Lloyd's Stands Ready to Work With U.S. on Insurance for Hormuz Transits
War risk insurance remains available for shipping in the Strait of Hormuz and Arabian Gulf, according to Lloyd's of London, despite the decision of some underwriters and reinsurers to back out of the trade. The market is willing to work with the White House on a joint public-private venture to provide cover for shipping in the region, in hopes of kick-starting the energy trade through high-risk waters, Lloyd's Market Association CEO Sheila Cameron told the WSJ.
In a message Tuesday, Trump said that he would order the U.S. Development Finance Corporation (DFC) to provide "political risk insurance and guarantees" for shipping of all nations through the Gulf, at a "very reasonable price." Insurance industry insiders say that this plan would require exceptional amounts of capital, beyond the current resources of the DFC. Private war risk insurance for the Gulf is already available on the commercial market, brokers say, but at exceptionally high price levels - reflecting the high risk of an attack on vessels that defy Iran's closure of the Strait.
"The granting of war cover for the Persian Gulf and Red Sea is and will remain available under specific agreement on a single voyage basis as long as navigation is authorized by governments and flag states. In the current fast-paced situation, insurers will regularly re-examine their ability and willingness to that provide cover," the International Union of Marine Insurers said in a statement Friday.
VLCC spot rates are high enough to make such terms worthwhile for tanker owners, who stand to earn mid-six-figure sums per day for voyages from the Gulf region. One VLCC was reported on subjects at $700,000 per day on Friday, by far the highest rate ever recorded - beating a previous record set earlier this week.
But the insurance part of the equation can only solve the security of the owner's balance sheet; the physical security of the route is a matter decided by nation-states, and is still very much in question.
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"As long as the security situation remains volatile, many shipowners may remain reluctant to transit the strait even if [U.S.] government-backed coverage becomes available," credit rating agency Morningstar told S&P.
Meanwhile, Iran's cargoes continue to sail. The LPG carrier Danuta I - sanctioned by the U.S. Treasury - transited the Strait of Hormuz fully laden with Iranian propane or butane on Friday, AIS tracking shows.
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