Insurance rates rise for tankers in Persian Gulf

March 24, 2003
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.

By an OGJ correspondent
NICOSIA, Mar. 24 -- 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 in 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 last week 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.

Determining the level of risk in the region is especially difficult since almost all ports say that operations are proceeding normally, with no disruption to traffic.

Even the Iraqi navy poses little or no threat whatsoever, according to US Navy Rear Admiral Clyde Marsh, who is commanding US Task Force 51, which provides close range air support to Marines with Harrier jets and helicopters.

"I don't see a great naval threat—most of it has been neutralized," Marsh said, adding that, "Most of the Iraqi navy (ships) have not come out of the Khawr Abd Allah (waterway) area." He said, "There are some vessels in the KAA—I don't know the numbers, and I don't know if they are waiting to come out or not. But, it is possible that they have been abandoned."

Still, no one can discount the possibility of attacks on shipping that could be launched by regular or even irregular components of Iraq's military forces, including remnants of its navy. Attacks could be mounted by the special security organization of Iraqi President Saddam Hussein or even the Saddam Fedayeen, which mounted stiff opposition to US and UK forces in the port of Umm Qasr and around the oil export facilities of the Faw peninsula during the weekend.

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, anti-shipping 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 2 Russian-made Al-Harith anti-ship cruise missiles, each 6 m long and 1 m in diameter, and 9 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 that, "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 more than eight times that amount at 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 Saturday 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. Japan's Cosmo Oil Co. is one of them; company officials said they decided to obtain some 300,000 barrels of oil from the United Arab Emirates, Oman, and other countries instead of Kuwait.