A continuing potential threat to Persian Gulf shipping tied to the war in Iraq has spiked tanker insurance rates sharply.
The apparent discovery of plans or attempts by Iraqi forces to target vessels in the Persian Gulf for attack has increased fears in a region where tanker traffic already had slowed because of the onset of hostilities in Iraq.
Especially chilling was the discovery of Iraqi mines and explosives-laden speedboats in waters near Iraq's main gulf ports (OGJ, Mar. 31, 2003, p. 22).
Those developments follow earlier concerns voiced by shipping and military officials over possible terrorist attacks targeting shipping, such as those by the Al-Qaeda group off Yemen in recent years
The prospect of such terrorist attacks is much more worrisome than any threat to shipping from the Iraqi navy, contend military officials (OGJ Online, Mar. 24, 2003).
The growing concern over the threat to Persian Gulf shipping came at a time when US-led coalition forces made rapid progress toward securing Iraqi oil producing and exporting facilities against sabotage by the Iraqi regime of President Saddam Hussein.
Should such fears persist, it would recall the Iran-Iraq tanker war of the 1980s, during which time the constant threat of an attack on a tanker added a "premium" of several dollars to oil prices.
Insurance rates spike
Rising insurance rates for oil tankers plying the Persian Gulf look likely to climb even higher on perceived risks to shipping, despite reports that the Iraqi navy poses no threat and that all ports are operating normally.
"Already, a war surcharge is prevailing. An additional surcharge, however, depends on the attitude of the insurance companies as to how they look at the current situation," said one shipping company representative in Oman. "While hedging their bets on Iraq, most insurers are looking more at the altogether new terrorist threat that has come into view since the Iran-Iraq war of the 1980s," Kevin Rosser, an analyst with London-based Control Risks, told OGJ Online.
"In the 1980s, the military posed the greatest threat to tankers with around 500 attacks. But now, especially after the successful terrorist strikes on the USS Cole and tanker Limburg (off) Yemen, the concern is more with that type of attack," he said.
While Rosser said the likelihood of a terrorist attack seems higher off the coasts of Yemen or Somalia, one in the gulf could not be ruled out. "There are plenty of Al-Qaeda operatives slipping into the gulf region from Afghanistan," he said, noting that the terrorist organization had developed a maritime attack wing in that country.
Even for some shippers, the sense of risk to the industry is palpable but hard to pin down. A spokesman for a Greek shipping firm that finished loading a cargo in the gulf the week that war started said that departure from the region was simply a relief.
"It is too early to say if there is going to be any real impact on the industry, but if you have a ship in the region, of course, psychologically, there is a concern," he said.
Slowdown
Tanker traffic into the northern Persian Gulf had slowed already as of Mar. 21, even as US and British troops pushed into Iraq to take control of key oil facilities in the country's northern and southern regions.
"There's a lot of oil on the water at the moment and ships are staying away from Kuwait for the time being," one broker told OGJ. "The market's gone soft, and everyone's really taking stock of the situation," he added.
"Someone's bound to go into Kuwait, if the price is right," another said. But he added that "there's just no need at the moment, particularly given the risks. There's plenty of oil elsewhere, and insurance rates to Kuwait are on the rise."
Another source told OGJ, "Operations in all Kuwaiti sea ports (have) stopped temporarily due to the missile attack on Iraq (Mar. 20)," but he said loadings of crude from Kuwaiti ports had resumed despite reports of targeting by Iraqi missiles.
A mine-laying rack bristling with LUGM-145 marine mines was discovered by Australian coalition forces in Iraq's Persian Gulf waters at the outset of the US-led coalition's war on Iraq. A naval expert who confirmed the make of the mines told OGJ, "The LUGM-145 is an Iraqi-produced variant of the old Russian M-08 moored mine, a design that can be traced back to the early part of the last century; it is no less effective for that. It is a contact mine, triggered when a ship hits one of its horns." Photo courtesy of Australian Defense Forces.
The US Navy's Fifth Fleet, based in Bahrain, warned ships' masters Mar. 20 that the Khawr Abd Allah (KAA), a waterway dividing Kuwait and Iraq, may be mined, and it issued a second warning on Mar. 21 about military action in the Persian Gulf.
"All maritime vessels or activities that are determined to be threats to coalition naval forces will be subject to defensive measures, including boarding, seizure, disabling, or destruction, without regard to registry or location," the Navy said.
