on Red Sea ships since October, have also threatened to resume attacks.
In response, several major shipping companies – Denmark’s Maersk, Germany’s Hapag-Lloyd and France’s CMA CGM – have diverted all sailings away from the Red Sea until further notice, rerouting them around Africa. Denmark’s Norden has suspended all new business requiring transit through the Strait of Hormuz.
CMA CGM has imposed an emergency conflict surcharge of between $2,000 (£1,491) and $4,000 per container on cargo moving through the region.
Shares in Beazley, a leading marine insurer operating in the Lloyd’s market, initially fell 2.8% as investors worried about a possible large insurance loss emerging from the Middle East and the risks of its takeover by larger rival Zurich. Its share price recovered 1.8% when the two companies announced on Monday afternoon that an £8.2bn deal had been reached, but closed down 1.3%.
“The announcement could also be read as a sign that Beazley’s loss exposures, and likely those of the broader specialty insurance market, remain contained,” Jefferies analysts said.
Beazley wrote just over $500 million in marine insurance premiums in 2024, about 8% of its total portfolio.
Matthew Wheatley, chief data analyst at energy analysis firm Wood Mackenzie, said: “Shipping prices are volatile amid new instability in the Middle East, with most tankers now avoiding the Strait of Hormuz as attacks and insurance cancellations make the area increasingly unsafe.
“A substantial number of tankers are currently stranded or diverted in the region, effectively removing a significant amount of capacity from the market. If the conflict continues and tanker availability remains tight, global freight rates could rise further.”
