Oil supertanker rates soar as insurers drop war risk protection

Supertanker costs in the Middle East have reached record levels as the conflict between the United States and Iran disrupted shipping in the strategically vital Strait of Hormuz.

Major naval war risk providers have begun removing coverage for ships operating in the Persian Gulf as a sudden security shock disrupts key shipping routes in the region.

The benchmark freight rate for Very Large Crude Oil Carriers (VLCCs) used to transport 2 million barrels of oil from the Middle East to China reached an all-time high of $423,736 per day on Monday, according to data from LSEG. This represented an increase of over 94% from Friday’s close.

The significant increase in oil and gas prices, as well as the extraordinary increase in the costs of transporting crude oil, followed the attacks on Iran by the United States and Israel over the weekend. The widening conflict has resulted in a virtual halt to shipping traffic in the Strait of Hormuz, one of the world’s most important oil chokepoints located in the gulf between Oman and Iran.

A senior official from Iran’s Revolutionary Guard said on Monday that the Strait of Hormuz was closed and warned that any ship trying to pass through the waterway would be attacked, state media reported. According to Fox News, this claim has since been disputed by CENTCOM, the US military’s Central Command.

“Charters in the VLCC segment have stepped back from the market and refrained from securing vessels as multiple incidents have resulted in increased threat levels around the Strait of Hormuz, even though the waterway has not been officially closed,” Sheel Bhattacharjee, Argus Media’s head of freight pricing in Europe, told CNBC via email.

Citing market sources, Bhattacharjee said oil producers in the Middle East are yet to announce any production or loading halts and ports in the UAE, Oman and Kuwait continue operations.

“However, most shipowners were avoiding transit through the Strait of Hormuz after insurance companies canceled war risk coverage for ships in certain parts of the region,” Bhattacharjee said. he said.

Roughly a third of seaborne crude oil trade is estimated to pass through the strategically important waterway, along with 19% of global liquefied natural gas (LNG) flows and 14% of global refined products trade, according to Argus Media.

Leading marine insurers have recently canceled war risk cover for ships operating in the Middle East. reports Many ships passing through the Strait of Hormuz were attacked.

In addition to being based in New York American ClubMarine insurers including Norway Gard and Skuldbritain’s Northern Standard And London P&I Club He said that they removed the war risk guarantee for ships in the region.

Adrian Beciri, CEO of DUCAT Maritime, a Cyprus-based logistics company specializing in dry cargo transportation, said that the chain effects of the conflict spreading in the Middle East are felt worldwide.

“We were trying to charter a dry cargo ship to transport our typical rice food supply to West Africa around the Cape of Good Hope. You’d think that was a million miles from the conflict zone,” Beciri told CNBC’s “Squawk Box Europe” on Tuesday.

“We actually lost the ship. Someone had paid 50% more than they normally would have to transport coal from Indonesia to the west coast of India. Why did this ship attract such a high price? The answer was that the owner was undecided whether to take cargo from the Persian Gulf region,” he continued.

“So the ramifications are very broad, and it’s potentially a double whammy. If we look at the closure of Hormuz and the actual tampering of Suez by the Houthis, that could be quite significant; similar to what we’ve seen during Covid and the attacks that have occurred there.”

Even if oil tankers were only temporarily blocked from entering the Strait of Hormuz, this could raise global energy prices, increase shipping costs and cause significant supply delays.

The Strait of Hormuz is also key to global container trade. Ports in this region, such as Jebel Ali and Khor Fakkan, are specialized hubs that serve as intermediary points in global networks.

Shipping giants including MSC Maersk, Hapag-Lloyd and CMA CGM have also issued new guidelines to prioritize security amid the worsening security situation.