By Nimitt Dixit
Escalating geopolitical tensions in the Middle East have sent shockwaves through global shipping, with major marine insurers cancelling war risk insurance cover for vessels operating in Iranian waters and surrounding regions. The move, effective March 5, is expected to sharply increase shipping costs and could push up prices of fuel, food and industrial goods in India.
Leading insurers including NorthStandard, American Club, Swedish Club, Skuld, Gard and the London P&I Club have withdrawn war risk cover, citing mounting threats to vessel safety. Cargo and Protection and Indemnity (P&I) cover have already been cancelled in some cases and could be pulled back more widely in the coming days, sources say.
Sources indicate that cover will only be available after steep renegotiation of premiums, warning that existing rates no longer reflect the current risk environment.
Premiums to Double, Voyage Economics Hit
War risk premiums, currently averaging around 0.25 percent of a vessel's value, are expected to rise to over 0.5 percent, shipping executives said. For large vessels, this could mean an additional $200,000 or more per voyage.
"When premiums surge from nearly 0.25 percent to over 0.5 percent of a vessel's value, it significantly alters voyage economics, particularly for mid-sized operators," said Pushpank Kaushik, CEO and Head of Business Development for the Subcontinent, Middle East and Southeast Asia at Jassper Shipping.
"The increased cost for each ship valued at $100 million could be hundreds of thousands of dollars for a single journey," he added.
Many ports in the Gulf were already classified as High Risk Areas, attracting additional premiums. However, insurers now fear these charges are inadequate amid rising threats of missile attacks, vessel seizures and boardings, along with the possibility of disruption at the Strait of Hormuz, a key global energy chokepoint.
"With the active engagement already underway, the war risk premiums previously charged are found to be grossly inadequate," said Balasundaram R., Head of Marine Insurance at Policybazaar for Business.
"The risk exposure for vessels, whether laden or empty, operating in the Persian Gulf and at ports due to missile attacks is massive," he said, adding that securing cover at whatever high cost may be unavoidable for shipowners and cargo interests.
Insurance Withdrawal Raises India's Exposure
Experts warn that a complete withdrawal of war risk cover is now a real possibility.
"The heightened geopolitical risk in the Middle East will likely result in war risk cover being completely withdrawn," said Hari Radhakrishnan, expert at the Insurance Brokers Association of India.
"For new risks, cover may be unavailable, and even if available it will be extremely expensive. This will push shipping costs considerably higher, with serious economic implications for India, which is heavily dependent on oil imports from the Gulf."
India imports 2.5 to 2.7 million barrels of crude oil daily through the Hormuz Strait, roughly half of its total import. Economists estimate that every $10 rise in oil prices adds $13 to $14 billion to India's import bill, raising concerns of inflation across fuel, food, plastics, paints and packaging.
Longer Routes, Higher Freight Costs
Shipping disruptions are already forcing route changes.
"The Suez Canal, which was used by Indian oil and natural gas importers, is now being avoided, with vessels rerouted via the Cape of Good Hope," said Chetan Patel, Managing Director of Maxima Freight Forwarding and Custom Clearance.
"This adds huge freight costs, anywhere between $2,000 and $3,000 per container. Even the India-China trade route has seen freight costs rise by about $1,000," he said.
Marine insurance brokers warn that sustained escalation will deepen the cost burden.
"Any prolonged instability could translate into higher freight costs, extended transit routes and increased insurance outlays for exporters and importers," said Gaurav Agarwal, Vice President for Marine Insurance at Prudent Insurance Brokers.
Industry leaders say the crisis should prompt a strategic shift.
"In this condition, the industry must move from reactive cost absorption to proactive risk management," Kaushik of Jassper Shipping said.
"Strengthening risk assessments, diversifying routes and enhancing collaboration will be key to staying resilient amid geopolitical uncertainty."
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.