Expansion of the Red Sea Crisis into the Strait of Hormuz - Impact on Marine Insurances
Orbis Risk Partners
We are marine and specialty risk and insurance advisors bringing a fresh view on how risks can be managed effectively.
The event
On Saturday, April 13th the 15,000 TEU ship “MSC Arries” was boarded and seized by Iranian military forces. In true commando style soldiers were dropped on board of the ship by helicopter. After taking control over the ship and its crew the ship was brought into Iranian territorial waters.
From an Iranian point of view, this ship is an “Israeli ship”. Looking at the details of the ship we found that the ship is owned by Gortal Shipping, which is affiliated with Zodiac Maritime, which is a UK company, with part Israeli ownership. It is chartered to, and operated by the Swiss container shipping line MSC. ?
This action was almost identical to the seizure of the “Galaxy Leader” by Houthies on November 19th which started the crisis in the Red Sea, the seizure of the “MSC Arries” expanded the Red Sea crisis overnight to the Strait of Hormuz.
Teheran, after the seizure, launched more than 300 projectiles at Israel, who in turn confirmed they would retaliate. Iran’s threat to block the Strait of Hormuz could all of a sudden become a reality, the impact of such blockade should not be taken lightly. ??
The Strait of Hormuz
A blockage would be much more detrimental to global trade and shipping compared to the crisis in the Red Sea. Not only will Saudi Arabia see half of its coastline being cut off but UAE, Qatar, Bahrain, Kuwait and Iraq will be completely choked off. Even Sohar would be cut off.
?Over 33,000 ships per year transit through the Strait of Hormuz, the bulk of them oil tankers which carry 21 million barrels of oil per day (equivalent to 21% of global consumption).
Impact of a closure of the Strait of Hormuz
A blockage will result in oil prices spiking, shipping costs increasing (freight increases due to lock up of tonnage in the Gulf, higher insurance costs, higher bunker costs), and finally, the overall cost of living increasing.
The seizure of “MSC Aries” is deeply concerning for any vessel passing the Strait of Hormuz with any type of connection to Israel. Not having any type of connection is no guarantee for safe passage as we have seen random attacks occur on vessels passing the southern Red Sea.
What are the consequences of the seizure for your marine insurances?
Cargo insurance
Owners of cargo on board of the MSC Arries should not expect to receive their cargo any time soon. They should consult their insurance policies and look for the conditions allowing cover for the loss of their goods (without actually being damaged).
From a broader perspective, the Gulf and Strait of Hormuz are still not considered as a high-risk area so no additional premiums are being applied for now.
Protection and Indemnity insurance
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Unless explicitly excluded under the terms of the owner's P&I insurance policy (territorial exclusion) owners can still trade in the Gulf and Strait of Hormuz.
Charterers Liability insurance
The same applies as to Protection and Indemnity insurance.
Hull and Machinery and War Risk Cover
H&M insurances generally exclude war risks, these are bought back via the War Risk cover.
The Gulf including the Strait of Hormuz have been identified some time ago already as high-risk areas by the Joint War Committee. War risk insurers are therefore entitled to demand an additional premium for ships passing through or staying in high-risk areas (also referred to as “breach”).
It is to be expected that war risk insurers will increase with immediate effect for new inquiries the additional premium for breaches in the Gulf and the Strait of Hormuz.?
In case of any questions on this subject, please feel free to reach out to us.
The Orbis Risk Partners team
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