Escalating geopolitical tensions in the Middle East are casting a heavy shadow over the maritime transport and international insurance sectors. With ongoing attacks on oil facilities in Saudi Arabia and disruptions in the Bab el-Mandeb Strait, the costs of covering political violence and terrorism risks are witnessing a significant increase, imposing unprecedented financial and legal challenges on shipping companies and global supply chains.
Indicators of Marine Insurance Markets and the Impact of the Crisis According to specialized international reports in the insurance sector, the new wave of disruptions has resulted in severe fluctuations in risk assessment and insurance policy pricing. The most prominent features of this crisis are evident in the following points:
Surge in Political Violence Costs: While marine war risk insurance premiums have stabilized at the 3% mark for vessels transiting the Bab el-Mandeb Strait (due to reduced traffic serving as a measurement sample), pricing for "political violence and terrorism" coverage has jumped to nearly 10% for the highest-risk operations, accompanied by a notable decline in the number of policies that insurance companies agree to issue.
Rerouting Energy Paths: Drone attacks led to the closure of the strategic East-West pipeline, prompting energy companies—led by Saudi Arabia—to divert crude oil export routes and increase supplies offered through the Port of Sohar in the Sultanate of Oman to avoid Red Sea risks.
Billions in Expected Losses: The global insurance market Lloyd's projected that losses associated with the ongoing conflict in the Middle East could reach approximately $1.88 billion USD (£1.4 billion), reflecting the scale of financial exposure for companies operating in the region.
The Consultative Vision of Ayman Mahdi Al-Jubouri & Partners These rapid shifts confront commercial and shipping companies with complex legal and financial obligations. The sharp rise in insurance premiums and the reduction in coverage provided by global insurers may lead to contractual disputes over bearing additional costs or delays in the delivery of goods.
We at Ayman Mahdi Al-Jubouri & Partners for Legal and Financial Services emphasize the necessity of taking proactive steps to protect the financial positions of companies through:
Comprehensive Insurance Audits: Reviewing the exclusions and coverages of current insurance policies to ensure they encompass political violence risks and the volatility of war.
Restructuring Commercial Contracts: Activating and amending "Force Majeure" clauses and risk allocation in shipping and supply contracts (Incoterms) to protect companies from sudden, unexpected costs.
Maritime Dispute Management: Providing specialized legal representation in resolving disputes related to insurance compensation and shipping delays caused by security unrest.
