Maritime war risk premium could rise if Israel-Iran conflict escalates
LONDON : Maritime war risk premium in the Middle East could increase if the Israel-Iran conflict escalates following the latest Israeli attacks, market participants said June 13.
“It all depends on how sustained the conflict is. More than a year ago, there was a barrage of [Israel-Iran] air attacks for a short while, which did not sustain,” a chartering executive in Tokyo said.
The additional war risk premium is currently around 0.05%-0.07% of a ship’s hull and machinery value for spending seven days in the Persian Gulf and has remained largely unchanged for the past 18 months, chartering sources in East Asia said.
One charterer said naphtha importers in North Asia are already paying up to $50,000 per voyage from the Persian Gulf due to the region’s designation as a high-risk area by a consortium of maritime insurers for the past six years.
The HRA designation followed a series of attacks on oil tankers. In June 2019, the LR2 tanker Front Altair was attacked while transiting the Gulf of Oman.
Since then, incidents in the region have been few and far between, but due to risk perceptions, the AWRP has remained a significant source of revenue for maritime insurers.
However, sources said insurers offer hefty discounts through bundled packages for owners with sizeable fleets — either by allowing transits longer than seven days or by combining the transit periods of two or more ships in the same fleet to lower costs.
“Discounts or no discounts, overall delivered cost can now increase,” a VLCC broker said, noting that these expenses are passed on to charterers, meaning any retaliation by Iran would drive up cargo costs, insurance charges and freight rates.
Tanker freight rates have slumped so far in June, with the Platts-assessed benchmark LR2 Persian Gulf-North Asia route down $3.50 on June 13. Platts is part of S&P Global Commodity Insights.
Market participants anticipate further downside following Israel’s latest strike on Iran. Meanwhile, earnings for dirty tankers have been so abysmal that some operators have switched to transporting clean cargoes.
A common refrain among Asian shipping market participants is that geopolitics may rescue owners by supporting freight rates, but at the cost of increased risks to their assets and crew.
Red Sea
The latest escalation of conflict in the Middle East comes just as owners were being encouraged to increase cargo shipments through the Suez Canal to signal easing tensions.
Several distillate cargoes from Sikka — a port on India’s west coast — have transited the Suez Canal to save voyage time despite high delivery costs. Some owners in the Mediterranean, such as those of Greek and Persian Gulf origin, regularly route cargoes through the Red Sea, earning a significant freight premium while charterers also cover the AWRP, sources said.
If the conflict in the Persian Gulf escalates further, it could also dampen efforts to restore normalcy in the Red Sea, sources added.
Although voyages for refined products from the Persian Gulf to Europe via the Red Sea are up to two weeks shorter than those around the Cape of Good Hope, freight rates remain similar because many owners avoid the Red Sea due to perceived risks.
Until recently, the AWRP in the Red Sea was around 0.4%-0.5% of the H&M value for a seven-day transit, sources said.
A fixed charge of $150,000 — paid by charterers in addition to freight — applies when cargoes are moved on LR tankers along Persian Gulf-Africa route, covering costs like deploying armed guards.
Naphtha deliveries on the Red Sea-North Asia LR1 route currently command a w20 premium over Persian Gulf loadings, down from w120 last year, according to Platts data.
Meanwhile, the premium for Red Sea-Singapore gasoline trade on MR tankers has fallen to w130 from w110 since the end of 2024, the data showed.
Over the same period, the hefty $600,000 premium for crossing from the Red Sea into the Persian Gulf versus the Red Sea-Europe route has reversed into a discount of a similar amount, according to the data.
A shift in the premium is likely if freight rates for Persian Gulf and Red Sea loadings rise, a tanker broker who tracks such deals said.
Source : Platts
