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Marine Insurers Set to Raise Rates After Red Sea Attacks on Merchant Ships

2021-01-13 13:35:58
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LONDON – Insurers plan to increase the cost of providing coverage for merchant ships across the Red Sea following a series of incidents affecting ships around Saudi Arabian waters, industry sources said.

The possibility of more attacks on commercial shipping transporting oil and raw materials through these waterways is growing after the outgoing US government decides to designate Yemen's Iran-linked Houthi movement as a foreign terrorist organization.

"We are seeing higher rates for ships calling at ports in the Red Sea due to concerns about the risk of militia attacks, whereas this was previously a concern in the Arabian Gulf," said Mike Ingham of insurance broker Gallagher. "This has implications for ships traveling to Red Sea ports such as Jeddah."

Each ship requires different insurance, including annual war risk coverage and an additional premium for entering high-risk areas. These individual premiums are calculated on the basis of the value of the ship or hull over a seven day period.

By market estimates, violation rates have risen to about 0.015% of insurance costs from about 0.012% at the end of December, which equates to tens of thousands of dollars for a seven-day trip.

“The real debate takes place on the Red Sea side after the explosives incidents. Everyone is watching what happens next, ”said a war inspector.

Saudi Arabia said last month that a tanker anchored in the port of Jeddah was hit by an explosive-laden boat in what it called a terrorist attack. This followed a separate incident at another Saudi terminal on the Red Sea, where a tanker was damaged by an explosion.

The US Maritime Administration last week warned seafarers that "increased military activity and increased political tensions in this region continue to pose a serious threat to commercial ships."

The Red Sea is one of the busiest shipping routes in the world leading to the Suez Canal, with thousands of transits per year via the Bab al-Mandab waterway at its southern tip.

Tensions have risen after Iran's seizure of a South Korean tanker further up the Strait of Hormuz last week.

(Editing by Jane Merriman)

In this photo released by Tasnim News Agency on Monday, January 4, 2021, a seized tanker under South Korean flag is escorted by Iranian Revolutionary Guard boats in the Persian Gulf. Iranian state television acknowledged that Tehran had seized the oil tanker MT Hankuk Chemi in the Strait of Hormuz. Photo credit: Tasnim News Agency via AP, file.

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