The maritime insurance market is facing unprecedented challenges as claims related to war risk have soared to around $2 billion, attributed to ongoing maritime violence in the Middle East. This represents one of the highest payout levels for marine underwriters in over a decade, reflecting significant operational risks associated with shipping in the region.
The Current Crisis
Since the onset of hostilities, documented attacks on vessels have exceeded 72, as indicated by the International Maritime Organization. David Osler, Law & Marine Insurance Editor at Lloyd’s List, provides context by noting the historical significance of these claims, stating that they are only exceeded by those tied to the container ship incident in Baltimore in 2024.
Insurers are responding to the crisis by significantly increasing premiums. Reports indicate that war risk insurance for the Strait of Hormuz has escalated to 40-60 times pre-crisis rates, which have now become a considerable component of oil pricing. It is estimated that approximately $7 to $8 per barrel of crude oil is now influenced by these insurance costs, passing the burden onto global consumers and businesses.
Saudi Arabia’s Strategic Adjustments
In tandem with insurance challenges, Saudi Arabia has sought to adapt its oil transportation strategy in response to escalated threats. Since the crisis began, the nation successfully increased the capacity of its East-West pipeline, redirecting around 75 percent of its oil away from the perilous Strait of Hormuz.
In light of maritime attacks targeting vessels linked to Saudi Arabia in the Red Sea and around the Port of Yanbu, a further shift has occurred. The Kingdom is now transporting approximately 1.9 million barrels per day through an Egyptian pipeline leading to the Mediterranean Sea, a route that proves to be both costlier and logistically challenging due to extended travel times.
The Insurance Landscape
The surge in maritime attacks has compelled underwriters and reinsurers to reevaluate covered war risk areas, expanding their designated zones up to 800 kilometers along the Saudi west coast. This systematic expansion includes changes to charterers’ liability coverage, which has now instituted blanket exclusions for vessels with any connection to Saudi Arabia.
This development has drawn the attention of the Saudi government, which is reportedly exploring state-backed guarantee schemes to mitigate insurance costs for national interests. Recent discussions between Saudi representatives and brokers in London underscore ongoing attempts to address the insurance premium crisis, which sits at around 10% of hull value for very large crude carriers (VLCCs) valued at approximately $140 million.
The Operational Read
The ongoing crisis in the Middle East and resulting surge in war risk insurance premiums create significant operational concerns for shipping companies and their crews. With rapidly rising costs linked to insuring vessels transiting conflict zones, operators must evaluate not only their routes but also their potential exposure to financial risk. Companies engaged in transporting oil from the region face operational delays and potential loss of revenue from redirected shipments. Furthermore, the evolving landscape of insurance coverage, particularly exclusions related to Saudi interests, necessitates careful risk management measures and contingency planning for sustained operations in volatile maritime environments.
