LONDON/SINGAPORE, March 2 (Reuters) – Insurance companies are cancelling war risk coverage for vessels in the Gulf as the widening Iran conflict disrupted shipping, leaving at least five tankers damaged, two personnel killed and around 150 ships stranded around the Strait of Hormuz.
Shipping through the strait between Iran and Oman, which carries around one-fifth of oil consumed globally as well as large quantities of gas, has ground to a near halt after vessels in the area were hit as Iran retaliated to U.S. and Israeli strikes.
The disruption and fears of prolonged closure have caused oil and European natural gas prices to jump, with Brent crude futures up as much as 13% as the conflict triggered multiple oil and gas shutdowns in the Middle East.
At least 150 vessels including oil and liquefied natural gas tankers had dropped anchor in the Strait of Hormuz and surrounding waters, shipping data showed on Sunday.
Iran has said it closed navigation through the critical waterway, prompting Asian governments and refiners —key buyers — to assess oil stockpiles.
The tankers were clustered in open waters off the coasts of major Gulf oil producers, including Iraq and Saudi Arabia, as well as LNG giant Qatar, according to ship-tracking data from the MarineTraffic platform.
In the latest incident, Iran’s revolutionary guards said a fuel tanker was burning in the Strait of Hormuz after being hit by two drones, Iranian news agencies reported.
The U.S.-flagged products tanker Stena Imperative was damaged by “aerial impacts” while berthed in the Middle East Gulf, the vessel’s owner Stena Bulk and its U.S. manager Crowley said in a statement on Monday, and a shipyard worker was killed as a consequence of the impact.
On Sunday, a projectile hit the Marshall Islands-flagged product tanker MKD VYOM, killing a crew member as the vessel sailed off the coast of Oman, its manager said on Sunday, and two other tankers were also damaged.
Also on Sunday, a projectile hit the Gibraltar-flagged oil bunkering tanker Hercules Star off the UAE coast, manager Peninsula said in a statement. The tanker returned to anchorage in Dubai on Sunday morning and the crew were safe, Peninsula added.
Freight disruption
On Monday, freight carrier Maersk suspended all new ocean booking between the India Subcontinent and the Upper Gulf markets of UAE, Bahrain, Qatar, Iraq, Kuwait, and Saudi Arabia (Dammam and Jubail only), as well as some services in and out of UAE, Oman, Iraq, Kuwait, Qatar, Bahrain and Saudi Arabia.
Container shipper CMA CGM has suspended passage through the Suez Canal, rerouting those ships via the Cape of Good Hope. It also enacted surcharges on operations in the region, starting at $2,000 per 20 foot dry container.
Multiple airlines have canceled or rerouted flights due to the conflict.
On Sunday, FedEx announced it has canceled service in Bahrain, Kuwait, Iraq, Qatar and the United Arab Emirates. “Shipments to and from other markets throughout the region may experience extended transit times,” the company said in a service alert.
For its part, UPS said it is “closely monitoring the situation” and leaning into contingency plans to continue operations.
“We are expecting some potentially significant move in rates, especially Asia-Europe, if the situation continues with large-scale flight cancellations,” said Neil Wilson, editor of global price reporting agency TAC Index, said in an email exchange with Freight Waves.
The publication noted longer routes require more fuel, reducing the amount of cargo aircraft can carry, given weight limits. As a result, extra fueling stops may be necessary.
“Diverting container traffic away from the Persian Gulf will mean increased volumes at alternatives like Khor Fakkan, ports in Oman or transshipment hubs in Sri Lanka, Malaysia or Singapore and could cause some congestion there,” Judah Levine, head of research at online freight shipping marketplace and platform provider Freightos, said to ICIS.
Freightos reported Houthis threaten to restart Red Sea attacks in response to war in Iran, but so far none reported.
“Any plans for a phased return of container shipping to the Red Sea in 2026 will be shelved until the security situation becomes clearer,” Peter Sand, chief analyst at ocean and freight rates analytics firm Xeneta, told the publication.
Insurers cancel war risk cover
As a result of the incidents, marine insurers are cancelling war risk coverage for vessels and oil shipping rates are set to surge further.
Companies including Gard, Skuld, NorthStandard, the London P&I Club and the American Club said their cancellations would take effect from March 5, according to notices dated March 1 on their websites.
These cancellation notices mean shipping companies with vessels in the region will need to seek new insurance cover at higher rates in order to maintain policies.
“As a result of this fast-moving situation each underwriter is invariably increasing rates or in some instances, for vessels passing through the Strait of Hormuz, even declining to offer terms right now,” said David Smith, head of marine with brokers McGill and Partners.
War risk premiums have risen up to 1% of the value of a ship in the past 48 hours, from around 0.2% last week, industry sources said on Monday, which adds hundreds of thousands of dollars in further costs for every shipment.
“The (war insurance) market is facing what is essentially a de facto close of the Strait of Hormuz, based primarily around perception of threat rather than a tangible blockade,” said Munro Anderson of marine war insurance specialist Vessel Protect, part of Pen Underwriting.
Meanwhile, costs of shipping oil from the Middle East to Asia – already at six-year highs – are set to rise further as the widening Iran conflict is deterring shipowners from sending vessels to the region, market sources and analysts said.
(Reporting by Emily Chow and Jeslyn Lerh in Singapore and Jonathan Saul in London; Additional reporting by Trixie Yap and Ruth Chai in Singapore, Nidhi Verma in New Delhi and Enes Tunagur in London; Writing by Nina Chestney, Caletha Crawford; Editing by Florence Tan, Aidan Lewis and Nick Zieminski)
