The second apparent attack on oil tankers in the Middle East in a month rekindled tensions in the region and had the oil market forget, at least for a day, the increasingly gloomy outlook on global oil demand growth.
Oil prices jumped on Thursday when news of the suspected tanker attacks broke, due to the geopolitically stocked fear of supply disruptions.
However, the latest incidents near the world’s most important oil flow chokepoint, the Strait of Hormuz, could have a lasting impact on the price of oil as ship owners, marine brokers, insurers, and reinsurers are already lifting premiums for insuring tankers passing through the region and are charging higher freight rates for shipping oil out of the Middle East.
On Thursday, two oil tankers were attacked in the Gulf of Oman, just outside the Strait of Hormuz, which connects the Persian Gulf with the Gulf of Oman and the open seas. The daily flows of oil through the Strait of Hormuz accounts for around 30 percent of all seaborne-traded crude oil and other liquids.
Iran’s Foreign Minister Mohammad Javad Zarif tweeted that “Suspicious doesn’t begin to describe what likely transpired this morning,” referring to the attacks.
The United States blamed Iran. “It is the assessment of the U.S. government that Iran is responsible for today’s attacks in the Gulf of Oman. These attacks are a threat to international peace and security, a blatant assault on the freedom of navigation, and an unacceptable escalation of tension by Iran,” U.S. Secretary of State Mike Pompeo said.
The escalation of tension follows last month’s incidents with four oil tankers near the United Arab Emirates (UAE) and a drone attack on a key onshore oil pipeline in Saudi Arabia. After the attacks in May, the Joint War Committee of Lloyd’s Market Association—which includes underwriting representatives from both the Lloyd’s and the International Underwriting Association (IUA) of London—raised the security-risk status of several areas in the Persian Gulf and surrounding waterways. This expanded list of “areas of perceived enhanced risk” is the highest security risk in the region since the Iraq war in 2005.
Since the attacks in May, insurance premiums have already increased by 5 percent to 15 percent, ship owners told The Wall Street Journal on Thursday, noting that shipping rates and premiums are bound to increase further after the latest attacks.
These higher rates are likely to seep through the crude oil prices.
DNK, the Norwegian Shipowners’ Mutual War Risks Insurance Association that had insured one of the tankers attacked on Thursday, will be raising its war risk insurance, a person familiar with the issue told Bloomberg.
Another insurer, Hellenic War Risks, said that “Although full details of the incidents are yet to be confirmed, there does appear to be a greatly increased threat to ships trading in the region. It is likely that Additional Premium rates will increase with immediate effect and the Association is in discussions with its reinsurers to assist in it continuing to be able to provide Members with the best possible terms.”
INTERTANKO, the tanker association representing most of the world’s independent oil tanker fleet, condemned “in the strongest possible way such acts which threaten not only innocent human life but the fragile environment of the region and global trade as a whole.”
INTERTANKO chairman Paolo d’Amico, said that looking longer term, “We need to remember that some 30% of the world’s crude oil passes through the Straits. If the waters are becoming unsafe, the supply to the entire Western world could be at risk.”
Jakob P. Larsen, head of Maritime Security at the world’s biggest international shipping association BIMCO, said: “Following the two most recent attacks, and while we await the results of the investigations of the attacks, the tension in the Strait of Hormuz and the Persian Gulf is now as high as it gets without being an actual armed conflict.”
Cleopatra Doumbia-Henry, president of the Sweden-based World Maritime University, warned that the latest attacks would have “significant consequences” for the shipping industry as they affect the costs of operation and oil tanker capacity.
“It also has implications for insurance, the crew and additional protective measures needed to keep ships moving,” Doumbia-Henry told Al Jazeera.