By Abbas Nazil
Rising geopolitical tensions in the Middle East, particularly between Israel and Iran, could trigger a significant surge in maritime war risk premiums, further straining global shipping and energy markets, industry sources have warned.
The concern follows recent Israeli attacks that have heightened fears of direct retaliation from Iran, potentially impacting shipping routes across the Persian Gulf and the Red Sea.
Currently, vessels operating in the Persian Gulf pay an additional war risk premium (AWRP) ranging from 0.05% to 0.07% of a ship’s hull and machinery (H&M) value for a seven-day transit.
This rate has remained largely unchanged for the past 18 months despite ongoing instability.
However, should the conflict intensify, insurance charges and freight rates are expected to rise sharply, with downstream effects on global trade costs.
A charterer highlighted that naphtha importers in North Asia are already incurring charges of up to $50,000 per voyage due to the region’s classification as a High-Risk Area (HRA) by a consortium of maritime insurers—a designation that has been in place for six years following a spate of attacks on oil tankers, including the high-profile incident involving the LR2 tanker Front Altair in June 2019.
While insurers offer cost relief for large fleet owners—such as allowing longer transits or combining multiple voyages within the same fleet to reduce fees—overall shipping expenses remain high.
A Very Large Crude Carrier (VLCC) broker noted that even with discounts, increased risk will raise costs that charterers will ultimately bear.
Any Iranian retaliation could therefore drive up cargo prices, insurance fees, and overall freight charges.
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The timing of the current escalation is particularly concerning, as it comes amid renewed efforts to normalize maritime activity in the Red Sea.
Some shipowners had recently begun favoring the Suez Canal route for its shorter delivery times, despite higher transit costs.
Distillate shipments from ports like Sikka in western India have increased via the canal to save time, while shipowners in the Mediterranean—especially those of Persian and Greek origin—have continued to use the Red Sea route, often charging a freight premium.
Despite these developments, fears of renewed conflict threaten to undo this fragile normalization. Security concerns still discourage many owners from using the Red Sea, even though voyages to Europe from the Persian Gulf via this route are up to two weeks shorter than those around the Cape of Good Hope.
War risk premiums in the Red Sea were previously around 0.4% to 0.5% of H&M value for a seven-day passage, and these may rise again if tensions escalate.
Some cargo movements, particularly on long-range (LR) tankers from the Persian Gulf to Africa, require charterers to pay a fixed \$150,000 in additional costs, including security measures like armed guards.
Meanwhile, naphtha deliveries on the Red Sea–North Asia LR1 trade route are currently at a w20 premium over Persian Gulf loadings, down from w120 earlier in 2024.
Gasoline shipments from the Red Sea to Singapore on MR tankers have seen freight premiums rise from w110 to w130.
One of the more dramatic shifts noted by brokers is the reversal of a $600,000 premium—previously associated with voyages from the Red Sea into the Persian Gulf compared to the Red Sea to Europe route—into a discount of the same amount.
This underscores the volatility of the current market and the growing influence of geopolitical developments on freight pricing.
According to a tanker broker closely monitoring these dynamics, further changes to war risk premiums and freight rates are highly likely if hostilities between Israel and Iran intensify, impacting both Persian Gulf and Red Sea operations.
