Charterers avoid Israeli-linked ships; war risk insurance at Israeli ports costlier

Oil and refined product buyers across Asia are avoiding the use of tankers that have Israeli ownership, and concerns are growing over a potential increase in war risk insurance premiums if the conflict lingers and engulfs the wider Middle East, shipping executives in Seoul, Singapore and Oslo said over Oct. 27-30.

"The issue is twofold -- one relates to the geographical area in which the tankers are moving and thereby the risk involved," said a chartering executive with a global commodity trading company. The other involves vetting the ownership of tankers, and in this case, charterers are shunning those tankers which have an Israeli stake, the executive said.

Late in 2022, a drone attacked a clean tanker, the Pacific Zircon, while in 2021 the Mercer Street and Helios Ray were attacked using similar modus operandi. Ownership of all three ships could be traced to Israeli businesses. Now with a full-scale conflict going on, safety of ships, cargoes and crew has grown manifold, and charterers have become more circumspect, with many avoiding tankers of nationalities more susceptible to attacks, tanker brokers in Asia said.

Israel-linked tanker owning companies could not be reached for comment.

War risk premiums are projected to strengthen at a time when freight is under pressure and can somewhat offset costs related to geopolitical issues. Long Range 2, or LR 2 freight slipped w3 on Oct. 30 to w167 on the benchmark Persian Gulf-Japan route, according to S&P Global Commodity Insights data.

So far, war risk premiums have increased over the last three weeks only for ships that are calling at Israeli ports, such as Ashkelon, a maritime insurance executive involved in underwriting such premiums told S&P Global. The underwriter warned that the premiums may "rise rapidly" if the conflict widens in the Persian Gulf.

Since the Gulf of Oman has been already categorized as a high-risk area from a maritime insurance perspective for several years, some of the risk is factored in, the underwriter said.

Refined products and crude oil importers sourcing cargoes from the Persian Gulf have been paying millions of dollars annually as additional war risk premiums for over five years now. "So far, no increase has happened since the conflict broke out in Gaza," a chartering executive who hires tankers almost daily said.

The premium varies from tanker to tanker, depending on its size, age, extension depreciation, value and time duration spent in the high-risk area, the executive said. This premium is passed on by owners to charterers based on actual costs incurred.

Charterers in North Asia and Singapore said the additional war risk premium for a single Persian Gulf-North Asia voyage on a Long Range 2 tanker could range anywhere from $5,000 to $60,000 for every seven days combined. Charterers are billed for seven or 14 days, depending on the agreement that varies from ship to ship and there is an incremental amount for every 12-24 hours above this duration that is charged on a prorated basis.