The Portuguese-flagged vessel was seized in the Strait of Hormuz on Saturday for “violating maritime laws”, ahead of Iran’s drone and missile attack against Israel the following day.
Neil Roberts, head of marine and aviation at the Lloyd’s Market Association, told The Insurer the seizure of the Israeli-linked vessel was “a specific example of an existing known risk actually occurring”.
“It would not be a complete surprise to the war market and underwriters will be quoting with developments in mind. Higher risk often necessitates a reaction, but that will be a matter for commercial negotiation,” he said.
Sources told this publication that average war risk rates in the region continue to hover around 1 to 1.5 percent, similar to levels seen at the end of March. However, there remains significant risk detail-driven variation on either side of that range.
While details of the vessel’s insurance cover remain unclear, sources said it is unlikely to be insured within the London market. But one source was adamant that the loss is likely to be “very expensive”.
MSC Aries is 366 metres long, has a gross tonnage of 149,525, and was built in 2020. MSC is understood to lease the vessel from Gortal Shipping, which reports suggest is an affiliate of Zodiac Maritime.
Prospect of regional escalation looms
The seizure of the MSC Aries came shortly before Iran launched several drones and missiles at Israel in its first direct attack on the state.
Naturally, concerns over regional escalation have followed, with Israel's Channel 12 TV citing an unnamed Israeli official as saying there would be a "significant response”.
UN secretary-general Antonio Guterres condemned Iran's attack and said he was "deeply alarmed about the very real danger of a devastating region-wide escalation".
Israel’s war cabinet met on Sunday, Monday and Tuesday to discuss its response to the attack, with many hardliners calling for aggressive and immediate retaliation.
Itamar Ben-Gvir, Israel's national security minister, said that “to create a deterrent in the Middle East, Israel has got to show that it is prepared to go berserk”, while finance minister Bezalel Smotrich said that any hesitation would place “ourselves and our children in existential danger”.
There has been a near unanimous international diplomatic effort to dissuade an Israeli counterattack.
President Joe Biden has reportedly told Israeli president Benjamin Netanyahu that the US would provide no support for a counterattack. This sentiment for de-escalation was echoed by diplomats from the EU, the UK, Germany, France and Russia.
Some hope for restraint may come from comments by defence minister Yoav Gallant and former defence minister Benny Gantz.
Both suggested a response would involve regional cooperation, something that would likely dissuade the more hawkish elements of Israeli leadership.
Supply chain concerns
Any further escalation between Israel and Iran could further pressure global supply chains.
Reuters reported that the commander of Iran’s Revolutionary Guard, Ali Reza Tangsiri, has warned it has the capacity to close the Hormuz Strait and would review its approach towards it “if the enemy comes to disrupt us”.
The World Economic Forum said a fifth of the world’s oil consumption passes through the strait daily, as well as 20 percent of global liquefied natural gas every year.
Oil prices fell to just below $90 in the aftermath of Iran’s attack from a monthly peak of $91.17 on 4 April.
Energy analyst Vandana Hari said the price drop meant "clearly, the oil market does not see the need to factor in any additional supply threat at this point".
Amrita Sen, founder and director of research at Energy Aspects, added: "If the crisis does not escalate to a point that creates supply disruptions, then there will be downside risk over time, but only once it becomes clear Israel has chosen a measured response.”
The airline industry has also been disrupted, with at least a dozen airlines cancelling or rerouting flights since Iran’s attack.
Mark Zee, founder of OPSGROUP, which monitors airspace and airports, said this was the biggest single disruption to air travel since the attack on the World Trade Center on 11 September 2001.
For continued access to market leading content click here to enquire about a subscription to The Insurer - your company may already have a corporate subscription in place…
Scan here to download the app