Weapons found
The possibility of Iraqi guerilla attacks against shipping was underscored after British troops outside the port city of Basra discovered cruise missiles and warheads hidden inside fortified bunkers abandoned by Iraq's southern army. Cases of rockets, antishipping mines, and other ammunition were found piled from floor to ceiling in dozens of bunkers at the Az Zubaya heliport to the southwest of the city.
Among the weapons found were two Russian-made Al-Harith antiship cruise missiles, each 6 m long and 1 m in diameter, and nine warheads. Such military hardware gives weight to the view that, even in the age of the Al-Qaeda terrorist network, insurers will want to hedge their bets against the possibility of standard war risks.
The gulf shipping community is considering just where those risks will be most clearly perceived and how much it will cost to guard against.
Eid Abdulla Yousif, head of Bahrain's Customs and Ports Authority, said, "War-risk insurance premiums on ships and goods entering the gulf will depend on how close they go to the scene of war." He said, "Ships going to Bahrain will pay premiums toward the bottom of the range, and ships going to Kuwait pay the full premiums."
Yousif added that, "War-risk insurance premiums on ships will be between 0.0016% and 0.00656%, while premiums on the goods themselves fluctuate between 0.05% and 2.5%." For a $50 million tanker trading in the southern Persian Gulf on a 7-day voyage, war-risk insurance for the hull now runs about $25,000, while hull insurance for the same tanker going into Kuwait might cost $500,000
Coverage on a $30 million load of oil carried by such a tanker now runs about $30,000 in the southern area of the gulf, while in the north around Kuwait, insurance for the same cargo would be about $250,000.
While some companies are fully prepared to pay the extra rates for hull and cargo cover into Kuwait, others are looking for less-expensive options or trying to avoid Kuwait altogether.
Japan Energy Corp. announced Mar. 22 that it had reached an agreement to receive oil shipments from state-run Kuwait Petroleum Corp. directly from Kuwaiti tankers in an area of the Persian Gulf that is generally considered safe.
Japan Energy receives shipments of 20,000 b/d from KPC and has been sending 1-2 tankers a month to Mina al-Ahmadi and elsewhere in the oil-producing country.
Meanwhile, Nippon Oil Corp., which has been hiring Japanese liner ships except for oil for spot trading, said it would use three foreign-flag vessels to load oil from Kuwait and the Neutral Zone between Saudi Arabia and Kuwait.
But some companies are steering away from Kuwait altogether and plan to obtain 300,000 bbl of oil from the UAE, Oman, and other countries instead.
US agency actions
The US Department of State announced measures to ensure continued oil shipping in the Persian Gulf, including military escorts and war-risk insurance coverage if necessary.
However, industry experts said warship escorts are no protection against mines, while US-backed war-risk coverage is rarely granted.
"The United States is taking steps to ensure the continued movement of shipping and tanker traffic to and from the Persian Gulf," DOS spokesman Richard Boucher said Mar. 25 adding, "Coalition military forces will provide security if required or requested."
Boucher said the US Department of Transportation would "provide war-risk insurance for vessels, including cargoes and crew entering the region, when commercial insurance cannot be obtained on reasonable terms and conditions."
Boucher's statement, aimed largely at concerns over the possible humanitarian crisis threatening Iraq, coincided with remarks by Bush administration Ari Fleischer Mar. 25 that Iraq had deliberately mined its waters.
"You have an Iraqi regime that has laid mines in an effort to block shipments of humanitarian supplies—as well as other reasons that they laid the mines, for military purposes—the consequence of which is that the humanitarian relief, which the United States is dedicated to providing, will get there as soon as the operations can be cleared, to get the mines removed," Fleischer told reporters.
While welcoming the idea that the US would provide more military ships in the region, one naval analyst told OGJ, "Escorts are not going to provide any protection against mines. After all, during the last Gulf War, two US Navy ships actually struck mines."
Insurance raises questions
Insurers were also dismissive of claims about US-backed insurance. "War-risk coverage is a highly competitive business, and it is unlikely that any insurer would get into 'unreasonable' rates," one underwriter told OGJ. "The US government is probably not going to pick up many customers."
Joe Strassburg, chief of the marine insurance division of DOT's Maritime Administration, told OGJ that US-backed war-risk insurance was indeed rare. "We had 15 applicants for the coverage in Desert Storm and Desert Shield, and 4 of them received the coverage," Strassburg said. "We handle requests on a case-by-case basis and may offer coverage if we feel commercial rates are unreasonable. But we prefer to leave coverage to the commercial markets."
