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By Alex Longley and Áine Quinn (Bloomberg) —
Fresh attacks on vessels in the Red Sea are raising insurance premiums for ships in the region and menacing commerce in a conduit for 12% of world trade.
War-risk premiums for some vessels have been climbing since shortly after the outbreak of the Israel-Hamas war in early October, according to people involved in the market. Though the increases haven’t been big, they are a sign of the growing threat to merchant shipping in the waterway.
Commodity traders in recent months have been on heightened alert over concerns about a broader conflict. While those worries have subsided somewhat, several incidents have served as reminders of volatility in a vital region for trade. The Red Sea and Egypt’s Suez Canal handle billions of dollars a day worth of goods from oil to wheat to televisions.
Iranian-backed Houthi rebels claimed they targeted two Israeli ships in the Red Sea over the weekend, the latest of several attacks on vessels passing the coast of Yemen. A US military destroyer responded to the incident, underscoring the potential for an escalation.
“Some war-risks insurers are in the process of applying higher additional premiums for the already listed high-risk area in the Red Sea,” said Despina Kalfa, general manager at the Greek branch of Aries Marine Insurance Brokers Ltd. Others are applying additional terms or even not offering cover where Israeli interests are involved.
“This is a developing situation so nothing is certain as yet and all could change rapidly,” she added. Quotes for additional war risk cover tend to expire after 48 hours, Kalfa said.
Any increased danger to shipping through the nearby Suez Canal comes amid widespread delays at the Panama Canal, another vital East-West conduit, due to a severe drought. Disruptions can prolong the length of voyages for everything from oil tankers to giant container ships, potentially boosting the cost of transporting goods.
The US Department of Transportation Maritime Administration, or Marad as it’s better known, on Monday reiterated that vessels should be aware of the evolving threats to shipping in the Red Sea — its second such warning in a week. The Gulf Cooperation Council stressed the importance of maintaining maritime security, the state-run Saudi Press Agency reported on Tuesday.
Marine insurance broker Gallagher wrote last week that a handful of insurance policies are being canceled for war risk cover as a result of the conflict between Israel and Hamas.
“This is only on limited exposure, although we are seeing markets at renewal specifically exclude some of these territories so that they can be aware of any changes that may happen for 2024,” the company said of annual insurance policies that tend to be renewed at this time of year.
© 2023 Bloomberg L.P.
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