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Leading maritime insurers have cancelled war risk cover for vessels operating in the Gulf as the escalating Iran conflict disrupted shipping and sent some freight costs surging.
At least 150 vessels including oil and liquefied natural gas tankers have dropped anchor in the strait of Hormuz and surrounding waters.
The vital shipping route, through which about 20% of the world’s oil supplies and 20% of seaborne gas tankers pass, is effectively closed after the US and Israel began intense airstrikes on Iran on Saturday.
Several leading marine insurers, including Norway’s Gard and Skuld, the UK’s North Standard and the London P&I Club, and the New York-based American Club, said they were cancelling war risk cover for ships operating in the region.
Withdrawing from offering cover is likely to further dissuade shipowners from traversing the Gulf. The insurers said war risk cover – which typically covers shipowners for costs and damages resulting from war, terrorism and piracy – would be cancelled in Iranian waters, as well as the Gulf and adjacent waters, with effect from 5 March.
The cost of transporting goods jumped, as shipping was rerouted and oil prices rose sharply.
The Containerized Freight Index tracked by the website Trading Economics rose by 6.5% on Monday.
Freightos terminal container rates for Shanghai to Jebel Ali in Dubai, the largest port in the Middle East, rose from $1,800 for a 40-foot container on Saturday to about $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 caused a fire on Saturday night, though operations have since resumed.
Freightos said as only about 2% to 3% of global container volumes pass through the strait of Hormuz, its effective closure may not have much of on impact on the broader container market.
However, given the wider disruption in the region, including the Red Sea, it added: “For importers or exporters trying to move goods in or out of the Middle East, services will be significantly disrupted, and costs will rise for goods that are able to move at all.”
John Wyn Evans, the head of market analysis at the UK wealth asset management group Rathbones, said: “Any rate increases would be linked to a combination of rerouting and higher oil prices; rerouting involves being at sea for longer which reduces capacity and if the cargoes have to get there by a certain time, they have to sail faster, which uses up more fuel (and it’s exponential, like driving faster in a car and watching MPG [miles per gallon] go down).”
Iran-backed Houthi rebels in Yemen, who had paused attacks on Red Sea vessels since October, have also threatened to resume strikes.
In response, several big shipping companies – Denmark’s Maersk, Germany’s Hapag-Lloyd and France’s CMA CGM – have diverted all their sailings away from the Red Sea until further notice, re-routing 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 a container on cargo moving through the region.
Shares in Beazley, a leading marine insurer that operates in the Lloyd’s of London market, initially dropped 2.8% as investors fretted about a potential large insurance loss arising from the Middle East and risks to its takeover by its bigger rival Zurich. Its share price rebounded by 1.8%, however, when the two companies announced on Monday afternoon that the £8.2bn deal had been agreed.
“The announcement might also be read as a signal that Beazley’s loss exposures, and likely those of the broader specialty insurance market, remain contained,” said analysts at Jefferies.
Beazley wrote just over $500m of premiums for marine insurance in 2024, about 8% of its total book. The Jefferies analysts assume that specific marine policies that cover war-related risk are included, so the insurer’s exposure would be in the low single digits of the overall business.
