Despite the fact that the US and Iran seem keen on avoiding further conflict, oil and gas shipowners are preparing to pay a price from the tension that was created after the rocket strikes in Iraq over the last week..
According to Reuters, war risk premiums for tankers sailing through the Strait of Hormuz could increase significantly, adding hundreds of thousands of dollars to shipping costs.
Ship owners pay annual war-risk insurance cover, along with a ‘breach’ premium when entering high-risk areas. These premiums are estimated according to the value of the ship, or hull, for a seven-day period.
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Ship insurers have quoted the breach rate for 7 days at around 0.35% of insurance costs, marking an increase from about 0.15% in December. In fact, a Singapore-based LNG shipbroker estimated the extra costs as significant. As the shipbroker explained, based on the ship, this could add around $150,000 to $200,000 per trip.
However, others in the shipping industry are less concerned, noting that the current pricing of Gulf risks have already been estimated in the possibility of another attack on merchant shipping and thus may not change – unless the situation gets worse.
Nevertheless, Saul Kavonic, analyst with Credit Suisse, claims that in case of a prolonged closure of the Strait of Hormuz, LNG spot prices could increase dramatically, leading to a demand destruction scenario, which could turn the current soft LNG market on its head.
