The US-Iran peace deal and the planned reopening of the Strait of Hormuz may have calmed oil markets, but marine cargo and war-risk insurance premiums are unlikely to fall anytime soon, according to industry executives.
“For the marine community, crucially absent from the agreement are the practical details surrounding the reopening of the Strait of Hormuz reopening, particularly Iran’s guarantee to respect freedom of movement within the Strait and the region as a whole,” said Marcus Baker, Global Head of Marine, Cargo & Logistics, Marsh.
Baker added that while some marine insurers recognise that conditions in the Persian/Arabian Gulf region have improved over the weekend, the overall market response in the short term will largely depend on further de-escalation of hostilities or perceived breaches of the agreement.
Peace deal on the table
The United States and Iran on Monday signed a memorandum of understanding to end the three-month old war following US-Israel strikes on Iran, triggering disruptions to global trade and energy supplies. The signing ceremony is expected to take place on Friday with shipping traffic through Hormuz expected to pick up gradually thereafter.
“Underwriters typically require sustained evidence that war risks have genuinely de-escalated, especially given the history of fragile and short lived ceasefires in the region,” said Rajesh Singh, Executive President and Head of Property & Risk Management, Howden India.
While a peace deal is a positive signal, Singh says underwriters tend to remain cautious due to the fragility of prior agreements. “Broader inflationary pressures and rising claims costs could keep marine insurance premiums elevated for an extended period, potentially establishing a new norm for pricing.”
The conflict sharply curtailed shipping through the Strait of Hormuz, a critical maritime chokepoint that carries nearly a fifth of the world’s oil and liquefied natural gas trade. As a result, war-risk insurance premiums for tankers transiting the Strait of Hormuz surged by more than 1,000% during the conflict, pushing additional insurance costs for a typical Very Large Crude Carrier to as much as $7.5 million per voyage.
“Against the pre conflict rate of 0.10 % – 0.25 % War risk premium on Hull ranged from 3 % – 10 % at peak conflict level and has now tempered down to 0.40 % – 0.80 % levels,” said Vaidhehi Desikan, Executive Vice President Practice Leader, Marine, Cargo and Logistics, Anand Rathi Insurance Brokers. She added that remnants of the conflict could continue to pose risks to vessels and cargo. “Insurers reaction will be based on ground happening more than deals.”
According to reports, mine-clearing operations involving conventional minesweepers and advanced underwater drones could continue for up to two months before insurers and shipping companies regain sufficient confidence to resume normal transit through the Strait.
“Generally a few weeks’ waiting period applies. This is because there will still be some residual risks of misunderstanding between parties and coordination issues,” said Hari Radhakrishnan, Expert, Insurance Brokers Association of India (IBAI).
He added that international insurance and reinsurance markets are closely watching developments and that premiums may start easing if the ceasefire holds and the arrangement proves durable.