Morningstar: US oil tanker insurance plan won’t lower gas prices

The world’s most critical energy artery has ground to a functional halt this week as the global maritime insurance market effectively severed ties with the Strait of Hormuz amid the Iran hostilities.

Following a series of retaliatory strikes between the U.S., Israel, and Iran, leading insurers have triggered emergency cancellation clauses, leaving hundreds of vessels stranded and global energy markets in a tailspin. Consumers are feeling the pain at the pump, where gas prices are up an average of 27 cents this week, AAA reported.

In the hopes of reversing that trend, President Donald Trump announced that the U.S. International Development Finance Corp. will begin offering "political risk insurance" at "reasonable prices" to commercial tankers.

In a research note released Thursday morning, Morningstar stated that the move is unlikely to lower gas prices in the short term.

"We believe that government-provided primary insurance may have limited success in clearing the current shipping backlog," wrote Marcos Alvarez and Elisabeth Rudman, managing directors for Morningstar Global Financial Institution Ratings. "The principal constraint facing shipowners is not only insurance availability but also the heightened navigation risks in the region."

As of Thursday, major maritime insurers -- including Gard, Skuld, NorthStandard, the London P&I Club, and the American Club -- have officially terminated war risk coverage for ships transiting the Gulf and Iranian waters.

Insurers cite an inability to calculate risk after the Iranian Revolutionary Guard Corps threatened to "set ablaze" any vessel attempting to pass. Approximately 150 to 200 vessels, including massive oil and liquified natural gas tankers, have dropped anchor outside the strait, unwilling to sail without the financial protection required by international law.

"Missile attacks, drone strikes and vessel damage have materially increased the probability of loss," the Morningstar note reads. "Insurance alone does not materially reduce the operational risk faced by crews and vessels."

Costly voyage

For the few operators still willing to navigate the 21-mile-wide chokepoint, the price of entry has become prohibitive. War risk premiums have jumped from roughly 0.2% of a ship's value to over 1% in just 48 hours.

For a $100 million supertanker, the cost for a single week-long voyage has surged from $200,000 to $1 million. Shipping rates for crude oil to Asia hit an all-time high of over $423,000 per day on Monday, a nearly 94% increase from the previous week.

"War risk premiums can increase sharply during periods of conflict, which may discourage shipowners from transiting high-risk regions even when coverage remains available," Alvarez said in a news release. "Targeted support mechanisms could help [in] maintaining shipping flows without displacing private insurers from the market."

The "insurance-driven" blockade has already triggered a "force majeure" declaration from QatarEnergy, halting 20% of the world's LNG supply. With 10% of the global container fleet also "caught up" in the closure, analysts are speculating on secondary inflation shocks as supply chains for electronics and drugs are disrupted.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.