Shipping insurance rates surge as Strait of Hormuz and Bab al-Mandeb face disruptions

Maritime insurance prices have soared amid shipping disruptions in the Strait of Hormuz and are also rising for vessels traversing the Bab al-Mandeb, with both waterways – critical channels for the global economy – now theatres of war.

Yemen’s Iran-aligned Houthi group announced a blockade of Saudi Arabian ports and ships in the Bab al-Mandeb Strait, which connects the Red Sea to the Indian Ocean. This comes on top of ongoing disruptions in the Strait of Hormuz due to the US-Israel war on Iran. Tehran has insisted that ships consult it before trying to pass, while the US has imposed a naval blockade of Iran-linked ships.

According to S&P Global data, only ten vessels passed through the Strait of Hormuz on Tuesday, down from 16 on Monday. An explosion set a tanker ablaze in the strait after it attempted to navigate the southern route off the coast of Oman, the Islamic Revolutionary Guard Corps (IRGC) said, warning that the strait is completely closed as long as America’s “evil deeds” continue.

Before the war, an estimated 120-140 vessels crossed the strait daily, roughly half of them oil tankers moving approximately 20 million barrels per day. Traffic has since collapsed to as few as two tankers a day at the height of the conflict.

Insurance costs have surged dramatically. War-risk insurance in the Hormuz waterway used to constitute between 1% to 3% of a ship’s hull value but has now increased to between 7.5% and 10%. In the Bab al-Mandeb, premiums are at 0.5% of hull value, compared with 0.1% for ships navigating the Red Sea near western Saudi Arabia.

The cost to ship a 270,000-metric-tonne cargo of crude from the Gulf to China reached $77.96 per metric tonne, four times the five-year average of $18.91. At that rate, insurance for a tanker could cost about $21 million. Transit through the Bab al-Mandeb fell sharply by 30% on Tuesday, with total crossings dropping to 29 vessels from 41 on Monday.