Business / Economy

Cost of insuring Persian Gulf oil shipments soar as Trump suggests Japan and China do more to protect vessels

Bloomberg, AP

The cost of insuring Middle East oil shipments is soaring as tensions mount in a region responsible for about a third of all seaborne petroleum.

So-called war risk premiums for a standard oil cargo from the Persian Gulf and the tanker hauling it can now cost upwards of $500,000, according to people familiar with the insurance market. Earlier this year, the same premiums would have cost owners less than one-tenth of that.

The vulnerability of maritime traffic to mounting tensions came into sharp focus Monday when U.S. President Donald Trump said other nations — specifically Japan and China — need to do more to help protect navigation from the Middle East in the wake of six attacks on tankers since early May. The incidents, which American officials blamed on Iran, prompted an adviser to insurers to classify the entire Persian Gulf as a riskier area for shipping, giving underwriters scope to charge bigger premiums.

Trump suggested the United States should not protect ships in the strategic Strait of Hormuz without compensation from other countries.

Pointing the finger at Iran for attacks on two oil tankers this month near the Strait of Hormuz, the U.S. denounced what it called a campaign of “escalating tensions” in a region crucial to global energy supplies.

Trump said most of the oil China and Japan import goes through “the Straight,” adding, “All of these countries should be protecting their own ships on what has always been a dangerous journey.”

Trump said Monday the U.S. doesn’t “even need to be there” because of its vast oil supply, tweeting that the U.S. request for Iran is simple: “No Nuclear Weapons and No Further Sponsoring of Terror!”

Iran has called allegations of its involvement in the oil tanker attacks “a lie.”

“This will get passed on to the customers,” said Sandy Fielden, an analyst at Morningstar Inc. “Refiners are paying more for crude and they will pass on the cost to customers if they can. If refiners choose not pass that along, their margins would get squeezed.”

The insurance prices being lifted fall into two categories: one is for the vessels themselves, the other for their cargoes. While the cost of covering the tankers surged as soon as the most recent attacks happened, the surge in prices for the cargoes only happened over the past week.

Underwriters are now aiming to charge anywhere from $150,000 to $325,000 to cover a cargo valued at $130 million, the people familiar with that market said. Until this week, the same cover cost $1,000 or less. Insuring the tanker itself now costs in excess of $200,000, based on a $75 million vessel. That’s up from less than $30,000 at the start of 2019.

It’s not just the insurers who have turned more wary about the Middle East. Ship owners themselves are raising rates to lift barrels from the region, despite signs that there are plenty of vessels that in theory are available to haul cargoes.

Despite the surge in insurance premiums, the extra cost is still a small part of a barrel of crude. Based on standard supertanker cargo, $500,000 would equate to 25 cents per barrel. Brent futures traded at about $64 early this week in London.