President George W. Bush approved the provision of war-risk insurance by memorandum in December 2001, and under Section 1202 of the 1936 Merchant Marine Act, Transportation Sec. Norman Y. Mineta approved the extension for an additional year until Dec. 12.
Unlike Section 1205 insurance, which is provided to the Department of Defense on vessels chartered to them at no premium and with a full DOD indemnity, Section 1202 insurance is underwritten by DOT in return for a premium from shipowners.
"This insurance or reinsurance of vessels is available for vessels (including cargoes and crew) entering the Middle East region, whenever commercial insurance cannot be obtained on reasonable terms and conditions," DOT said in a statement.
Even DOT, however, advised, "Section 1202 authority was used very judiciously and sparingly during Operations Desert Shield and Desert Storm, and it is contemplated that this new authority will be used in the same manner."
Mines discovered
Commander of Australian Forces in the Middle East Brigadier Maurie McNarn said Australian forces discovered 139 sea-mines both on vessels and in warehouses, but it wasn't known if any mines had been deployed in the water.
McNarn said it had to be "assumed" that Iraqi forces succeeded in laying at least some mines in the KAA, which leads to the port of Umm Qasr and Iraq's second largest city of Basra.
"We know we intercepted a certain number of mines on the tugs, which was a particularly good catch by the Australian sailors that did that," he told reporters. "We have also have found some mines in the warehouse.
"However, we have also found other boats in the Umm Qasr area, which would indicate that they may have laid mines. That is all we can account for," said McNarn. "You have to work on the worst case. That mine-clearance operation is running now up the KAAUuntil we go through that in painful detail, we won't know."
Sailors from Australia's HMAS Kanimbla, inspecting a large rusty barge linked to an old Iraqi tug, quickly uncovered a false floor in the almost sinking barge and discovered row upon row of sea mines set up on rails for automatic laying.
Effective mines
The types of mines captured by coalition forces are the Manta seabed influence mine and the LUGM-145 buoyant contact mine. The Iraqis used both these mine types extensively in Gulf War I and were responsible for damaging at least two US Navy ships, the USS Tripoli and the USS Princeton.
The Manta mine is a sophisticated weapon that is laid on the ocean floor and is set off by a ship's magnetic, acoustic, or pressure signature, while the LUGM 145 is a conventional sea mine that is moored on a chain or drifts on the surface. It ignites upon contact with a ship.
The USS Princeton activated a $10,000 Italian-made Manta mine, which caused $24 million in damages, while the USS Tripoli struck a $1,500 Iraqi-made LUGM-145 contact mine, causing nearly $3.5 million in damages.
Charts and intelligence captured from Iraq after Gulf War I showed that the minefield where the ships were hit was among six laid in a 150-mile arc from Faylaka Island to the Saudi-Kuwaiti border. Within that arc, there were four additional mine-lines, representing a total of more than 1,000 mines laid over a 5-month period.
Coalition experts have so far implied that the danger from Iraqi mine-laying is restricted to the coastal waters of Iraq. But US Navy intelligence reports after Gulf War I suggest the danger is more widespread.
"The Iraqi leadership undoubtedly recognized the effectiveness of Iranian mining during the Persian Gulf War, and it may mine GCC (Gulf Cooperation Council) ports, shipping lanes, or operating areas of US naval forces if hostilities erupt," one report said.
Another report, while dismissing the Iraqi navy as a "minimal threat" to the US Navy, said that Iraq can nonetheless "covertly deploy a variety of bottom-influence and moored-contact mines that would create a hazard to all shipping in the gulf."
Covert attack
The Iraqis are following a covert approach in their efforts to lay mines in the gulf. They are using dhows, wooden cargo vessels traditional in gulf waters, in their efforts to lay mines. At the onset of hostilities, a flotilla of dhows sailed into the Persian Gulf in what a US admiral said might be a bid to sneak out explosives to attack US or British warships.
Rear Adm. John Kelly said Iraq forced about 50 dhows to leave southern Iraq overnight, an unusually high number aimed at overwhelming the capabilities of coalition forces to check them. "If he (Saddam Hussein) flushes enough out, he may successfully be able to get one by that either has mines or explosives on it," Kelly said.
Commander Rodney Craig, a naval expert with the International Institute for Strategic Studies in London, confirmed the essence of that report, saying the Iraqis would not need sophisticated mine-laying equipment to create a sizeable hazard to shipping.
