Additional War Risk Premiums (AWRP) in the Mideast Gulf could be set to rise sharply in the coming days in the wake of the Iran-Israel conflict, potentially pushing up freight rates, sources indicated to Argus, as the number of underwriters willing to commit at current levels appears to be shrinking.
Offers from underwriters in line with last-done levels are becoming increasingly scarce, sources told Argus, with a number of underwriters now offering at significantly higher premiums.
The situation is extremely fluid and even the higher offer levels are expected to climb in the coming days, sources said.
One source suggested that tomorrow would be a trigger point to revise AWRP rates upwards for all oil and gas cargoes seeking Mideast Gulf cover and the new level would require "a massive uplift".
AWRP cover protects a vessel against any physical loss or damage incurred from war related activities such as missile, drone or mine attacks, as well as capture, seizure or detainment.
Although vessels are still able to secure AWRP in line with the standard 0.125pc for the Mideast Gulf before the conflict, participants have indicated that some offers are now at or above 0.2-0.4pc of the insured value of the vessel — hull and machinery value.
Offers vary widely depending on the specifics of the vessel or providing insurer but several sources have indicated that some offers are at least 50pc higher than early last week.
One source stressed that protection and indemnity (P&I) clubs have not yet made a definitive statement on insurance but there is increased alertness. P&I clubs provide marine protection and indemnity insurance for about 90pc of the world's oceangoing tonnage and are key determiners of the overall policies around marine insurance.
AWRP in the Black Sea for a Russian crude cargo on a Suezmax tanker peaked at 1.5pc of the insured value of the ship according to Argus assessments, (around $800,000) in 2022 and 2023 as a result of the Russia-Ukraine conflict.
Argus estimated that the insured value of a very large crude carrier (VLCC) at around $90mn, and a 0.4pc AWRP would equate to around $360,000.
A shipowner could receive up to 50pc of this back as part of a no claims bonus but it remains a substantial extra cost faced by crude exporters from the Mideast Gulf.
The Mideast Gulf to Asia-Pacific VLCC rate already jumped to the equivalent of $2.14/bl for Murban crude ($16.35/t or WS70) on 17 June from $1.34/bl ($10.28/t or WS44) on 12 June before the first missile strike on Iran.
VLCC tankers carrying crude from the Mideast Gulf is the single largest crude trade in the world and since the start of the current conflict between Israel and Iran the cost of freight has bounced almost to a 2025-high from close to a 2025-low. A higher AWRP would most likely be passed on to charterers, leading to further gains in the spot freight market.
There is also the likelihood that some insurers could cease offering cover citing inherent risks. But, higher AWRPs are also an opportunity for insurers to generate higher revenues, albeit with significant risks.
