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War-Risk Premiums Stay Elevated Despite Iran-US Deal on Strait of Hormuz
Despite a US-Iran agreement to reopen the Strait of Hormuz, marine cargo and war-risk insurance premiums are unlikely to fall significantly. Insurers seek clear navigation guarantees and sustained de-escalation evidence, citing residual security risk.
Lingering Risk Perceptions Keep Premiums High
An agreement between the US and Iran to reopen the Strait of Hormuz has stabilized oil markets, but marine cargo and war-risk insurance premiums are not expected to decline in the near term, according to industry executives. Underwriters are seeking sustained evidence of de-escalation, given ongoing concerns about fragile regional truces.
Marcus Baker, global head of marine, cargo, and logistics at Marsh, emphasized that the marine community requires practical details surrounding the Strait of Hormuz's reopening, especially Iran's guarantee of free movement within the Strait and region. While some marine insurers acknowledge improved conditions in the Persian Gulf over the weekend, the market's response will depend significantly on further de-escalation and the absence of new breaches of the agreement.
Underwriter Demands and Elevated Costs
Vaidhehi Desikan, executive vice-president for marine, cargo, and logistics at Anand Rathi Insurance Brokers, noted that war-risk premiums on Hull had fallen from peak conflict levels of 3%-10% to 0.40%-0.80%, down from a pre-conflict rate of 0.10%-0.25%. Residual security threats and ongoing clearance operations could delay a full return to normal shipping.
Desikan added that remnants of the conflict continue to pose risks to vessels and cargo, asserting that insurers' reactions are based on ground realities rather than deals. Reports indicate that mine-clearing operations involving conventional minesweepers and advanced underwater drones could persist for up to two months before insurers and shipping companies regain confidence.
Hari Radhakrishnan, an expert at IBAI, explained that a waiting period of a few weeks is necessary because significant residual risks, including misunderstanding between parties and coordination issues, remain. War-risk rates, despite falling from conflict highs, remain well above pre-war levels. Underwriters typically require sustained evidence that war risks have genuinely de-escalated, especially considering the region's history of fragile and short-lived ceasefires.
Impact on Shipping and Insurance Markets
Rajesh Singh, executive president and head of property and risk management at Howden India, indicated that while the agreement represents a positive development, insurers anticipate continued elevated premiums due to broader inflationary pressures and rising claims. This could establish a new norm for an extended period, reflecting the reduced shipping capacity through the Strait of Hormuz.
The Strait, a critical maritime chokepoint, handles nearly one-fifth of global oil and liquefied natural gas trade. War-risk insurance premiums for tankers transiting the route reportedly surged by over 1,000% during the conflict, increasing additional insurance costs for a typical Very Large Crude Carrier to as much as $7.5 million.
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