Gulf War Risk Insurance Crisis Signals Shipping Cost Shock

The ongoing Middle East conflict is disrupting global shipping and marine insurance, particularly in the Persian Gulf and the Strait of Hormuz, two of the world’s most critical corridors for crude oil and LNG.

This development is expected to significantly raise freight costs and have an impact on global energy markets. As a result, India can face elevated fuel and import prices.

Insurers Pull Back War Risk Coverage As Conflict Escalates

The insurance cancellations take effect from early March, with most major Protection and Indemnity (P&I) clubs and reinsurers withdrawing the specialised cover for vessels entering Iranian waters, the Persian Gulf and adjacent areas. These special insurance policies traditionally protect shipowners and charterers against loss or damage due to war, terrorism and related perils.

• Among the insurers cancelling or reconsidering coverage are Gard, Skuld, NorthStandard, Steamship Mutual Underwriting, Assuranceforeningen Skuld, the American Club and the London P&I Club.

• In India, the state-owned reinsurer General Insurance Corporation of India (GIC Re) has also withdrawn marine hull war-risk cover, effective from March 3, increasing risk exposure for vessels with Indian cargo or ownership.

The impact has been immediate. Shipowners have become hesitant to send vessels into waters without a comprehensive insurance cover.

According to the Joint War Committee (JWC), the high-risk marine area in the Gulf has been expanded (now incorporating waters around Bahrain, Djibouti, Kuwait, Oman and Qatar). This move could further restrict operational zones, which were previously considered safe for shipping.

Rising Insurance Costs And Freight Charges

Even where coverage exists, the premiums have surged. Primary industry estimates show that new insurance costs have already increased around 5x, adding hundreds of thousands of dollars to the cost of each shipment. Industry sources suggest premiums could rise from around 0.25% of vessel value to as much as 1% or more in the current risk environment. Increased charges apply to both hull insurance (protecting the ship itself) and cargo insurance, which is calculated on the value of the goods the vessel is carrying.

Many global oil tankers and container vessels moving essential goods are considering or already implementing surcharges of $1,000–$4,000 per container on Gulf routes.

Also Read - BoB Raises ₹10,000 Crore Through Green Infra Bond Issuance

Outlook And Risk Factors

• While some insurers remain willing to underwrite Gulf transit at increased premiums, industry experts say that if the conflict continues or escalates, costs could climb further, and several carriers may choose to avoid the route entirely. This would continue to reduce shipping capacity and lift freight rates globally.

• Traders and freight brokers warn that if the insurance coverage remains unavailable for longer periods, alternative routes (like the Cape of Good Hope) could become the default for global shipping, adding over 10–14 additional days of transit time and increasing fuel costs.

• India imports nearly 90% of its crude oil and a significant share of its LPG and LNG from Gulf suppliers. Therefore, any further escalation in costs could have major implications for inflation, trade balances and industrial competitiveness.

• In addition, the Indian rupee has weakened to fresh lows against the U.S. dollar, adding further pressure to import bills. On March 4, the rupee tumbled to around ₹92.16 per dollar amid heightened risk-off sentiment globally, making fuel and commodity imports even costlier.

• A combination of higher insurance premiums, freight surcharges and weakening currency could add upward pressure on petroleum products, LPG, fertiliser feedstocks, and a range of industrial imports.

Sources:

NDTV Profit

ET

Business Standard