"No specialist ships are required," Craig told OGJ Online. "Dhows and tugs are enough. Nor is it necessary to lay very many mines. All you need is one out there. One mine can sink a ship, and that can block an entire waterway."
The mining of just one ship would cause underwriters to hedge their bets.
"The frequency of loss tends to be small," said Ascot's Wilson. "But the loss of one ship, such as the tanker Limburg off Yemen last year, can have a significant impact on an underwriter's books. The loss will be paid, but the underwriter will be out of pocket."
Iraqi onshore facilities
Meanwhile, coalition forces last week continued to make progress in efforts to secure facilities in Iraqi's giant oil fields in the northern and southern regions.
Although Iraqi oil production remains on hold, firefighting crews continued to extinguish oil well fires in Rumaila field in southern Iraq. Only two wells were still aflame there at presstime, with containment efforts hampered by lack of water supply.
US-led military forces last week opened their drive to capture Iraq's northern oil fields at Kirkuk, amid growing concerns that the fields—like those in the south of Iraq—have been set with explosives to destroy them.
To secure the fields quickly, the Pentagon originally wanted to put a heavy armored force through Turkey into northern Iraq and had designated the 40,000-strong 4th Infantry Division for that mission, accompanied by another 12,000 troops. But Washington scrapped the plan after Ankara refused to provide transit rights for the US force. Instead, the 4th Infantry has been redirected to Kuwait, leaving the US to scramble to secure an alternate force to take its place.
Analysts have suggested that Turkey's refusal to allow transit rights to US troops is based on its own desire to secure the Kirkuk oil fields or on its fears that Iraqi Kurds will overrun the fields and create a rich, independent homeland that would inspire revolt among Turkey's own minority Kurds.
In either case, Turkey's decision to disallow the use of its territory by US combat troops is widely viewed as having impeded coalition efforts to secure the fields, both by delaying and reducing the overall size of the operation as initially conceived by US war planners.
However, at presstime last week, Ankara reportedly had agreed to allow the use of Turkish territory bordering northern Iraq for supply bases to provide fuel and supplies to coalition forces in the north. And the US government reportedly had secured a promise from Turkey not to send large complements of troops in Kurdish Iraq.
Kirkuk battles
Despite the military setback created by Turkey's decision, the battle for Kirkuk nonetheless moved forward Mar. 27, with the landing of 1,000 US paratroopers of the 173rd Airborne Brigade at the Hariri airfield, about 40 miles south of the Turkish-Iraqi border.
Originally planned to accompany the larger and more heavily armored 4th Infantry on the push into northern Iraq, the 173rd was expected to almost triple the size of its initial force, with tanks and Bradley fighting vehicles due to arrive at Hariri aboard C-130 transport planes before presstime last week.
The new plan for the northern front began taking shape early in the week, with US Special Forces landing troops and equipment at Harir and at Sulaymaniyah. More than 200 US Special Forces troops were in the area early Mar. 24, while the arrival of coalition commander Maj. Gen. Henry Pete Osman indicated another key move in the opening of a northern front.
The troops' arrival coincided with sporadic US missile attacks and bombardments of the Iraqi frontlines in Chamchamal and Kalak. The attacks steadily increased until the afternoon of Mar. 27, when the Iraqi frontline atop the ridge separating Chamchamal and Kirkuk crumbled.
The US aerial campaign, which forced the Iraqis to abandon their positions, enabled fighters with the Iraqi Patriotic Union of Kurdistan (PUK) to capture the garrison town of Qarah Anjir, about 16 km to the east of Kirkuk.
PUK military sources said the Iraqi troops were holding only a perimeter on the edge of Kirkuk. They said the Kurds would first consolidate their positions and coordinate with US troops and their former rivals in the Kurdistan Democratic Party (KDP)—posted to the north of Kirkuk—before moving forward.
Meanwhile, Kurdish leaders dismissed suggestions that the Kurds would be kept out of Kirkuk in the light of Turkish concerns that a capture of the oil-rich city could embolden Kurdish moves towards independence.
"This is our area," asserted Mam Rostam, a local senior commander in Chamchamal who has been battling the central government in Baghdad for 35 years. "The Americans will not prevent us from liberating Kirkuk."
Coinciding with the advance of US-led forces, the pipeline from Kirkuk to Ceyhan was said to be operating normally Mar. 28, though throuhgput was less than 100,000 b/d—about 600,000 b/d lower than at the outbreak of the war.