War Risk Reportedly Multiplies Tanker Insurance Costs and Doubles Shipping Times
An energy analyst cited disruptions around the Strait of Hormuz and Bab el-Mandeb, warning of higher oil, fuel and LNG costs.
Energy analyst Ehsan Janabi told IRNA that war-risk insurance for oil tankers has risen tenfold, while rerouting around Africa has increased oil-cargo transit times from 17 to 35 days. He warned that higher insurance, freight and fuel costs could raise oil, refined-product and LNG prices, while stressing that the figures and forecasts were his assessments.
TEHRAN — War-risk insurance for oil tankers has risen tenfold and rerouting has more than doubled the time needed to transport oil cargoes, according to energy analyst Ehsan Janabi, who spoke to Iran’s IRNA news agency.
Janabi said disruptions affecting the Strait of Hormuz and the Bab el-Mandeb have increased operational and security risks for vessels transporting energy. He said war-risk insurance had risen from about 0.05% of a cargo’s value to at least 0.5%.
As an example, Janabi said insurance for a $120 million tanker had increased from about $40,000 per voyage before the conflict to roughly $600,000. He said the additional cost was being passed directly into the price of oil.
He also said tankers rerouted around Africa were now taking about 35 days to deliver oil cargoes, compared with 17 days previously. The longer voyages increase fuel consumption and could delay deliveries to refineries, he said, potentially raising the cost of refined products and fuel.
Janabi said the disruption posed a broader challenge to energy security because about 60% of the world’s crude oil and petroleum products are transported by sea, with the remainder moving through pipelines. He argued that alternative pipelines could reduce some of the pressure on oil shipments, but would require substantial investment and time to develop.
The analyst estimated that tanker freight rates could rise three- to fourfold and that the cost of transporting a barrel of oil from the Persian Gulf to Asia could increase from about $2 to at least $6. He said the Brent crude price could remain at or above $95 a barrel in the short term if tensions continued, although stability on alternative routes and the completion of pipeline projects could ease prices.
Janabi also warned of greater exposure in the liquefied natural gas market, which he said has no equivalent pipeline alternative for shipments from the Gulf. He estimated that rerouting LNG cargoes could add at least 15 days to transit times and potentially lift LNG prices in Japan and South Korea from $12 to $25 per million British thermal units.
According to Janabi, at least 75 vessels, including tankers and other commercial ships, had been targeted since the start of the conflict described in the report. He cited a recent Reuters report as saying that seven vessels crossed the Strait of Hormuz on a recent Thursday, while U.S. sources put the 15-day average at about 15 vessels. Before the conflict, he said, roughly 125 large commercial vessels crossed the waterway each day.
He said shipping companies now faced a choice between accepting higher security risks and insurance premiums or taking longer alternative routes, neither of which was economically attractive. He added that continued tensions, failed negotiations and delays in developing alternatives could keep upward pressure on global fuel prices.
Janabi’s comments were reported by IRNA and the figures and forecasts cited in this article were attributed to him. The supplied material does not independently verify the claims.