A surge in “war risk premiums,” additional payments levied by insurers, has been communicated to ship charterers engaged in operations within Russia's Black Sea ports, according to four traders as reported by Reuters.
The escalation of military activities in the Black Sea region, particularly around Russian and Ukrainian Black Sea ports, has transpired following the unravelling of a grain export agreement in mid-July. Recent incidents have also seen Russia's Black Sea ports targeted in multiple attacks, and while oil loadings from these ports remain so far unaffected, the mounting risks are triggering concerns among traders.
The “war risk premium,” initially around 1% of the cargo's value, has now escalated to a range of 1.20% to 1.25%, as cited by the traders. This increase translates to an additional expense of $200,000 for each voyage of a Suezmax tanker, capable of carrying 120,000 to 200,000 tonnes of cargo, transporting Russian oil to India. Consequently, the elevated premium would contribute almost $1 million to the total cost.
Reuters noted that although the absolute sum is not huge, it further compounds Russia's overall oil export expenses. These costs have experienced significant growth since February 2022 due to sanctions. During the peak of the Russian supply and sanctions crisis, companies from Russia were allocating up to $20 million per tanker to cover insurance, shipping, and freight costs – an amount surpassing one-third of the cargo's total value.
Traders have highlighted that this increase primarily applies to shipments involving Russian oil and related products. In contrast, cargoes carrying volumes of Kazakh origin have maintained a generally stable premium of around 1%.
“Volumes originating from Russia carry elevated risks compared to others. The current situation has provided insurers with substantial grounds to raise prices for all operations within Russian Black Sea ports,” one trader said.
Beyond the realm of oil, concerns about the security of grain shipments have surfaced among traders, according to Reuters. The heightened war risk premium for oil tankers reflects the widening apprehensions across broader markets.
In another recent development, Ukraine is reportedly close to securing an insurance deal with the likes of Lloyd’s to provide coverage for grain ships plying the Black Sea into and out of the country.
What are your thoughts on this story? Please feel free to share your comments below.