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Not since 2005 have the world’s insurers considered shipping in the Persian Gulf so dangerous for oil tankers.
The Joint War Committee of London’s Lloyd’s Market Association said it would expand its socalled “listed areas” —those regions that pose the greatest risks for shipping, and potentially warranting higher insurance costs — to include the entire Persian Gulf. The last time the entire region held the designation was a period that ended in June 2005 and encompassed the most recent Iraq War. It highlights the growing risks in the world’s most important export region and chokepoint for oil.
The classification comes after the committee met to discuss the sabotage of four tankers at the port of Fujairah in the United Arab Emirates. Saudi Arabia said those incidents represented an attack on its fleet, with the nation’s energy minister describing it as an attempt to prevent the free flow of goods over the world’s oceans.
Intense period
Tensions between Saudi Arabia and Iran — two key global oil producers — have been steadily rising in recent weeks, while the U.S. is ratcheting up sanctions on Iran.
“In terms of geopolitics, I don’t remember a period that was as intense as today,” said Olivier Jakob, managing director of consultancy Petromatrix GmbH.
Growing tensions in the region are significant for oil markets, as the Strait of Hormuz, the key bottleneck in and out of the Persian Gulf, sees tankers hauling about 16.5 million barrels of oil passing through it daily. As such, any curb to flows through the region would have a significant impact on crude prices.
It will take time for higher insurance costs to filter through to the market. The committee’s decision will could lead to an additional premium for ships sailing to the Persian Gulf, but some underwriters are still deciding how to respond. The committee’s decisions aren’t binding, though they’re generally followed by the world’s insurers.
Real impact
Most important though, is the potential effect on global oil supply if the insurers’ concerns turn out to be well founded.
Both the United States and Iran have escalated a war of words that culminated in President Donald Trump saying Sunday that further acts of aggression would be “the official end of Iran.” Though both the U.S. and Iranian regimes have dismissed the prospect of war, those in charge of valuing risks see skirmishes like the sabotage in the United Arabe Emirates. as adding to the potential financial cost of doing business in the region.
“There is no doubt that considerable damage was done and there will be significant claims,” the Committee said in a statement, referring to the attacks at Fujairah, adding that there is now “heightened risk across the region.”